DTN Ag Business Benchmark
Marcia Zarley Taylor DTN Executive Editor
Mon May 18, 2015 11:09 AM CDT
(Page 1 of 2)

HADDONFIELD, N.J. (DTN) -- If Minnesota crop farms are any indication, low commodity prices and low yields since 2012 already have taken a severe toll on farm finances. And that's before 2015's gloomy price forecasts compound the damage.

Minnesota records on 955 farms showed a collapse in farm incomes for 2014 -- even with corn sales averaging $4.37 per bushel and soybeans $11.67. (Chart courtesy of the University of Minnesota's Center for Farm Financial Management)

Another year of low or negative earnings -- requiring producers to dip into working capital to cover fixed-debt payments -- "will almost certainly expose some major financial problems," cautioned economist Dale Nordquist, associate director of the University of Minnesota's Center for Farm Financial Management, in a recent report.

Nordquist analyzed 2,183 Minnesota farm business records, finding a huge disparity between 2014 returns for livestock producers vs. crop producers. Livestock profits rebounded across the board, led by dairy with earnings up almost 200% from year-earlier levels. Hog farm earnings more than doubled, to a median of $202,000, up from $80,000 in 2013.

Crop income suffered in comparison on the 955 crop farms studied. It plunged 65% below 2013 levels, to a median of $17,003 per farm. That's down from a peak of $262,000 in 2013. This steep revenue collapse resulted from a combination of disastrous prices and below-normal 2014 yields. States like Illinois escaped that yield damage, but Minnesota's experience demonstrates how fast multi-year losses can erode healthy balance sheets.

Adding to Corn Belt credit concerns are USDA's gloomy price projections for 2014 and 2015 crops. On Tuesday, USDA lowered its estimates of 2014-season average cash corn prices to $3.65 per bushel -- that's the lowest in seven years and about $2 per bushel below the recent four-year average. USDA also downgraded 2014 soybeans to an average of $10.05 per bushel.

While it's still early in the 2015 season, experts had been forecasting a wide range of price outcomes. Most optimistic has been a University of Illinois forecast of cash corn at $4.25 per bushel and soybeans at $9.75. In contrast, bearish commodity analysts at JP Morgan now peg 2015-crop cash corn at an average of $3.50 and soybeans at $9.00.

One thing most forecasters agree on is that 2015 prices are critical in determining the Corn Belt industry's financial health.

"We've been in touch with lenders across the state, and they tell us they've shut down very few operations so far this season," Bob Craven, director of the Minnesota center, told DTN. "But for people with high leverage and who are paying top-dollar rents, it's a worrisome year and it doesn't look like there's a lot on the horizon that can improve it."

Among the warning signs flagged by the Minnesota report:

-- Crop farms statewide lost 40% of their working capital (inventory values and other liquid assets) in just the past two years.

-- Those operators under 30 -- the most vulnerable age bracket of farmers -- saw their ratio of working capital to gross income slide from 24% in 2013 to only 15% in 2014. (Most experts recommend 25% for a safety level, with 10% levels considered high risk).

-- Working capital on highly leveraged farms (debt-to-asset ratio over 60%) experienced even more severe erosion in their working capital. As a percent of gross income, it declined to 6% at year-end 2014, down from 10% a year earlier.

-- The top 152 most highly leveraged crop farms ended the year with negative working capital. That means they'd likely need to liquidate assets -- or if they owned land with substantial amounts of equity, at least mortgage more of it -- to make current debt payments.


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