SW
The example shows a 67% decrease in Working Capital and almost $600,000 of Net Worth (Total Equity) losses over a 5 year period.
2012-2013 were great years for row crop producers if they were able to raise a crop. Working capital hit record levels and padded a lot of balance sheets. It was easy to be approved for debt (albeit at lower interest rates) or pay cash for upgrades that were needed due to the strength of the balance sheet.
Many row crop producers in the Midwest had multiple years of losses on their balance sheet between 2014-2019. These weren’t necessarily due to poor decision making or overspending on land/equipment. These losses were often organic due to low commodity prices (we grew ourselves out of the shortages) and high input costs. They happened to farmers who expanded and those who didn’t.
Whether you are bullish or bearish on commodity prices into the future, the collapse of prices in 2023 should put you on high alert. Pull out some of your historical balance sheets (or better yet a 5 year balance sheet trend like what is above) and remind yourself how your operation handled the last downturn in ag. Many of my conversations were around restructuring debt and where costs could be cut. Debt restructure isn’t a great option this time around, (I don’t want to take your 3.75% note and stretch it out 25 years at 8.50% interest) so make sure your pencils are sharp as you make year end purchasing decisions and start prepaying for 2024.
Grant Wiese