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Evaluating risk in the short term

After a couple of really strong years in the agriculture economy, a Purdue ag economist says farmers liquidity or working capital looks pretty good.

However, Mike Boehlje with the Center for Commercial Agriculture says there is potential for operating losses in 2015.  “With our current lower commodity prices our numbers are showing that even with government payments and depending how much money is borrowed and how much ground they are renting, farmers could be losing as much as $100 an acre,” Boehlje says.

And, he tells Brownfield farmers need to worry about the financial consequences of that potential loss.  “What we worry about is called the burn rate,” he says.  “The burn rate is how quickly you use up working capitol.”

Boehlje explains why a farmer’s so called “burn rate” is cause for concern.  “We have done some calculations on this and there oculd be a farmer that has twice the standard that the bank may have of working capital to gross sales,” he says.  “And within one year they could burn up at least a third of it if they’re losing $100 an acre.”

While farmers margins may be tight in the near term, he says, the long-term outlook for the ag industry is bright.