2019 was a wet, difficult year for farmers across the state of Kansas. Trade decisions during negotiations with China put a damper on commodity prices and producers were concerned they might face a farm collapse similar to the 1980s.
While farm net income numbers were slightly reduced in some areas of the state over the previous year in 2018, detailed farm analysis collected by the Kansas Farm Management Association, and Extension branch of Kansas State University, showed statewide averages increased, resulting in a net farm income level over $100,000.
“The average net income at the state level in 2019 is $110,380 — about a 9% increase from where the number was in 2018 at just over $101,000,” said Kevin Herbel, KFMA executive director. “Within that average is a broad range of different levels of income, with our top 25% farms averaging a little over $330,000 and the bottom 25%, near a $45,000 loss.”
Only 18% of farms across Kansas showed a net loss in 2019, due in part to wet weather across much of the state.
“We had two areas of the state that showed a drop in net income in 2019 from 2018 and four areas of the state showing an increase,” Herbel said. “The two areas with the drop certainly showed a lot of impact from excess moisture in those regions.”
The lowest net farm income was in south central Kansas, a little over $70,500 — a $30,000 drop from where the net income had been in 2018. In southeast Kansas, the net farm income was just over $111,000, which was about a $25,000 drop from 2018.
In both instances the primary factor was moisture, which proved to be both a positive and negative factor depending on a farmer’s region. In the Western part of the state, particularly northwest and in parts of the north central Kansas farmers saw very strong dry land fall crops thanks to the increased moisture, which drove net farm income up.
In the eastern part of the state, excessive moisture starting in the fall of the previous year in 2018 and through planting time and in 2019 really scaled back yields. Herbel said KFMA data shows roughly 2% of crop acres within KFMA were prevented plant acres in 2019.
“Moisture through the winter also caused some difficulties for livestock producers,” said KFMA associate director Mark Dikeman. “Management was a struggle and death loss was higher than normal, caused by muddy conditions and poor weather.”
Lower quality forages and fluctuating cattle markets could have also played a role in net farm income for livestock producers or diversified livestock and crop producers, Dikeman said.
Government Role and Sustainability
The less-than-stellar net farm income story would have been near disastrous without the impact of government payments.
“The driving factor that kept net farm income levels where they are was government payments, particularly the Market Facilitation Program,” Dikeman said. “The state net farm income average was $110,000 this year and of that, about 55% was attributed to MFP payments.”
If Agriculture Risk Coverage and Price Loss Coverage payments are included in the calculation, 72% net farm income statewide would be attributed to government payments. Without payments, net farm incomes across the state would be greatly reduced, with the south central region of the state slipping into a negative net farm income as a whole.
The question producers and researchers keep asking themselves, is whether income from government payments can be sustainable longterm?
“I think when we question sustainability we need to look back over time and ask ourselves why the payments were made and certainly in the case of MFP payments, the strong influence of what was done at the government level relative to our trade relationships with other governments played a role,” Herbel said. “The importance to our overall economy is also an important deciding factor.”
Herbel pointed out the top producing 25% of farms in the KFMA program received less government payments overall and continued to remain profitable on their own accord in most cases.
Working capital and debt to asset ratios have long been an indicator of farm financial health and they will be critical for producers closely managing their finances over the coming year. But in order to understand working capital and debt to asset ratios in the future, its important to also take a look back at the past.
“If we assess back to the 70s what we see is somewhat of a golden age for agriculture with the activity that was taking place,” Herbel said. “While debt levels were increasing, we also had an increasing debt to asset level until we hit the late 70s and saw a decrease in the debt to asset ratio up until the eighties.”
Topsy turvy debt to asset ratios represented a primary player in the 80s farm crisis, when decreasing asset values, particularly land, unbalanced debt to asset ratios. The story has been much different across Kansas in the past 10 years.
“In the 2010 through 2019 period we’ve seen a decrease relative to debt to asset levels and a fairly level debt to asset level now staying around 20 to 25%,” Herbel said. “On average we’ve seen a fairly substantial increase in debt on these farms in the midst of strong income years like 2007 and 2008 or 2013 and 2014 when operators got the opportunity to purchase land.”
Equipment investment per acre also grew during that time as well, due in part to tax planning strategies, Herbel said. Working capital ratio looks at working capital relative to operating expenses plus interest and can be a good indicator for producers hoping to keep their operations in the black in 2020.
“A working capital ratio of one would effectively represent that a farm had sufficient working capital as the year began in order to cover all operating and interest expenses incurred over the next 12 months,” Dikeman said. “The ratio jumps around all over the place, but its running on average around 62% statewide.”
Dikeman said working capital rations in the early 2000s fell very low under 40%, but were very good in 2007 through 2013 at up around 90%. In 2018 Kansas working capital ratios were around 73%, while in 2019 the bottom 25 percent of farms were around 33% in their working capital ratios, while the top 25% of farms were around 92%, showing a substantial difference in money management between the two groups.
To see a full breakdown of farm financials across Kansas, find the full KFMA 2019 Executive Summary online here.