The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Crop Revenue Would Need To Drop 21.7% to Equal 1980s Income Shock
Sep 27, 2012
The Kansas City Federal Reserve just issued a paper on the Nebraska economy and I found a couple of the pages in the paper interesting. First, to equal a 1980s income shock, current farm revenue would need to drop by 21.4% and the value of total farm production would need to decrease by 15.7%.
Now 21.7% may not sound that high, but lets assume you are a farmer who raises corn that yields 175 bushels per acre and expects around $6 per bushel. Your cash rent is $275 and other total expenses are another $700 per acre. Your gross income is $1,050 and cash expenses are $975. You are netting about $75 per acre.
Now if your gross farm income was to decrease by 21.7%, it would fall to about $822 per acre of gross income and if all other expenses remained the same, then you now have a net loss of $153 per acre.
The paper also estimated that crop prices would need to drop to the following prices:
- Corn - $3.49 per bushel
- Wheat - $3.96 per bushel
- Soybeans - $9.00 per bushel
One more slide showed the debt-to-asset ratio for 1979 to 2010. The perception is that most farmers in 1979 were more highly leveraged than now. For Kansas farmers, the percentage of farmers with a debt to asset ratio greater than 40% was 19.4% in 1979, but for 2010 it is 6 points higher at 25.6%. The debt-to-asset ratio of farmers with levels greater than 70% is almost 6% now versus less than 2% in 1979.
Since Kansas has a higher concentration of livestock producers than many other corn belt states, it is my guess that this tilts the analysis a bit, but there are many farmers with high levels of leverage that may not survive a "1980s" income shock.
How does your operation stack up?