Presentation on theme: "Long-Run Trends in Profitability and Farm Size Michael Langemeier Dept. of Ag. Econ. Kansas State University."— Presentation transcript:
Long-Run Trends in Profitability and Farm Size Michael Langemeier Dept. of Ag. Econ. Kansas State University
Introduction Three concerns revolving around current credit crisis –Financial Stress Negative Return on Equity High Debt to Asset Ratio –Divergence of Farm Performance –Government Bailout
First Concern Financial Stress Even with the strong financial performance of the last couple of years there are still a substantial number of farms with either a negative return on equity, a high debt to asset ratio, or both. Upcoming Slides –Current financial position –Vulnerabilities –Financial stress
Potential Vulnerabilities in 2009 Input price increases Farmland value volatility Overall debt structure and solvency of some farm businesses Access of farm households to credit Off-farm income during a national recession –USDA-ERS, December 2008
Financial Stress The USDA-ERS defines vulnerable farms as those with a negative net farm income and a debt to asset ratio above 0.40. –U.S. Farms, 2007 3.5% of farms are vulnerable –KFMA Farms, 2007 6.8% of farms are vulnerable
Financial Stress Financial stress is often measured by examining farms with a negative return on equity and a debt to asset ratio above 0.70. KFMA Farms, 2003 to 2007 Averages –Negative Return on Equity = 40.33% –High Debt to Asset Ratio = 13.04% –Financially Stressed = 7.03%
Second Concern Divergence of Farm Performance Recent thesis by Lindsey Snider –KFMA Data Five-year snapshots from 1973 to 2007 Data sorted into deciles using value of farm production Variables –Total Acres –Economic Total Expense Ratio –Operating Profit Margin Ratio –Asset Turnover Ratio –Percent Income from Livestock Changes in economies of size
Third Concern Government Bailout What is the Real Cost of the Great Bailout of 2008-2009???
Possible Impacts Inflation Interest Rates Social Security and Medicare Economic Freedom –Government funds typically come with strings attached –Government dominated economies tend to have slower economic growth
Contact Information Michael Langemeier –email@example.com@agecon.ksu.edu –Ag Manager Contributor site KFMA Newsletter Credit Crisis References
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