Table 1 shows just a few comparative factors between 2002 and 2015 for a group of farmers I work with through Nebraska Farm Business, Inc (NFBI). Other than net farm income and average crop acres, very little is the same. Some things are much improved, such as Debt-to-Asset Ratio and Working Capital to Gross Revenues. Others show areas of concern such as the risk of carrying higher debt and the much higher cost of living. It is also interesting to think back to a time when soybeans were less than $5 per bushel and we were very happy about an average corn price above $2 per bushel!

Net Farm Income

When examining the group of farmers served by the Nebraska Farm Business, Inc., the 2015 average accrual net farm income was $29,432.  This is a drop of over 80% from the 2013 and 2014 net farm incomes, both of which were about $175,000. While all segments of the farm economy dropped in net farm income, the beef industry dropped the furthest with the tough margins in the feedlots. For the first time in many years, a significant number (44%) of these operations saw negative net farm income. While this is reasonable in the short term, these operations obviously can not withstand these losses in the long term. This is an extreme difference from just four to five years ago when we didn’t see a single operation with a negative net income.

In 2015 we started to see some costs of production come down slightly. For example, the total cost per acre for Irrigated Corn on Cash Rented Ground decreased almost $40 per acre. With that reduction, a tie for record high yield and most producers receiving a large ARC payment, there was an average profit. The profitability range was very wide with the high profit third of this farmer group making almost $300 per acre more than the low profit third. While income (yield and price) made up for half of the difference, the other $150 per acre came from cost control.

Top vs Bottom

One of the things the data shows us each year is that there is a wide range of profitability among producers. This is often hard for many people to grasp because they assume everyone is dealing with the same challenges. The reality is everyone deals with challenges their own way and we are seeing some big differences between those who have taken a proactive approach and the average operator.

Debt

Over the past few years we have been watching the amount of total debt climb among our farmer group (Figure 2). In 2015 we saw another overall increase to $1,030,675. (This reflects a much larger trend for farm debt, according to a May 12 Ag Credit Survey report from the Federal Reserve Bank of Kansas City.  See Farm Debt Accumulating.)

While the growth has slowed there are a few new trends developing within the total debt. We are seeing a rapid decline in the health of the current position of many farms.

• Average working capital to gross income has dropped to under 30% on average for the first time since 2006.
• At the beginning of 2015, 12% of the farms in the NFBI database had negative working capital. By the end of the year, that number had doubled to 24%.
• At the same time, those sitting with more than 80% working capital to gross revenues only dropped from 20% to 18%, showing that those operations in good shape, stayed that way.

Family Living

There is good news when it comes to family living expense as we saw the first major decrease in costs in 2015 (Figure 3). Out-of-pocket spending is down almost 8% from the high in 2013 to $91,991. Income taxes also dropped to $30,727. While these are encouraging to see, the combined accrual net farm income and non-farm wages received are only about $47,000. This shows why over 56% of the farms included in the average saw a negative net worth change. At the same time, the profitability of the past 10 years built a lot of net worth for most farms. Using some of this net worth is not a cause for extreme reaction, but it is a red flag that changes need to be made soon. Continued reduction in spending and/or increases in nonfarm income will be vital for many operations to survive the next few years.