SD Center for Farm/Ranch Management releases initial 2017 report
Mitchell— Farms and ranches enrolled in the South Dakota Center for Farm/Ranch Management program saw a welcome improvement from 2016, according to data compiled for analysis. The median net farm income in 2017 was $26,209 compared to $6,627 in 2016. 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 the 2017 Annual Report indicate some stabilization following multiple years of decline since 2014. This is very encouraging to an economy dependent on agriculture. “This amount of net farm income is not likely to spur a big jump in capital expenditures, though, as many operations are trying to catch up with debt obligations that they may have fallen behind on or had to restructure in previous years,” says Will Walter, program director of the Farm/Ranch Business Management Program at MTI. “Depressed commodity prices compared to three to five years ago, but with similar costs of production, has made it difficult to repay operating loans and still be able to make annual payments on term debt. Generally speaking, I feel this has turned a bit as the profitability and repayment capacity measures have improved from the 2016 report.” This information is based on averages and there are farms and ranches with higher and lower returns.
2017’s average farm gross cash income of $760,254, less $642,967 average cash expense, equals a net cash farm income of $117,287. That is a drop from $147,434 in 2016. Net cash farm income does not factor in changes in inventory, depreciation, or capital sales and purchases; rather, it is simply the cash farm income less cash farm expenses. The program farms in 2017 had inventory changes amounting to an increase of $5,693 contrary to the 2016 average loss of $95,787 in inventory changes. 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 42.1 years old, with an average of 18.3 years farming experience. Cash family living expenses for a family size of 3.5 members on average was $63,409, an increase from $56,557 in 2016. Farm families showed an average of $26,602 in non-farm income, down from $30,845 in 2016.
$40,262 was the average increase in net worth. This equates to only 2 percent, but anything positive has been welcome for operators after the past few years. Liquidity measures such as working capital and current ratio both showed a decline from a year ago with $166,159 and 1.40 compared to $256,745 and 1.50 per operation last year. Working capital to gross income decreased from 26.9 percent in 2016 to 21.2 percent in 2017. Other numbers to note from 2017 data include average total assets of $3,025,493 and equity of $1,986,398. The rate of return on assets was 1.5 percent and return on equity of -0.4 percent. Capital debt repayment margin was $10,331 representing a term debt coverage ratio of 1.11. “This may not seem too exciting, but it is a big improvement from the .33 ratio on average of the farms participating in 2016. Some short-term debt may have been restructured, or payment obligations from intermediate loans on machinery are diminishing with fewer capital purchases in the last two years. A negative term debt coverage ratio is unsustainable, and measures were taken to rectify that.”
More information on the 2017 South Dakota Annual Report will be released soon and 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 sdcfrm@mitchelltech.edu.
