Economic Tidbits

Tale of Two Farms

Two weeks ago, Tidbits reported the USDA estimated net farm income statewide rose in 2019 reaching $4.2 billion. This week, the focus narrows to look at financial conditions at the operation level. Each year, the Nebraska Farm Business, Inc. (NFBI) issues a report detailing financial data of Nebraska agricultural operations who participate in its programs. The report paints a detailed picture of the financial status of Nebraska agricultural operations and the profitability of different enterprises on these operations. Tina Barrett, director of NFBI, shared the financial highlights from 2019 on a webinar sponsored by the UNL Dept. of Agricultural Economics. A recording of the webinar can be found at https://farm.unl.edu/financial-state-ag-nebraska-producers-102220-webinar and additional information can be found on the NFBI website at www.nfbi.net.

Like the USDA estimate, the average net farm income (on an accrual basis) for the NFBI group increased in 2019 to almost $105,000 per operation, the fourth consecutive year average income has risen. The average, though, belies a marked and growing spread and variability among operations and between the one-third most profitable operations and the one-third least profitable—a veritable tale of two farms. For example, the least profitable operations had an average farm income of -$122,000 last year while the most profitable had an average of $322,000. According to Barrett, the income spread between the two groups has widened in recent years. Another example, the working capital to gross revenue ratio, a measure of whether an operation can meet its debt obligations over the next 12 months, was 0.1 percent for the lowest one-third and 32.6 percent for the top one-third. A ratio less than 10 percent indicates trouble. Barrett says the discrepancies between operations aren’t so much due to prices received or yields, but to differences in direct expenses. The most profitable operations have lower per acre costs compared to the least profitable.

Barrett expects farm income to increase in 2020 with the recent upturn in commodity prices and COVID assistance payments. Her sentiment is shared by Dr. Brad Lubben with UNL Dept. of Agricultural Economics who forecasts an increase in statewide farm income this year as well. If the projections materialize, it will mark the fifth consecutive year of rising farm incomes.

Other Factoids from the NFBI report . . .

  • Of all operations participating, 20 percent of operations had negative income in 2019, and 16 percent had positive income, but it was less than the poverty level for Nebraska.
  • Average total debt per operation was $1.4 million in 2019, an increase of 40 percent over the past five years.
  • Irrigated seed corn and field corn had positive returns over all costs in 2019. Irrigated soybeans, dryland corn and soybeans, and wheat had negative returns.
  • Beef enterprises, both feedlots and cow/calf enterprises, struggled in 2019. The average return per cow relative to all costs was -$501 last year.
  • There are regional differences in profitability for enterprises. For example, operations in south central and northeast Nebraska had negative returns for dryland soybeans. Yet operations in southeast Nebraska had positive returns for the same enterprise.
  • One-third of the operations entered 2020 with negative working capital—the operations did not have enough cash on hand or inventory to sell to pay its short-term debts. On the other hand, 17 percent of the operations entered the year with a working capital to gross revenue ratio of greater than 80 percent, meaning there was no need to borrow to finance operating expenses.

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