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Monday, October 12, 2015

Working Capital on the Farm

ifr151016–130
Working Capital on the Farm
Gary Schnitkey, Extension Agricultural Economist - University of Illinois

Low commodity prices are quickly eating into the reserves farmers built up over the last several years. Todd Gleason has more on agriculture’s ‘working capital’.

Farmers built up working capital reserves over…
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Farmers built up working capital reserves over a six year period lasting from 2006 to 2012. Those reserves have been tapped each year since then in order to keep operations running smoothly says University of Illinois Agricultural Economist Gary Schnitkey. However they’re still well above the average from little more than a decade ago.

Schnitkey :25 …2004 when it was average close to $200.

Quote Summary - The average grain farm enrolled in the Illinois FBFM record keeping service had $588 of working capital per acre at the end of 2014. Working capital is current assets minus current liabilities. This is up considerably from 2000 to 2004 when it was averaging close to $200.

Those numbers are a bit deceiving. The spread isn’t $388, but in an equivalent world more like $188 per acre. Meaning today’s farmer has about fifty percent more working capital than his counterpart of the early 2000’s. That was at the beginning of this year says Schnitkey.

Schnitkey :15 …erosion of half of the working capital that exists out there.

Quote Summary - And we are estimating something like an $80 loss in working capital for this coming year. So, we are likely to see an $80 loss or roughly an erosion of half of the working capital that exists out there.

By this coming year, he means the end of the current marketing year for the crop just harvested and things begin to spiral from there. If 2016 is like 2015 then the working capital left on the farm will be very similar to the turn of the century period.

Schnitkey :26 …income and subtract out family living withdrawals.

Quote Summary - To come up with working capital you look at the income from the farm, subtract out land costs, any changes in financing that happened during the year, and any machinery purchases, then add back in other income and subtract out family living withdrawals.

Here’s how that calculation differs across acreage classes in Illinois. On owned acres working capital is down $11 this year from last. Working capital for cash rented property is estimated to be down by $121 per acre. Working capital on share rented acreage declined by $72.