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Mt. Pleasant News   Wash Journal
Neighbors Growing Together | Dec 16, 2017
AGRICULTURE

Study examines current financial stress in Iowa farms

Sep 19, 2017
The number of financially stressed farms — those with vulnerable liquidity or solvency ratings — increased from 38 percent in December 2014 to 47 percent in December 2016.

 

AMES — Iowa farm financial conditions have deteriorated since 2012, but average indicators of liquidity and solvency remain close to their long term levels, according to a new study published in the September issue of Ag Decision Maker.

The study is titled “Financial stress in Iowa farms,” and was written by Alejandro Plastina, assistant professor and extension economist with Iowa State University. The study is also available as a publication from the ISU Extension Store.

Nearly 300 farms were analyzed in the study based on their financial statements for 2014, 2015 and 2016. These farms are representative of medium-sized commercial farms largely managed by experienced farmers.

“When looking at the averages of the last three years, it’s not surprising that current financial conditions are close to their historical averages,” Plastina said. “What was surprising is the consistent increase in financial stress by the end of 2016. Four out of ten farms showed vulnerable levels of liquidity, so it’s important to let people know that financial stress is more common than most would like to admit.”

Liquidity in Iowa farms has dropped over the last three years, with 47.3 percent of farms in a strong liquidity position in 2014 and 41.7 percent in that same category in 2016. At the same time, the number of farms in a vulnerable liquidity position has risen from 31.5 percent to 42.9 percent. This translates to an average loss in working capital of $180 per acre during that period. Farms with vulnerable liquidity ratings were hurt even more, averaging a loss of $347 in working capital per acre.

Similar trends are seen in these farms’ debt-to-asset ratio. Strong farms have declined from 42.5 percent in 2014 to 39.9 percent in 2016. Vulnerable farms have increased from 20.5 percent to 25.3 percent.

“It is apparent that solvency issues are much less prevalent than liquidity issues,” said Plastina. “However, it must be noted that machinery, land and other long-lived assets are valued at their cost or book value, and do not reflect the recent decline in asset value.”

The number of financially stressed farms — those with vulnerable liquidity or solvency ratings — increased from 38 percent in December 2014 to 47 percent in December 2016.

“Farmers need to be benchmarking their own financial situation,” Plastina said. “If they have financial statements or if they are able to create their own balance sheets they should do that and analyze their situation objectively.”

Farmers with concerns regarding their operational finances can also schedule a consultation with an ISU Extension and Outreach Farm Financial Associate. The associates will run a complete FINPACK analysis that provides an in-depth evaluation of the farm business and financial projections based on potential changes to the operation.

Farmers can also contact an ISU Extension and Outreach farm management specialist with questions regarding their finances.

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