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Farm management analyst concerned working capital will begin to erode

A farm business management analyst is concerned about worsening debt to asset ratios.

Brad Zwilling with the University of Illinois says working capital, which is derived by subtracting current liabilities from current assets, has been steadily improving on many crop farms since 2017.

“By the end of 2021 we were pre-paying and buying some of those inputs, and that’s helped having (working capital) available). But it’s going to be a tight squeeze coming through the summer months after we get that crop in the ground, and take a real hard look at some things and if we can cut some costs.”

He tells Brownfield farmers might have to start borrowing more at the same time interest rates are rising.

“Working capital kind of plays into that a little bit, and now we’re going to have to not only make that principal payment, but that interest payment is going to grow especially on those operating notes. Hopefully we’ve locked in some of those longer-term rates that won’t be affected by that, but still we’re going to have to be paying in a bigger portion of our expenses (that) are going to go to interest.”

Zwilling says while farmers still have a chance to lock in low interest rates, some of the short-term borrowing money and basic capital replacement will be at higher rates.