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 HIGH Debt to Asset Farm User: Roger Betz File: Risk2001 MSU Extension 2/2/2001 9:00:21 AM Base Plan Cn-Soy High 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 High 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 109,271 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 503,216 (C) Net cash farm income 60,068 Depreciation 60,000 (D) Net farm income 68 2/2/2001 FINLRB Long Range Plan Page 3 Base Plan Cn-Soy High PROFITABILITY MEASURES (Market) Debt/Ast Net farm income (D) 68 Labor & management earnings (D-E) -42,373 Rate of return on farm assets (H/I) 3.2 % Rate of return on farm equity (J/K) -6.4 % Operating profit margin (H/N) 11.3 % Asset turnover (N/I) 27.9 % (E) Interest on farm net worth (K* 6%) 42,441 (F) Farm interest paid 109,271 (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) -45,597 (K) Total farm net worth 707,350 (N) Value of farm production 563,284 LIQUIDITY CASH FLOW (Typical Year) Net cash farm income (C) 60,068 Nonfarm income (+) - Net cash available (=) 60,068 Family living (-) 30,000 Income taxes and social security (-) 10 (R) Cash available for principal payments (=) 30,057 Farm interest paid (+) 109,271 Cash avail. for principal and interest (=) 139,329 Implement Dealer 44,712 Commercial AgBus Bank 42,490 Farm Service Agency/FmHA 18,636 Farm Credit System 45,474 Operating loan interest 25,000 (S) Total scheduled principal and interest (-) 176,312 Cash available after loan payments (=) -36,983 Annual capital replacement 60,000 Principal paid on intermediate debts 46,479 (T) Cash required for replacement (-) 13,521 (U) Cash surplus or deficit (=) -50,504 2/2/2001 FINLRB Long Range Plan Page 4 Base Plan Cn-Soy High LIQUIDITY MEASURES Debt/Ast Cash available for principal payments (R) 30,057 Annual farm long term principal pymts (-) 20,562 (V) Cash available for farm intermed. debt (=) 9,496 (W) Farm intermediate debt to be served 492,787 Years to turnover farm intermed. debt (W/V) 51.9 Surplus as a percent of payments (U/(S+T)) -26.6 % Cash farm expense as % of income (B/A) 89.3 % Farm interest as % of value of prod. (F/N) 19.4 % Farm debt payments as % of value of prod. 31.3 % 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 376,586 Intermediate farm liabilities (+) 412,502 Long term farm liabilities (+) 524,562 Nonfarm liabilities (+) - (Y) Total liabilities (=) 1,313,650 Net worth (X-Y) 707,350 SOLVENCY MEASURES Current percent in debt 87.4 % Current & intermediate pct in debt 75.4 % Long term percent in debt 53.9 % Nonfarm percent in debt - % Total percent in debt (Y/X) 65.0 % NET WORTH CHANGE (Typical Year) Net farm income 68 Nonfarm income (+) - Family living (-) 30,000 Income taxes and social security (-) 10 Net worth change per year (=) -29,943 2/2/2001 FINLRB Long Range Plan Page 5 Base Plan Cn-Soy High FINANCIAL STANDARDS MEASURES Debt/Ast Liquidity Current ratio 1.14 Working capital 54,414 Solvency Farm debt to asset ratio 65.0 % Farm equity to asset ratio 35.0 % Farm debt to equity ratio 185.7 % Profitability Rate of return on farm assets 3.2 % Rate of return on farm equity -6.4 % Operating profit margin 11.3 % Net farm income 68 Repayment Capacity Term debt coverage ratio 75.6 % Capital replacement margin -36,983 Efficiency Asset turnover 27.9 % Operating expense ratio 69.9 % Depreciation expense ratio 10.7 % Interest expense ratio 19.4 % Net farm income ratio 0.0 % 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 -9,887 Cash surplus or deficit -60,449 Net worth change per year -39,887 Effect Of A 10 % Decrease In All Enterprises Net farm income -49,707 Cash surplus or deficit -100,269 Net worth change per year -79,707