Ag Finance Situation Overview Rodney Jones, Ph.D. Oklahoma Farm Credit Chair In Agricultural...
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Transcript of Ag Finance Situation Overview Rodney Jones, Ph.D. Oklahoma Farm Credit Chair In Agricultural...
Ag Finance Situation Overview
Rodney Jones, Ph.D. Oklahoma Farm Credit Chair
In Agricultural Finance, OSU Dept. of Agricultural Economics
Some National Statistics
• USDA U.S. Net Farm Income
– 2013 $123.7 Billion
– 2014 $91.1 Billion
– 2015 $58.3 Billion (projected)
• 36 % drop in 1 year, 53 % drop in 2 years
Concerning Indicators
• Total Debt held by U.S. Ag Sector / NFI
– 2015 6.3/1 (projected)
– Recent years well under 4/1
– Have to go back to 1980’s to find a 6/1
• Proved to be one of the “early warning” signs of the 1980’s (started to increase to levels above 5/1 in 1977
Concerning Indicators
• Short-term (operating) loan volume up significantly in the last Quarter
– Up 24% from a year ago
– It’s the “big” loans (over $100,000).
• Total Ag debt up 9.5%
On The Other Hand!!
• Average Balance Sheets are much stronger
– Current average D/E about 15%
– Averaged about 20% in late 70’s, peaked at 28.5% in 1985
On The Other Hand!!
• Interest rates are much lower that the era prior to the last significant downturn
• Right now very few delinquency concerns
Global Considerations
• Significant pockets of economic sluggishness
– Brazil, China, etc.
– Will likely continue to ripple through ROW, and will impact U.S.
– Stronger dollar makes it tougher to compete for export markets
Oklahoma Agriculture, Two Very Different Circumstances
• Cow-Calf sector
– Still very strong calf prices from historical perspective, most producers enjoying strong profits
• The rest of Oklahoma Agriculture
• Of course, these two groups are not mutually exclusive
Message From Producers
• 2011 – 2012 Drought, but high crop insurance guarantees, kept incomes up
• 2013 High crop prices, rising cattle prices
• 2014 Record setting cattle prices, still relatively high crop prices
– Not a widespread indication of concern
Message From Producers
• 2015 “Dr. Jones, what do you figure is the BE yield for wheat planted now??”
– Read between the words
• 2015 “Dr. Jones, this sugar cane aphid problem sure makes Grain Sorghum tough to pencil??”
– Read between the words
Crop Budget Realities
• Break-even yield for a wheat budget to cover total costs is around 45 bushels per acre!!!!!
– Some “low cost” producers may beat that
• Break-even yield for Grain Sorghum planted this spring looks like it will be 65 to 85 bushels per acre, 80 to 90 for corn
Message From Producers
• “I’m a little concerned”
– Multiple years of crop production issues
– Low prices
– Lingering drought concerns
– The edge coming off of calf prices, etc.
A Little Concerned!!!!!!
Will We See The True Picture
• The cash accounting performance measures that most producers use and that we rely on are likely to lag true performance. Perhaps by as much as 2 to 3 years as inventories are sold down, pre-payments of expenses are reduced, equipment purchases cease, etc.
• Ripple effects, Monsanto reducing workforce 12%, Deere sales down 25% etc.
First Indicators Will Be Liquidity (Cash Becomes Tight)
• Operating loans up
• Concerns about Machinery and Equipment debt.
North
east
Lake
Corn
Belt
North
ern
Plai
ns
Appa
lach
ian
Sout
heas
t
Delta
Sout
hern
Pla
ins
Mou
ntai
n
Pacific
Unite
d St
ate.
..-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
USDA Yearly Percent Change in Land Values
January, 2015
• Farm Real Estate Value, 2015 (% change)
• 6.8%
• -1.1%
• -1.8%
• -5.9% • -
0.3%
• 5.5%
• -2.2%• -1.0%
• 8.1%
• 12.1%
• N/C
• 1.2%
• 1.4%
•2.
