Data from the Illinois Farm Business Farm Management Association showed that from 2012 to 2021, grain farms generally had the strongest ratio of working capital to gross farm revenue. Cattle and hog farms were more variable, said a study by the Illinois Farm Business Farm Management Assn., published by Farmdocdaily.
Overall, working capital to Gross Farm Revenues declined from 2013 to 2019 but has been increasing since then. The study also found that generally, the older the operator the stronger the ratio, the report said. Both groups showed a decline until 2019 and have strengthened since then.
WORKING CAPITAL TO GFR BY FARM TYPE
The four farm types were hog, grain, dairy and beef farms, the report said. Grain farms were defined as farms where the value of feed fed was less than 40% of the crop returns.
Hog, cattle and dairy farms were defined as farms where the value of feed fed was more than 40% of crop returns and the livestock enterprise (hog, dairy or cattle) received the majority of the value of feed fed.
Generally, working capital to GFR declined from 2013 to 2019 for most farm types, the report said. The 2012-13 period was the end of the era of high grain prices started by the ethanol mandate and ending with drought year of 2012.
From 2013 to 2019, researchers saw financial deterioration in most farms as farm incomes declined, the report said. Since then, higher grain prices have led to increasing farm incomes allowing for greater returns and increasing working capital.
Hog and beef farms seemed to have more variability, the report said. This was explained by the fact that the variability of livestock prices not only effected livestock sales for the year but also has an effect on inventory values that come into play when calculating accrual farm incomes.
Finally, dairy farms have a lower working capital to GFR than the other three farm types, the report said. The majority of a dairy farm’s assets were in the dairy herd, an intermediate asset and buildings, a long-term asset.
Dairy farms also benefited from a monthly income stream in milk sales that allowed them to survive on lower liquidity.
The ratio for fifty- to fifty-nine-year-olds started at .50 in 2012, dropped to .29 by 2019 and increased to .48 in 2021 or almost to the 10-year high in 2012. The decrease from 2012 to 2019 was a deterioration of about 42% but has almost rebounded in the last two years.
On average, working capital was stronger for farmers in the “50-to-59” and “over-60” age groups compared with younger farmers. Older farmers were more established than younger farmers, leading to better financial strength.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $137.00 to $143.50 per cwt, compared with last week’s range of $136.51 to $149.83. FOB dressed steers, and heifers went for $216.89 to $219.13 per cwt, versus $217.59 to $224.24.
The USDA choice cutout Tuesday was up $2.02 per cwt at $272.57, while select was up $1.07 at $243.73. The choice/select spread widened to $28.84 from $27.89 with 81 loads of fabricated product and 51 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $2.70 to $2.80 a bushel over the Sep futures and for southwest Kansas were steady at $0.10 under Sep, which settled at $5.96 3/4, down $0.15 1/2.
The CME Feeder Cattle Index for the seven days ended Monday was $172.50 per cwt down $0.17. This compares with Tuesday’s Aug contract settlement of $178.75, up $2.07.