Farms Experience Decrease in 2016 Net Farm Income
Monday, April 17, 2017
Mitchell—The average farm enrolled in the South Dakota Center for Farm/Ranch Management program experienced nearly a 68% decrease in net farm income in 2016 according to data compiled for analysis. The average net farm income in 2016 was $13,308 compared to the 2015 average of $38,898. The data is compiled through a statewide educational program that assists producers with their recordkeeping and management offered through Mitchell Technical Institute.
The numbers in this year’s report indicate another substantial drop following 2015’s 77% decrease from 2014. “I’m a real numbers person rather than percentages. So in simpler terms, we’ve gone from very prosperous in 2010-2012 (avg. $242,079), to somewhat prosperous in 2013-2014 (avg. $155,167) to just getting by in 2015, and now to being in need of substantial improvement to sustain the farm/ranch business’s future,” said Will Walter, program director of the Farm/Ranch Business Management Program at MTI. “Generally depressed commodity prices, but with similar costs of production, are continuing this movement. With this being a multi-year downtrend, updating capital items on most farms/ranches has reduced significantly,” Walter said. These figures are the averages and there are farms and ranches with higher and lower returns.
2016’s average farm gross cash income of $902,490 less $774,691 average cash expense equals a net cash farm income of $127,799. 2015 data indicated net cash farm income at $129,681, not a substantial change. Net cash farm income does not factor in changes of inventory, depreciation, or capital sales and purchases; rather it is simply the cash farm income less cash farm expenses. Net farm income is the number used to measure a farm or ranch’s true profitability by including the above accrual changes.
The average age of participating operators was 43.1 years old, with an average of 19.6 years farming experience. Cash family living expenses for the family averaging 3.2 members were $57,169 in 2016, a decrease from $65,923 in 2015. Farm families showed $25,316 in non-farm income, up from $17,442 the prior year.
Balance sheets again suffered a loss, with the average decrease in net worth or owner’s equity of $24,004 a 2% reduction. Liquidity measures such as working capital and current ratio both showed a decline from a year ago with $251,652 and 1.58 compared to $328,191 and 1.71 per operation last year. Working capital to gross income decreased slightly from 33.1% in 2015 to 30.3% in 2016. Other numbers of note from 2016 data include average total farm assets of $2,974,090 and equity of $1,996,254 resulting in a rate of return on assets of -0.7% and return on equity of -3.7%. Capital debt repayment margin came in negative again this past year at -$45,726 with a resulting term debt coverage ratio of 0.45. Walter identifies this as a serious problem causing obstacles for operators to obtain credit. “The rapid erosion of working capital the past two years has placed many farms and ranches in jeopardy for this upcoming season. Restructuring of debt may need to take place and already has for some producers. However, a demand always exists for agricultural products because the world needs to eat! The present depressed market value of used machinery and lower prices of breeding stock compared to prior years can create opportunities, especially for beginning producers with minimal debt.”
More information on the 2016 South Dakota Annual Report will be released soon. The report data is available on the South Dakota Center for Farm/Ranch Management’s website at www.sdcfrm.com or by contacting the Center at (605) 995-7191 or [email protected].