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May 1, 2011
KFMA Newsletters
and articles that discuss topics of general
KFMA Newsletter … More information on this topic
can be found in the article …
April 1, 2011
KFMA Newsletters
and articles that discuss topics of general
interest.
Michael … Those interested in this topic are
encouraged to download …
July 1, 2009
KFMA Newsletters
and articles that discuss topics of general
interest.
A … features more livestock topics than in previous
years …
October 28, 2013
Risk Management Strategies
price hedge and is one of the topics to be fully explained in …
May 18, 2018
Risk Management Strategies, Grain Market Outlook
futures contracts was a topic of discussion at the 2018 …
December 1, 2015
KFMA Newsletters
3
can’t prove it statistically, it would appear to me that the financial health of the average KFMA Association farm is
certainly in one of the strongest positions financially ‐ if not the strongest financial position ‐ in the 84 year history of the
Association program. I might also add that during this time period we have had some favorable income tax laws, in
particular rapid depreciation methods such as Sec 179, and bonus depreciation that has encouraged reinvestment in the
farm business and the deferment of the tax liability to some future years.
As we turn our attention to the 2014 KFMA SC data on 208 farms, and compare them to prior year’s data, there are
certainly concerns regarding some of the numbers. Accrual net farm income was $52,996, which is the lowest figure
since 2005. Nearly the entire drop in net farm income from 2013 to 2014 was attributed to a drop in gross farm income.
Total farm expense in 2013 was $458,045 compared to $455,611 in 2014. Debt per crop acre was $298 at the end of
2014 compared to $199 at the end of 2008. (Bill Collins, a retired KFMA SC Economist, used to say that farms acquire
debt in good years and pay them off in bad years. This appears to be the case once again.) Working capital dropped
from 2013 when it was $311,546 to $237,324 in 2014. As of this writing, the cash price for 2015 crops look something
like this: wheat $4.23, corn $3.56, beans $7.87 and milo $3.14. By my cost estimates (including a land charge and
machinery depreciation), and using average yields, all of these prices are below the cost of production. I recognize that
cattle prices remain high. However, the cattle influence on the average KFMA SC farm is minimal compared to grain
farming. Given the context of this price environment these 2014 numbers are of concern.
This brings me to a topic that is not focused on enough, but one I want you to become more familiar with. The term is
capital debt repayment capacity, or to use the term I have used for many years simply, debt servicing ability. How much
capacity does your farm have to service debt? Every business has a limit on how much debt can be serviced without
impairing the production efficiency of the business, or worse the financial capability of sustaining itself long term. This
repayment capacity might be defined as:
=Net Farm Income + Depreciation + Non‐Farm Income – Family Living Expense + Interest on Term Debt
You can easily calculate this for any year by looking back at past years income tax returns by specifically looking at
Schedule F. (I realize that your tax return is not accrual adjusted so looking at your profit link analysis would be a better
source.) Supplement that with Non Schedule F income, and your family living expense, and you basically have identified
the repayment capacity of your farm as it was during those past years. Looking ahead will require some adjustments;
however, as profitability going forward will not be as strong as prior years as we have already outlined. Preparing a cash
flow for the coming year will give you a better idea as to the current repayment capacity of the farm. In regards to a
family living expense number, of the 64 southcentral Kansas families that provided family living records in 2014 their
average family living expense was $71,380, before income tax.
Once you have identified your repayment capacity, make a schedule of all your principal and interest payments due in
2015. Better yet, make a schedule of your principal and interest payments for the next five years given your total
liabilities. Does your farm have enough repayment capacity to make those payments in the years ahead? Is there any
margin left to acquire new debt and add to the debt service you already have? In my opinion you need to know these
answers before you should even begin to shop for additional machinery. If you are already upside down in regards to
your debt service payments relative to your repayment capacity you need to first identify how many years this problem
persists. As an example, if your debt payments go down significantly in 2017 and come in line with capacity, how do you
survive 2015 and 2016? Do you have enough working capital to make up the difference? If not you may need to
restructure debt using land collateral to stretch out payments over 15 years instead of the 5 years the equipment
company or bank has given you.
An example of this would be a $500,000 machinery note amortized over 5 years at 3% has an annual payment of
$109,177. Compare this to a $500,000 land note with an interest rate of 5% over 15 years with an annual payment of
http://www.agmanager.info/kfma/ November 2015 E‐newsletter …
October 1, 2011
KFMA Newsletters
various
farm management topics and toolsTopics
covered include land and … and articles that discuss topics of general
interest.
KFMA …
June 25, 2019
now positive
6 “new topics” now significant
Seasonality … Meat Science
4. “Hot Topics” are Dynamic
Monitor …
Breakout Sessions
extension program include topics on agricultural finance …
October 14, 2019
KFMA Research
Supplemental factsheets covering topics such as breeding program …