Financial Analysis and Performance of Ohio Farms
By: Professor Ani Katchova, Farm Income Enhancement Chair, and PhD students Rabail Chandio, Kexin Ding, Xiaoyi Fang, Zhining Sun, and Haotian Wu, Department of Agricultural, Environmental, and Development Economics (AEDE), The Ohio State University
The Farm Income Enhancement Program in the Department of Agricultural, Environmental, and Development Economics, at the Ohio State University led by Ani Katchova (Professor and Farm Income Enhancement Chair) evaluated the financial performance of Ohio farms with regard to crop production, farm operation benchmarking, and financial management. Included here are the statistics, trends, and expectations about crop production, profitability, liquidity, solvency, and capacity to repay the debt of farms. Ohio farms’ financial performance is also compared to that of farms in the Midwest and the entire U.S.
Ohio Crop Production and Farm Operation Benchmarking
A farmer growing corn in Ohio had on average 213 acres of land while a farmer growing soybeans had over 263 acres in 2020, according to data collected by the Ohio Farm Business Analysis and Benchmarking Program. Despite slightly smaller farm sizes for corn producers, they had a higher average gross return than soybean producers. However, corn producers had higher direct expenses per acre and higher total overhead expenses per acre, especially with corn fertilizer expenses being three times higher than those for soybean producers, which resulted in higher total expenses per acre for corn production. In the end, though corn producers had higher government payments per acre in 2020, they received a much lower net return on labor and management than soybean producers. When comparing the crop production and farm operation statistics between 2020 and 2019, corn and soybean farmers had higher profits in 2020 compared to 2019. The higher income may be attributed to increased government payments in 2020 and a greater average farm production value per hour. On average, most farm operators in Ohio are experienced in farming and middle-aged.
Link to the report: https://aede.osu.edu/sites/aede/files/publication_files/OhioFarmBenchmarking2020.pdf
Ohio Farm Finances
Ohio farms had better financial performance in 2020 in terms of profitability and liquidity, though farm profitability for Ohio farms was generally lower than the national average, according to data collected by the Ohio Farm Business Analysis and Benchmarking Program. The median net farm income for Ohio farms increased by 121% in 2020 compared to 2019. In addition, short-term farm assets covered 2.60 times short-term farm liabilities at the end of 2020, up from 1.70 times in 2019, indicating improved liquidity for Ohio farms. Considering solvency and debt repayment capacity, Ohio farms also had improved performance in 2020 and better performance than US farms. The average net worth of Ohio farms at market values also increased significantly in 2020. Overall, there was an improvement in Ohio farm profitability from 2018-2020, but farmers should take this positive signal cautiously. Liquidity and solvency for Ohio farms remained at good levels, indicating a strong overall position in terms of their farm financial performance.
Link to the report: https://aede.osu.edu/sites/aede/files/publication_files/OhioFarmFinances2020.pdf
Benchmarking Ohio Farms’ Financial Health
Comparing the performance of Ohio farms to that of farms in the Midwest and the US allows us to consider another dimension of performance evaluation and benchmarking, according to the USDA’s Agricultural Resource Management Survey (ARMS). Using the measure of liquidity, denoted by the current ratio, Ohio farms performed better than farms in the Midwest and the US before the pandemic, but their performance somewhat worsened from 2019 to 2020. However, Ohio farms had still performed above the values categorized as problematic by the Farm Financial Standards Council (FFSC) guidelines. When it comes to solvency, measured by the debt-to-asset ratio, Ohio farms have had historically lower ratios than Midwest farms and slightly higher ratios than all US farms. In 2020, the debt-to-asset ratio for Ohio farms increased but was still within the recommended ranges by the FFSC. With the overall US farm debt decreasing in 2022, Ohio farms’ performance is expected to be even stronger is terms of solvency in future years. Lastly, Ohio farms have always struggled in the category of profitability. The measures of rate of return on equity and operating profit margin had been negative for Ohio farms consistently since 2016 because of net losses on the farm. Compared to Ohio, the profitability for US and Midwest farms were only slightly negative in 2019 and have remained positive in other years. Despite that, Ohio, Midwest, and US farms have had profitability in the critical zones according to the FFSC guidelines.
Link to the report: https://aede.osu.edu/sites/aede/files/publication_files/OhioFarmsFinancialsARMS.pdf
