By Tina Barrett
Nebraska Farm Business Inc. recently completed its financial averages for 2016. These averages represent the 120 farms across the state participating in this financial analysis program.
Nebraska Farm Business provides producers with a comprehensive analysis of the financial health of their business. Each year the data collected from these farms' records is averaged to provide participants with information to benchmark their operations. Taking a closer look at these averages indicates shifting trends across these farms and ranches.
The average data shows several surprises, including an increase in net farm income from $29,432 in 2015 to $45,703 in 2016. This is the first increase in net farm income since 2011, but it is still lower than any other year (other than 2015) since 2002. In 2015, 44% of the operations saw negative net farm income, while in 2016, only 30% did with a majority of those being predominately livestock operations. The income for crop operations (more than 70% of their gross income comes from crops) rebounded to the 2014 levels after a drop in 2015, but the operations with a significant beef component saw continued losses.
Debt also increased
Not all the surprises were good surprises. The level of total debt carried by each operation jumped 13% from 2015 to 2016. Gross income also increased, possibly indicating that the size of operations increased. However, this continued increase in risk is something operations need to be concerned with. Since 2004, the average debt per acre has more than doubled (see table).
TABLE: Difference in average debt from 2004 to 2016 for farms and ranches participating in a Nebraska Farm Business Inc. analysis.
It should be noted that there is certainly a factor for livestock operations that would have debt without crop acres that this simple comparison doesn't capture, but the fact remains that the rising total debt must be serviced by the same number of acres. This dramatically increases the risk of not being able to repay the debt.
Another good surprise was in family living. We have seen costs dropping slightly from the peak of spending in 2012, but this was the first time we approached a drop of more than 10%. The average family living costs in 2016 were $83,210, compared to $91,991 in 2015. The largest drops came from personal care, recreation and miscellaneous expenses. Cash donations and household repairs were the other large drops. The only significant category to increase was food and meals. One other item to note from family living is that 2016 was the first time in over 10 years that more money was pulled out of savings than was put in. This is an indicator of the continued cash flow crunch.
That cash flow crunch is most accurately measured by Working Capital, which saw no significant improvement in 2016, even with a large amount of refinanced debt (restructuring debt from the current position to a long term). Without adequate working capital, an operation will struggle to pay their bills and service the mounting debt.
While the increase in net farm income is significant and a positive sign that the farm economy is trending in the right direction, it is still too low to create a return on the significant investment of a farming operation with an addition of payment for the labor and management for the operator. Farm operators will need to continue to be diligent in the management of every aspect of their operation to ensure the survival of the business.
New service for beginning farmers
Beginning farmers interested in developing strong financial information for their operation may be interested in a new opportunity being offered by Nebraska Farm Business: a Beginning Farmer Analysis Program for those who have been farming for less than five years. The goal of the service is to provide information and analysis to help the beginning farmer better understand the costs of the operation and make sound financial decisions. The five-year program includes a free analysis the first year.
Barrett is executive director of Nebraska Farm Business Inc. This report comes from UNL CropWatch.