Economic Tidbits

Largest 1-Year Drop

Reduced net farm income last year was expected. However, figures released by the Nebraska Farm Business, Inc. (NFB) showed the decline, at least for NFB clients, was the largest since 1976. Tina Barrett, Director of NFB, said the average net farm income for the producers it works with was $38,000 last year. In contrast, the 2022 average exceeded $500,000. Barrett shared the figures during a webinar sponsored by the Center for Agricultural Profitability at the University of Nebraska-Lincoln. NFB works with over 400 Nebraska farmers and ranchers to help them with record-keeping and management through financial analysis.

NFB figures indicate 2023 was a turning point for Nebraska agriculture, and not in a good way. Forty-four percent of producers had negative returns last year. The last time the share was that high was in 2015. Just 10 percent had negative returns in 2022. Not surprisingly, the drop in income resulted in a decline in the average net worth for the first time since 2016. 

Poor farm income also resulted in the deterioration of liquidity and solvency measures used to measure farm financial health. Liquidity measures the ability of operations to cash flow over the next 12 months while solvency measures financial health beyond 12 months. One measure of liquidity is the ratio of working capital-to-gross revenues. A ratio below 10 percent is problematic while one above 30 percent is considered good. Barrett reported 69 percent of NFB producers had good liquidity ratios, with 35 percent having a ratio above 80 percent (Figure 3). However, 13 percent finished 2023 with negative ratios and 20 percent were below the 10 percent threshold.

The debt-to-asset ratio is used by NFB to gauge operations’ long-term solvency. A ratio above 60 percent indicates trouble while one below 30 percent shows strong financial health. Last year the average for the group was 27 percent, slipping slightly from 25 percent in 2022. However, it should be noted, the 2022 measure was the lowest since 2012. The growth in the number of producers with a ratio of greater than 80 percent is concerning.

FIGURE 3. FINANCIAL RATIOS, PERCENTAGE OF FARMS IN EACH CATEGORY

Source: Tina Barrett, Nebraska Farm Business, Inc., Center for Agricultural Profitability, University of Nebraska – Lincoln, June 6, 2024.

Barrett fears production agriculture is heading for a repeat of 2015-2016 when tight margins created financial stress. She says cost control along with making sure an operation’s financial situation can withstand a couple bad years will be important. Barrett’s presentation can be found here.

Nebraska Farm Bureau has partnered with Nebraska Farm Business Inc. to provide Farm Bureau members a 10% discount on their Farm Financial Analysis product.

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