The past three years have provided little opportunity for equity growth in grain farm businesses. Despite good yields, production cost and decreasing prices have kept profit margins low to non-existent.
The outcome of 2019 is not yet sealed, but we know the county average corn yield will be more than 30 bushels below trend, meaning the yields in some low-lying fields have been unprofitably low. Fields totally wiped out in June and replanted to soybeans in July have low yield expectation as well, considering such little rain received since planting. All soybeans and corn removed during the past three weeks have had harvest moistures far below the minimum level allowed by government grading standards, further reducing revenue.
This winter, highly leveraged farms with minimal diversity of enterprises will have to evaluate their finances carefully in determining how to position the business to be able to continue operating with a positive return on investment, or they will need to consider what potential changes may have to occur to continue. The University of Kentucky Department of Agricultural Economics understands the challenges some businesses face and is interested in providing farmers and lenders resources that may be useful as they meet this winter. At the following website, http://agecon.ca.uky.edu/KFBM-pubs, resources can be identified in dealing with farm financials and resources to cope with financial stress.
The first step is understanding financial statements and performance measures. Balance sheets are a systematic listing of a farm's assets (what it owns), liabilities (what it owes), and equity (difference between the two), all recorded at a single point in time. Both assets and liabilities are recorded as current, such as a bill due in 30 days, or non-current, such as a land payment.
Income statements summarize revenue and expenditures over a period of time. It's typical to use a calendar year, Jan. 1 to Dec. 31, for income statements. The major categories for an income statement include gross revenue, cash operating expense, expense inventory adjustment, depreciation, interest and net farm income. Income statements measure the success of a business by determining how profitable a farm was in a period of time. It answers the question of how much money the farm made last year.
Financial performance measures are critical to understanding the financial health of a farm. Lenders require performance measures to help determine a client's ability to repay a loan in a timely manner. These measures use information from the balance sheet and income statement to calculate ratios that are grouped into 5 categories: profitability, liquidity (the ability to be on time with financial obligations), solvency (ability to repay all debt if the business ended tomorrow), financial efficiency (how efficiently assets are used to generate income), and repayment capacity (money available to repay debt on time).
The Kentucky Farm Business Management Program is a resource available to assist in record keeping and analysis. A third farm management specialist for our area has just been hired, providing an opportunity for additional memberships in 2020. Call Suzy Martin at 270 685-8480 for more information.
Frost and Cyanide
As fall begins, remember that the increasing chance of frost raises the risk some forages have of causing cyanide poisoning in cattle, sheep and goats. Based on historical weather data for our area, there is a 50% chance of 36 degree temperatures occurring Tuesday, 32 degrees occurring Oct. 26, and 28 degrees occurring Nov. 4. Warm-season annual forages, such as sudangrass, johnsongrass, sorghum and sorghum-sudangrass hybrids, have the potential to cause cyanide poisoning, especially when grazed by ruminants at an early growth stage or immediately after a non-killing frost. The greatest risk is frosted johnsongrass. A non-killing frost can occur when temperatures are around 40 degrees and usually affects valleys and low-lying areas first. Wait until plants have died down after frost before grazing.
Soybean Cyst Nematode Soil Sampling
The soybean cyst nematode causes greater annual yield loss in Kentucky than any other pathogen of soybean. The Kentucky Soybean Board has approved a funding request from Extension Plant pathologist Dr. Carl Bradley to provide soybean cyst nematode soil testing at no charge. A limited number of samples have been approved in each county. If you are interested in participating in this project, call me at 270-685-8480.
Clint Hardy is the Daviess County Cooperative Extension Service agent for agriculture and natural resources. His column runs weekly in the Agriculture section.