9%
• -0.9%
• 4.9%
• 3.4%
• 9.5%
• 4.9%
• 6.7%
• 3.5%
• -1.9%
• 4.8%
• 5.5%
• N/C
• > 20
• 10-19
• 1-9
• <1
• USDA-NASS data
• 3.6%
• 8.0%
• 3.4%
• 4.6%
• 1.1%
• 1.0%
• 7.0%
• 3.2%
• 4.7%
•2.
9%
• 4.3%
• -0.2%
• 1.6%
• 11.1% • 0.
7%• 0.
9%
• 1.6%
• 1.4%
• 1.2%
• 0.5%
• Cropland Value, 2015 (% change)
• 5.7%
• -2.5% • 1.
0%
• -6.3%
• -0.6%
• 4.4%
• -2.1%• -
2.2%
• 8.1%
• 8.7%
• -0.4%
• 1.2%
• 2.1%
•0.
9%
• 2.6%• 5.
0%
• 1.9%
• 8.0%
• 9.5%
• 3.8%
• 1.0%
• -0.7%
• 4.8%
• 5.4%
• N/C
• >10
• 1-9
• <1
• USDA-NASS data
• 3.5%
• 2.7%
• 4.0%
• 4.6%
• 1.1%
• 1.2%
• 3.5%
• 4.8%
• 5.3%
•-
0.7
%
• 1.1%
• -2.4%
• 1.2%
• 2.8%
• 3.8%
• 0.9%• N/A
• Pasture Value, 2015 (% change)
• 16.3%
• 18.8%
• -1.7%
• -5.9%
• 4.4%
• 13.3%
• -3.3%• 6.9
%
• 5.4%
• 14.0%
• 3.1%
• 1.9%
• 2.9%
•-
0.2
%
• -1.9%
• 3.6%
• 1.4%
• 4.4%
• 1.3%
• 6.7%
• 1.6%
• -5.6%
• 4.1%
• 5.5%
• N/C
• >10
• 1-9
• <1
• USDA-NASS data
• 1.3%
• 1.2%
• 4.8%
• 1.0%
• 2.2%
• 1.9%
• 2.5%
•2.
0%
• 7.2%
• -1.3%
• 1.0%
• 7.5%
• 1.4%
• N/A
• USDA-NASS
19982000
20022004
20062008
20102012
20140
1,000
2,000
3,000
4,000
5,000
US and OK Land Values
US Pasture Land ValueOK Pasture Land ValueUS Cropland ValueOK Non-irrig Cropland Value
$/a
cre
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
0
1
2
3
4
5
6
7
8
9
10
Years to Pay for an Acre of Land at 30 BushelYield per Acre
First Indicators Will Be Liquidity (Cash Becomes Tight)
• What’s a producer to do?
– Manage Cash Flow
– Manage Assets
– Manage Liabilities
What’s A Producer To Do
• Manage Cash Flow
– Family living, supplemental income, delay purchases, negotiate rents, etc.
– Ability to respond will be farm specific
Kansas Farm Management Association Data
20042005200620072008200920102011201220132014 $-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
Non-Farm Income Net Farm IncomeTotal Family Living
What’s A Producer To Do
• Manage Assets
– Sell least productive assets (remember, machinery and equipment values are often the first to decline)
– Delay replacement purchases
– Lease out underutilized equipment
What’s A Producer To Do
• Manage Liabilities
– Negotiate interest only payments for a year
– Term out operating debt
– Refinance at lower rates
– Etc.
What’s A Producer To Do
• Manage Risk
– Lock in low interest rates
– Manage production risk with higher levels of crop insurance
First Indicators Will Be Liquidity (Cash Becomes Tight)
• What’s a lender to do?
– “Shock test” loan portfolio more aggressively
– Try harder to sort out true accrual profits
– Require more information regarding the long term business plan and the risk management plan at renewal time
– Require interim budget vs actual performance reporting
Questions???
• If you would like to be added to the list for our Ag Finance electronic newsletter, send me an email at [email protected]
• Join us on Facebook at OSUFarmManagment