FINPACK 2001: FINLRB Long Range Plan Risk Management 2001 Case Farm Center for Farm Financial Management Roger Betz Dist Ext Farm Mgt Agnt (C)2000 University of Minnesota LOW Debt to Asset Farm User: Roger Betz File: Risk2001 MSU Extension 2/2/2001 8:59:07 AM Base Plan Cn-Soy Low Debt PLAN DESCRIPTION Debt/Ast Total crop acres 2,000 Total labor hours 6,000 Change in farm assets - Change in farm liabilities - Crop Plan Yield/Acre Share Cash Corn, Y2K 128.5 bu. 100 % 1,000.0 Soybeans, Y2K Risk Mgt 43.0 bu. 100 % 1,000.0 2/2/2001 FINLRB Long Range Plan Page 2 PROFITABILITY Base Plan Cn-Soy Low Debt INCOME STATEMENT (Typical Year) Debt/Ast Corn, Cash $ 2.10/bu. 269,850 Soybeans $ 5.30/bu. 227,900 Other farm income 65,534 (A) Gross farm income 563,284 Seed 51,400 Fertilizer 67,800 Crop chemicals 39,100 Drying fuel 14,000 Crop fuel & oil 16,850 Crop repairs 43,800 Crop utilities 3,900 Crop hauling and trucking 20,580 Crop marketing 1,715 Interest 30,576 Hired labor 25,000 Land rent 82,500 Real estate taxes 14,100 Farm insurance 12,000 Utilities 1,200 (B) Total cash farm expense 424,521 (C) Net cash farm income 138,763 Depreciation 60,000 (D) Net farm income 78,763 2/2/2001 FINLRB Long Range Plan Page 3 Base Plan Cn-Soy Low Debt PROFITABILITY MEASURES (Market) Debt/Ast Net farm income (D) 78,763 Labor & management earnings (D-E) -18,245 Rate of return on farm assets (H/I) 3.2 % Rate of return on farm equity (J/K) 2.0 % Operating profit margin (H/N) 11.3 % Asset turnover (N/I) 27.9 % (E) Interest on farm net worth (K* 6%) 97,008 (F) Farm interest paid 30,576 (G) Value operators labor & mgt 45,664 (H) Return on farm assets (D+F-G) 63,675 (I) Total farm assets 2,021,000 (J) Return on farm equity (D-G) 33,098 (K) Total farm net worth 1,616,800 (N) Value of farm production 563,284 LIQUIDITY CASH FLOW (Typical Year) Net cash farm income (C) 138,763 Nonfarm income (+) - Net cash available (=) 138,763 Family living (-) 30,000 Income taxes and social security (-) 25,626 (R) Cash available for principal payments (=) 83,136 Farm interest paid (+) 30,576 Cash avail. for principal and interest (=) 113,713 Implement Dealer 12,103 Commercial AgBus Bank 15,226 FmHA 13,413 Farm Credit System 17,913 Operating loan interest - (S) Total scheduled principal and interest (-) 58,655 Cash available after loan payments (=) 55,058 Annual capital replacement 60,000 Principal paid on intermediate debts 19,022 (T) Cash required for replacement (-) 40,978 (U) Cash surplus or deficit (=) 14,080 2/2/2001 FINLRB Long Range Plan Page 4 Base Plan Cn-Soy Low Debt LIQUIDITY MEASURES Debt/Ast Cash available for principal payments (R) 83,136 Annual farm long term principal pymts (-) 9,056 (V) Cash available for farm intermed. debt (=) 74,080 (W) Farm intermediate debt to be served 100,086 Years to turnover farm intermed. debt (W/V) 1.4 Surplus as a percent of payments (U/(S+T)) 14.1 % Cash farm expense as % of income (B/A) 75.4 % Farm interest as % of value of prod. (F/N) 5.4 % Farm debt payments as % of value of prod. 10.4 % SOLVENCY BALANCE SHEET (Market) Current farm assets 431,000 Intermediate farm assets (+) 616,000 Long term farm assets (+) 974,000 Nonfarm assets (+) - (X) Total assets (=) 2,021,000 Current farm liabilities 50,728 Intermediate farm liabilities (+) 82,014 Long term farm liabilities (+) 271,458 Nonfarm liabilities (+) - (Y) Total liabilities (=) 404,200 Net worth (X-Y) 1,616,800 SOLVENCY MEASURES Current percent in debt 11.8 % Current & intermediate pct in debt 12.7 % Long term percent in debt 27.9 % Nonfarm percent in debt - % Total percent in debt (Y/X) 20.0 % NET WORTH CHANGE (Typical Year) Net farm income 78,763 Nonfarm income (+) - Family living (-) 30,000 Income taxes and social security (-) 25,626 Net worth change per year (=) 23,136 2/2/2001 FINLRB Long Range Plan Page 5 Base Plan Cn-Soy Low Debt FINANCIAL STANDARDS MEASURES Debt/Ast Liquidity Current ratio 8.50 Working capital 380,272 Solvency Farm debt to asset ratio 20.0 % Farm equity to asset ratio 80.0 % Farm debt to equity ratio 25.0 % Profitability Rate of return on farm assets 3.2 % Rate of return on farm equity 2.0 % Operating profit margin 11.3 % Net farm income 78,763 Repayment Capacity Term debt coverage ratio 193.9 % Capital replacement margin 55,058 Efficiency Asset turnover 27.9 % Operating expense ratio 69.9 % Depreciation expense ratio 10.7 % Interest expense ratio 5.4 % Net farm income ratio 14.0 % CROP AND LIVESTOCK PRODUCTION Corn, Cash bu. 128,500 Soybeans bu. 43,000 SENSITIVITY ANALYSIS Effect Of A 2 % Decrease In All Enterprises Net farm income 68,808 Cash surplus or deficit 7,659 Net worth change per year 16,715 Effect Of A 10 % Decrease In All Enterprises Net farm income 28,988 Cash surplus or deficit -17,377 Net worth change per year -8,320