Farm & Ranch Financial Statement Analysis

Please also see the separate page on International & U.S. Agriculture

Agricultural activities include livestock, fruit / orchard, grain, nuts, dairy, storage elevators, feedlot, vineyards, nurseries, forestry, aquaculture, and other operations. The credit analysis of each operation presents some issues that are similar and some that are unique.

What affects Farm / Ranch operations and profits?

Commodity prices (sales income and in determining which crops to plant)

Fertilizer prices

Pesticide prices

Seed prices

Feed prices

Equipment expense (purchase or leasing and maintenance)

Gas, diesel, propane, natural gas and heating oil prices

Seasonal labor costs

Land values (agricultural operations whose solvency depends on continuously rising land values will have problems during a period of deflation)

Transportation costs

Weather, Drought / Flood

Marketing expense

Demands of operating within consolidated distribution systems and integrated supply chains

Access to a broad range of reliable financial services

Farm and ranching profits are cyclical. As recently as 2000, farmers and agricultural bankers were publicly discussing the effects of prolonged, depressed commodity prices on small farmers and rural agricultural banks (significant government payments have helped farmers withstand depressed commodity prices). Then in 2007, commodity prices (for several commodities, both inputs and outputs) began to steadily increase until reaching a high point by mid-2008, and then declined as the economic recession set in. The Farm Credit Horizons Project was commissioned by the Farm Credit System in order to expand the Farm Credit’s lending powers.

Assets

Current Assets

Cash: end of period cash, either in demand depost accounts (DDA) or Certificates of Deposit (less than one year in maturity). Cash held in escrow for land / real estate / equipment purchase is restricted and should be considered as readily available.

Accounts Receivables (net of any charge-off)

Inventory

Marketable livestock

Raised / finished crops and feed - may stored both on and off the farm / ranch property. Crops should be valued using the current market price, unless there is documented evidence that the farm / ranch has a firm, contracted price for the crops, in which case the contracted price normally must be used. The location, amount, and condition of all harvested or finished crops must be verified. Harvested or finished crops located off the farm / ranch property sometimes create the issue of legal rights of ownership and possession.

Purchased commercial feed - in the bin and/or bagged

Feeder livestock - livestock on the property ready to go. Livestock located off the farm / ranch property, at a third-party feed lot, or elsewhere, sometimes create the issue of legal rights of ownership and possession. Livestock values may fluctuate dramatically depending on factors such as the animal’s age, health, breed, sex, and reproductive capacity; and it is not uncommon for appraisers to have diverging values for the same animal or herd.

Supplies

Other current assets

Long-term Assets

Farm and ranch fixed assets / improvements - buildings, storage / equipment barns, finishing barns (swine), milking parlor (dairy), windmills, tanks, pens, fences, gates, sheds, outbuildings, and corrals.

Land - fallow or presently under cultivation. There is no additional value allocated to land presently under cultivation as the crop may not be harvested in the future.

The land value on balance sheet will be entered at historical value, which may be undervalued as historical value does not reflect both current farm income or the prospects for future income growth.

Farm and ranch accessories - portable buildings, hunting blinds, game feeders, livestock feeders and troughs, irrigation equipment, fuel tanks, submersible, pumps, pressure tanks, portable corrals, gates, an chutes.

Equipment - in the United States, value can be established through the Official Farm Equipment Guide Book published by Iron Guides.

ATV

Chemical application

Crop conditioning and storage

Cultivators and weeding

Cutter/Mixer/Feeder

Feeding

Grain and feed handing

Harvesting - combines, forage harvesters, balers

Haying

Irrigation

Light forestry

Planting

Sprayer

Tillage

Tractor(s) and tractor replacement parts

Wagons and farm transportation

Breeding livestock - may be further divided between purchased and raised.

