State Climatology Field Specialist, Aaron Wilson and Ben Brown, Assistant Professor of Professional Practice in Agricultural Risk Management, both with The Ohio State University will give a summer weather and grain market update after the release of the 2020 Acreage and Grain Stocks Reports. Due to the Coronavirus, economic conditions for corn changed rapidly after the March Prospective Plantings Report, with likely changes in acreage for the Eastern Corn-Belt. Weather, as always, during July and August will play a major factor in final yields and production in 2020. Free Registration can be found at go.osu.edu/2020agoutlook
By: Chris Zoller, OSU Extension
Liquidity is a measure of the ability of a farm to use cash or ability to convert assets to cash quickly to meet short-term (less than 12 months) liabilities when due. Data from the United States Department of Agriculture Economic Research Service (USDA-ERS) forecast a continued decline in 2020 of liquidity on U.S. farms. This article discusses two metrics, the current ratio and working capital, to evaluate liquidity.
USDA-ERS projects farm working capital to decline from the 2012 level of more than $160 billion to $52 billion in 2020 (see Chart 1). Working capital is the value of cash and short-term assets that can easily be converted to cash minus amounts due to creditors within 12 months. These are considered “short-term” assets and liabilities. Having adequate working capital is important for a farm to meet obligations as they come due, take advantage of pre-pay discounts, and manage through price declines or unexpected expenses.
Like many things in agriculture, knowing how much working capital a farm needs varies based on several factors. These include farm size, farm type, and market volatility. The working capital to gross revenue ratio is a measurement of the working capital divided by the gross sales of the business. This ratio measures the amount of working capital compared to the size of the business. Lenders prefer a working capital to gross revenues ratio of 40 percent or better. This means that if the business has $1 million in gross sales, working capital would need to be $400,000 or 40 percent of $1M. When the working capital ratio falls below .20, a farm may have difficulty meeting cash obligations .in a timely manner.
Chart 1. (Source: USDA-ERS, February 5, 2020) (see PDF version to access charts)
The current ratio is calculated as total current assets divided by total current debt (or liabilities). Current is defined as less than 12 months. Current assets include: cash, accounts receivable, fertilizer and supplies, investment in growing crops, crops held for storage and feed, and market livestock. Current liabilities include: accounts payable/accrued expenses, income and social security taxes payable, current portion of deferred taxes, current loans due within one year, current portion of term debt, and accrued interest.
USDA-ERS expects the value of current assets to decline 3.5% and current liabilities to increase 2.3% in 2020. The current ratio of U.S. agriculture was 2.87 in 2012 and is projected by USDA-ERS to fall to 1.42 in 2020 (see Chart 2). If a farm has $100,000 in current assets and $70,000 in current liabilities, the current ratio equals 1.42. A current ratio of 2:1 or greater is desirable and indicates a farm has $2 in short-term assets for every $1 in short-term debt.
Chart 2. (Source: USDA-ERS, February 5, 2020) (see PDF version to access charts)
Farm financial management is critical in today’s volatile environment. Consider the following management tips:
- Complete an annual balance sheet. Using your numbers, calculate trends.
- Compare your numbers with recommended benchmark values.
- Discuss your numbers with your lender.
- Contact your local Extension educator or enroll in the Ohio State University Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/).
– David Marrison, OSU Extension
Since the beginning of January, market prices for major commodities have fallen sharply since COVID-19 reached the United States. There have been many efforts through federal and state legislation to offset the impact of COVID-19.
Enrollment is currently being taken by the USDA Farm Service Agency (FSA) for one such program targeted to help agricultural producers. This program called the Coronavirus Food Assistance Program (CFAP) is providing financial assistance for losses experienced as a result of lost demand, short-term oversupply and shipping pattern disruptions caused by COVID-19.
OSU Extension is pleased to be offering the a “Farm Office Live” session on Thursday morning, June 11 from 9:00 to 10:30 a.m. Farmers, educators, and ag industry professionals are invited to log-on for the latest updates on the issues impact our farm economy.
