FINPACK 2021--a first look
The data dropped last week and I was able to start gathering, updating, and transforming it this week.
There’s a legitimate question as to whether this data is representative of the competitive landscape in farm country. Indeed, the acres under management documented by FINPACK represents 10% of total acres under till in Minnesota. Is this a reliable statistical sample or is it somehow cherry-picked? In particular, as one of you noted, why would we not assume that the biggest, most competitive farms would ignore FINPACK and engage service(s) such as ours to really get insight & perspective on finance and economics?
Well…my data is a year old, and I’ll retest it this year, but some findings from past studies:
We have 70-80 farms in the southern half of the state over 2,000 acres management, average size around 3,300 in the FINPACK database, and this subset has always been my focus of competitive assessment.
The average size of the farm in FINPACK is 700 acres; the actual average of ALL farms in Minnesota, according to the National Agricultural Statistical Service, is half that.
The net worth in our large subset is $5.5 million, this with their owned tillable land (603 acres average) valued at $5,700. It’s not exactly an impoverished data sample.
Furthermore:
The portion of land under management by the biggest farms in FINPACK tracks the proportion of all farms from NASS & elsewhere.
If anything, one could argue that larger, commercial scale farms are OVER-represented.
It will always be a slightly open question and worth testing yearly to see, or at least guess, as to the nature of the farms that DON’T show up in FINPACK. My operative hypothesis is that one of the main problems facing growth in acres is not the acquisitiveness of a small minority of big farms, but the land tied up in very small operations and (sadly) suffering from at least a generation of part-time management.
So, there’s a stage set in brief. I’ll rush to a few high points and let you get back to waiting for March to be over and planting to begin (making today officially, what, March 53rd?).
As I mentioned, net worth for the big farms is $5.5 million.
Working capital is back to its 2012 peak, $1.8 million (although as to days’ expenses, down from 330 then to 295 now).
FINPACK, transformed by my work, reports $1.2 million net profit, or 20% return on assets. Once again, biggest since, and in fact, as big as 2012.
Whither 2022? Making an experienced guess about costs:
Using market conditions apparent in January, they might expect a $500,000 net, 6% ROA (allowing for cost inflation).
Updating for market conditions right now, and assuming they took a dangerous bet in leaving old crop & new unpriced (but will price it right away), I calculate a $1.4 million profit, which included a $600,000 gain on 2021 inventory since 1/1/22.
Amazing profit potential is almost always amazingly fragile, and the tendency in bull markets to leave crops unhedged has been well documented. $4 corn in the environment of inflating costs, and let’s say, 8% interest when the Federal Reserve is belated forced to deal with inflation (Volcker had to go to 20% prime, and he had lots more runway than Jerome Powell does.): $1.6 million loss and a total erasure of working capital.
As Tom Sr. has said for years, he foresees little correction in the business until the actual cost of funds forces one. Irritatingly enough, he is, yet again, looking to be correct.
There much more to discuss and you’ll hear about in coming months, but before your attention is entirely absorbed with, you know, your actual job, I wanted to get this in front of you asap.
As we always say: Safe planting! Safe and a speedy start, that is.