Investment in capital leases

Contracts and notes receivable(s)

Investment in Cooperative(s)

Other Assets and Prepaid

Liabilities

Current Liabilities

Accounts Payable - suppliers, feed store, equipment repair

Short-term Loans - most loans for the production of crops and for livestock feeder operations are intended to be self-liquidating at the end of the growing cycle from the proceeds of product sales. Therefore, the maturities of these loans should coincide with the production cycle for the product being financed, usually one year or less.

The purpose of short-term loans must be clearly indicated in the documentation: crop cultivation financing cannot be diverted for equipment purchase.

Taxes Payable: Ad Valorem

 

Long-term Liabilities

Land acquisition mortgage

Building construction loan

Machinery and equipment acquisition loan - should be structured to ensure repayment / maturity within the useful life of the equipment.

Breeding herd acquisition / development

Orchard development

Forest acquisition / development

Carry-over Debt - restructured short-term debt, such as the unpaid portion of an annual operating line, resulting from the borrower’s inability to liquidate the debt as originally planned.

Affiliate debt

Taxes Payable: Deferred - due to the the difference between financial accounting and tax accounting, non-current capital assets with market values that exceed their cost will have a deferred tax liability on the difference.

Equity

Shareholder's Equity

Common share capital (if incorporated)

Retained Earnings

Income Statement

Income

Crop Sales - Revenue(s) from crop cultivation is determined by multiplying the crop yield (or anticipated crop yield) per acre (bushels, tons, etc.) by the crop price (or anticipated crop price) received per unit (bushel, ton, etc.).

Livestock / Feeder Livestock sales

Livestock purchased for resale sales

Breeding livestock sales

Crop and Livestock product sales

Farm income is closely tied to the price for agricultural commodities. Combined with inflation and energy costs, this can result in a situation where market prices for commodities fall below the cost of production.

Agricultural program payments

In the United States, farm income and price support programs are dictated primarily by the Farm Bill, and the Milk Income Loss Contract (MILC) program provides payments to dairy farmers when farm milk prices are below a specified target level.

Crop insurance proceeds

Cooperative distributions

Rental income - derived from equipment rented out to neighboring farms / ranches.

Off-farm / ranch income or non-farm salary - some farm / ranch family members work full-time jobs with non-agricultural employers. The family member must be a spouse, child or residing family member in order for the income to be considered as part of the total income of the operation. It is reasonable to consider this income as a farm / ranch, while a place of business, is also a residence. However, this source of is often devoted to family living expenses.

 

Expenses

Seed

Chemical fertilizer

Herbicide

Pesticide

Fuel

Feed (commercial)

Purchased market livestock

Veterinarian services

Crop insurance

Labor / Compensation and Employee Expenses

Real estate taxes

Repairs, maintenance

Storage, warehouse

Supplies

Utilities

By forming cooperatives to purchase seed and chemicals, farmers can reduce the expense. Seed expense is determined by amount of seed planted per acre (seeds, pounds, bags) multiplied by the cost of seed per unit (seeds, pounds, bags); If a field has to be reseeded or late seeded thaen there may be more than one seed cost for the period.

Equipment - repair and maintenance

 

By group purchasing and sharing equipment, farmers can reduce the expense.

 

Depreciation Expense

 

Interest Expense

Interest on land acquisition loan

Interest on building construction loan

Interest on property improvements

Interest on equipment acquisition loan

Primary residence - this mortgage may not be paid by the corporation but it must be considered among the total obligations.

 

Transportation - freight, trucking

 

Rent

Rent paid on additional land under cultivation

 

Other Income

Outside employment with entities unaffiliated with the farm or ranch.

Gain (Loss) on sale of available land for sale.

Gain (Loss) on sale of Fixed Assets (property and equipment).

 

Other Expenses

Usage of chemical fertilizer, herbicide, and pesticide is toxic, and misapplication can result in fines on the county, state and federal level, and related legal expense.

 

Tax on income

 

Net Income

Farm Revenue

Revenues are calculated by:

Determining the crop yield (or anticipated crop yield) per acre (bushels, tons, etc.).