The session will begin with the Farm Office Team answering questions asked over the two weeks. Topics to be highlighted include:
- Updates on the CARES Act, Payroll Protection Program, Economic Injury Disaster Loan (EIDL), and Coronavirus Food Assistance Program (CFAP) Update
- Other legal and economic issues
Plenty of time has been allotted for questions and answers from attendees. Each office session is limited to 500 people and if you miss the on-line office hours, the session recording can be accessed at https://go.osu.edu/farmofficelivethe following day. Participants can pre-register or join in on Thursday morning at
Join OSU Extension’s Ben Brown and Dianne Shoemaker for a webinar on “Navigating Direct Support for Ohio’s Farmers and Ranchers” on Wednesday, May 27, 2020 at 9:30 am with special guest, Ohio Farm Service Agency Director Leonard Hubert. This webinar is generously produced and distributed by Ohio Ag Net.
Go here to access the webinar.
Ben Brown, Peggy Kirk Hall, David Marrison, Dianne Shoemaker and Barry Ward – The Ohio State University
Since the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020 and the announcement of the Coronavirus Food Assistance Program (CFAP) on April 17, 2020, producers in Ohio and across the country have been anxiously awaiting additional details on how the Coronavirus Food Assistance Program (CFAP) will provide financial assistance for losses experienced as a result of lost demand, short-term oversupply and shipping pattern disruptions caused by COVID-19.
The additional details on CFAP eligibility, payment limitations, payment rates, and enrollment timeline arrived on May 19, 2020, when the USDA issued its Final Rule for CFAP. In this article, we explain the Final Rule in this issue of News from the Farm Office.
Starting Tuesday, May 26, 2020, producers can contact their local FSA office and begin to sign up for CFAP. This bulletin serves as the authors’ interpretations of the Final Rule released by USDA, and FSA interpretation may be different.
OSU Extension and Ohio FSA will conduct a webinar in the upcoming days to outline program materials and answer questions. For information about the webinar and additional information on CFAP, please visit farmoffice.osu.edu.
Source: Barry Ward, Leader, Production Business Management, OSU Extension
COVID-19 has created an unusual situation that has negatively affected crop prices and lowered certain crop input costs. Many inputs for the 2020 production year were purchased or the prices/costs were locked in prior to the spread of this novel coronavirus. Some costs have been recently affected or may yet be affected. Lower fuel costs may allow for lower costs for some compared to what current budgets indicate.
Production costs for Ohio field crops are forecast to be largely unchanged from last year with lower fertilizer expenses offset by slight increases in some other costs. Variable costs for corn in Ohio for 2020 are projected to range from $359 to $452 per acre depending on land productivity. Variable costs for 2020 Ohio soybeans are projected to range from $201 to $223 per acre. Wheat variable expenses for 2020 are projected to range from $162 to $198 per acre.
Returns will likely be low to negative for many producers depending on price movement throughout the rest of the year. Grain prices used as assumptions in the 2020 crop enterprise budgets are $3.20/bushel for corn, $8.30/bushel for soybeans and $5.10/bushel for wheat. Projected returns above variable costs (contribution margin) range from $109 to $240 per acre for corn and $179 to $337 per acre for soybeans. Projected returns above variable costs for wheat range from $152 to $262 per acre.
Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from -$48 to $72 per acre in 2020 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $65 to $214 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $70 per acre to $173 per acre.
Total costs projected for trend line corn production in Ohio are estimated to be $759 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $75 per acre include depreciation, interest, insurance and housing. A land charge of $187 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $67 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.
Total costs projected for trend line soybean production in Ohio are estimated to be $517 per acre. (Fixed machinery costs: $59 per acre, land charge: $187 per acre, labor and management costs combined: $46 per acre.)
Total costs projected for trend line wheat production in Ohio are estimated to be $452 per acre. (Fixed machinery costs: $34 per acre, land charge: $187 per acre, labor and management costs combined: $41 per acre.)
Current budget analyses indicates favorable returns for soybeans compared to corn but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2020 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-management-tools/farm-budgets