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Extension Notes: Working capital to drop significantly in 2015 for region’s ag producers

Harvest is behind us and farmers are busy seeding winter wheat for the 2016 crop. You may have heard some rumblings that crops were not very good this year on the prairie. Lower than normal rainfall combined with high temperatures during seed formation for most of our crops delivered a one-two punch to the final yields and quality for the crops.

For example, soft white winter yields and test weights for 2015 were 57 bushels/acre and 46.7 pounds/bushel, respectively, in the University of Idaho test plots. 2014 wasn’t too great either when our plots were damaged by frost and yielded an average of 48 bushels/acre and had a test weight of 54.4 pounds/bushel. You need to go back to 2013 to find more normal yields and test weights…the test plots then averaged 80 bushels/acre and weighed 60.2 pounds/bushel. At the same time, prices have declined from an average Portland soft white wheat price across the 2013 growing season of $8.35/bushel to a Portland cash price today of about $5.52/bushel for ordinary protein wheat!

What will this mean for local farmer’s financial condition? The answer to that question will vary by farm, but in general farmer’s working capital will decline significantly in 2015. Working capital is current assets (cash, crop, feed and livestock inventories, and prepaid expenses) minus current liabilities (operating loans, current payments due on debt, and accrued expenses like taxes). Working capital serves as a financial cushion against losses that may occur. When working capital declines the farm’s ability to withstand future losses declines. Factors affecting the individual farm’s change in working capital include debt position and capital purchases as well as land tenure differences such as cash rent, crop share, or deeded farm land.

Cash renters, particularly with high rental rates, are predicted to face the largest erosion in working capital. Another year of low yields and prices will push some farms into working capital positions similar to 1996-2006 levels. If you remember those years it might bring to mind some tough times.

Farmers are a pretty optimistic bunch and look forward to a return to better yields and quality and hopefully some improvement in prices for the 2016 crop. Still, even as they seed into drier than normal fall conditions, farmers realize that it will take a sharp pencil, good decisions and good weather to maintain an adequate financial position in 2016.

Ken Hart, University of Idaho Extension Agent, Lewis County,


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