Determining the crop price (or anticipated crop price) received per unit (bushel, ton, etc.).

Determining the anticipated net government program or subsidy payments received per acre.

There are several several farm production methods:

Double cropping - planting of two crops in one year, such as wheat / soybeans.

Continuous cropping of one crop per year, such as a corn / soybean rotation.

Ecofallow cropping of two crops every three years, such as a corn / wheat / fallow rotation.

Fallow cropping of one crop every two years, such as wheat / fallow rotation.

Land Valuation

Farm land is valued first by two criteria:
1. Land value (purchase value)
2. Cash rent value

It is then valued by 3 other criteria:
1. Top land (high quality)
2. Average land
3. Bottom land / Poor land

A similar set of criteria is based on Productivity (yield per acre):
1. Excellent
2. Average
3. Good
4. Poor

Further criteria includes:
1. Field crop tillable
2. Field crop non-tillabe
3. Irrigation

The Market Value of the land is what may be obtained for the property at sale. The Economic Value of the land is based on the revenue the land will produce when operated as a farm, given expected crop yields and current crop prices.

How can a credit analyst determine whether a land parcel being considered for acquisition is fertile? One should look at the lushness of the grass, wild fruit bushes and trees: if they are growing well then the land can probably be made productive for commercial crops. Secondly, ask to see a soil chemistry test.

Are there any second party road access rights that may affect the value of the property? Will the purchaser have to install road access?

Are there water rights? Is there above ground and / or sub surface water source(s)? Does the purchaser have to drill a well or install pipe to a municipal water supplier? Is access to water sufficient for the type of crop cultivation / usage contemplated for the property? Does a water source that is available in the Spring season still available in the late Summer?

Are there septic rights? Is the septic and leach system presently operational? Has the county inspector performed a percolate test?

Is there eclectricity already at the property or is the municipal electricity supplier wire at the property line?

These days with cellular telephone technology it is less important as to whether there is telephone service (land line) on or at the property.

What is the property zoned for? Are there any building restrictions or acreage limitations?

Is there any timber located on the property and is there any zoning that restricts the usage of the timber?

Land value and commodity prices are sometimes highly correlated, especially in agricultural regions where farm land has no alternative productive use when commodity prices fall to a level that is inadequate to repay debt.

Farm land is often sold at auction. Auctions often involve multiple sales of a property to assure the highest price to the seller. At many auctions, the firm selling the property will frequently divide it into multiple tracts, re-selling it in different configurations until the top price is netted. Many auction firms also include a buyer’s premium; a percentage of the final sales price, which the purchaser as the new property owner is obligated to pay for the sale and auction services.

Characteristics of Farms / Ranches

A farmer’s place of business is often also his or her residence.

Beginning Farms / Ranches

Beginning farmers and ranchers face two primary obstacles: high startup costs and a lack of available land for purchase or rent.

Beginning farmers and ranchers are more likely to own smaller acreage than established farms / ranches, and are more likely to carry debt on their land.

Beginning farmers / ranchers are less likely than established farmers / ranchers to rent additional farmland / ranchland.

Many government support programs are generally geared towards production, thus beginning farmers may not initially meet the eligibility requirements for such programs, which would of great benefit to them.

Crop Insurance

An example of the Revenue Protection equation:

APH / Actual Production History (147 bushels per acre) X Coverage Level (75.0%) X Projected Price ($3.75 per bushel) = Guaranteed Revenue ($413.44 per acre)

Farm Machinery & Equipment

The United States, Canada, Argentina, Brazil, Western Europe, and Australia have very highly mechanized agricultural cultivation capabilities, which is also substantially computer aided and GPS guided. Agricultural machinery and equipment is a sunstantial expense and investment for a farm or agricultural operation, and is reflected on both the asset-side of the balance sheet and liabilities-side of the balance sheet (debt). Credit analysts need to be aware of the specific function and usage of the machinery and equipment, the manufacturers, and the price for both new and used equipment.

Seed Treatment

Tenders for bulk seed deliver seeds directly to a planter or drill. Scales can be inserted into the tenders in order to place only the necessary amount of seed into the tender so none is wasted. An auger system is used to lift the seed from the ground into the tender. The augerers are designed and fabricated as steel augers, brush augers, belt conveyer, or plastic auger. The design, fabrication material, and operation must combine in order to deliver intact seed to the tender. The auger is usually operated at a low speed, and worn augers must be periodically replaced so that seed will not be damaged. The overall length of the auger is based on the length of the drive shaft, and the flighting length is based on the where the cups begin / end at both ends of the drive shaft. The auger is housed inside a tube, which is attached to the motor, and the the auger rotates within the tube to lift the seed up to the tender.

Row Crop Tractor

Row crop tractors have increased substantially in size, horse power and capability in response to the increased size of equipment / implements and field size.

Tansmission types: gear drive, hydrostatic or shuttle.

A 3-point hitch is used to attach rear-mounted attachments like mowers, blades, scrapers, posthole diggers, tillers, balers, and backhoes. It consists of two lift arms and one top link where pins attach the implements.

The key considerations with regard to what type of tractor should be purchased:

Full-time farmer, part-time farmer, or weekend farmer.

Size of property.

Type of property cultivated acres or pastures / grasslands.

Type of operation: tlling, planting, spraying, mowing, baling, moving hay (forage production or livestock / horses); and size of towed / trailed implements

Utility functions: loading / unloading, digging, moving material, post digging, hauling.

Tillage

Tillage equipment prepares the soil for planting by loosening the soil. There are primary and secondary tillage equipment. Primary tillage equipment consists of chisel ploughs, coulter chisel plows and heavy disc harrows. Secondary tillage equipment consists of offset disc harrows, tandem disc harrows, tine or shank field cultivators, rotary cultivators.

A Disk Harrow is towed behind a tractor and has round blades that cut into the top soil. The disk harrow is designed to cut out and bury roots and crop residue, kill weeds and dry out the soil, level ridges and ruts and for seedbed preparation. Various finishing attachments are available to further smooth, redistribute residue and break clods.

A Field Cultivator is towed behind a tractor and has shanks that cut into the top soil. The field cultivator is designed for secondary tillage operations to smooth, level, eliminate weeds and incorporate chemicals. Various finishing attachments are available to further smooth, redistribute residue, firm soil and break clods.

Coulter tillage is the direct loosening of soil by a coulter blade. This can be accomplished using a single coulter or the combination of several coulters. The coulters should be able to accommodate a variety of blade styles to match changing soil types and soil conditions.

Row Crop Planters

This category includes self-propelled and towed frame planters. Weather can effect the amount of time available to plant a crop in the field thus the emphasis is on larger, more efficient planters. Some planters have the capacity of up to 36 rows, and carry seed tanks (measured in bushels), dry fertilizer and liquid fertilizer tanks. Some equipment has variable rate seed applicators.

Fertilizer and Pesticide Sprayers / Applicators

Self-propelled (front boom, rear boom) and towed frame liquid fertilizer sprayer. The liquid fertilizer solution is poured into a polyehtelene or stainless steel tanks. under-frame and side mounting brackets are attached to row crop tractors to hold the tanks. The larger, self-propelled applicators can have sufficient liquid tank capacity of 1,800 gallons.

Two or more separate tanks can carry two different fertilizer products for dual application.

Dry fertilizer can also be applied with a towed / pulled spreader.

Improper use of agricultural chemicals can destroy plants and soil, and injure people.

Harvesting

Self-propelled combine (conventional, rotary, corn head, direct cut auger heads) or tractor attachment.

Grain Handling

The increase in the size of combines has resulted in the need larger grain carts to match the size of combines and grain trailers. New grain cartss have capacities of 900, 1,100, 1,300 and 1,500 bushels. The unloading auger capacity is measured in bushels per minute.

A scale can be installed inside the grain cart to allow for in-the-field weighing of crops for maximum grain truck loads, and to check on crop yields.

Grain Management

Grain being harvested from the field may not be stored on the ground where it is exposed to the weather and animals. Rather, the grain must be dried and stored. Grain management equipment includes farm and commercial grain bins, grain dryers, tower dryers, chain loop conveyers, drag conveyers, bucket elevators, and accessories for grain drying and storage systems.

Grain bins are designed and manufactured with a variety of sizes, capacities and features. The bins are usually manufactured of 8 to 20 gague galvanized, corrugated steel. The bins can range in size from 15 feet in diameter to just over 100 feet in diameter, and hold a few thousand bushels to just over one million bushels.

A grain bag is a polyethylene bag, which ranges in size of up to 10 ft. in width x 250 ft. in length, are layed upon the ground, and then filled with harvested grain. They are an alternative to grain bin storage, and can be filled directly from combine, grain carts or semi-trucks. They are not permanent structures, and can be purchased or rented for a specific harvest season. Thus, the harvest will not be delayed waiting for storage to become available on a farm or elsewhere. In addition to the bags, a specifically designed grain bag loader and a grain bag unloader are necessary.

Crop Residue Management

Historically, crop residue was considered trash, which had to be destroyed by fire or tillage. Crop Residue Management is any tillage method that leaves crop residue on the surface to reduce erosion, and to add organic matter to the soil. Crop residue left on the surface shields the soil from rain and wind until emerging plants provide a protective canopy. Crop residue also improves soil tilth, adds organic matter to the soil, and may even result in a little grain being left for wildlife. Less tillage reduces soil compaction and saves the farmer time and fuel.

Crop shredder and windrower equipment, which are usually towed behind a tractor for the purpose of cutting the crop stalk and root from the previous growing season. A windrow shredder will cut the plant residue into a size that would be appropriate for converting the residue into a bio-mass product. The nature of the shredding operation is very tough on this type of equipment.

Hay & Forage Crop Equipment

Forage crops consist of alfalfa, annual ryegrass, brassicas / chicory, bromes, clover, fescues, festulolium, orchardgrass, perennial ryegrass, sudangrass, timothy grass

Tractor attachment or towed / trailed disc mower / mower, rakes, windrower, and baler (round and square).

A disc mower, which is usually towed behind a tractor, cuts the crop. The width of the mower path is measured in feet. The mower should have an adjustable cutting height to compensate for the crop and conditions. The mower should be designed to allow for cutting along fences, be able to cut acre after acre with minimal maintenance, and allow for quick blade replacement.

Conditioners fluff the hay, allowing air to flow through the swath, for faster and more even drying from top to bottom.

Rakes are used to gather up the cut crop and create baler-ready windrows. The machine / eguipment should have an adjustable raking width and windrow width. The larger machines tend to have the mower arwms fold in for easier transport on the farm and along public roads.

A rotary cutter is the most commonly used mower to trim pastures.

Utility Tractor

These are tractors with front-end loaders for moving large items (crop residue, hay, manure, soil, rocks, etc.) around a farm property.

Skid-Steer and Compact Track Loaders

Tires / Wheels & Transportation

Radial tires utilizes plies that run radially from bead to bead under the tread. This construction requires a belt to stabilize the tread and define the tire diameter. A bias tire consists of multiple rubber plies over lapping each other. A tubeless is a tire without inner tube.

Flotation tires are designed with a wider tire footprint and lower inflation pressure in order not to compact the soil as much as regular tractor tires do.

Plant stalk / stubble can damage a tractor tire by piercing and penetrating it, which may result in air loss. Field stubble can also chip tires.

Laminated wheels / tail wheel assemblies are attached to towed / trailed implements.

All agricultural tires have a minimum PSI and all have a maximum load capacity at a maximum speed. Tire pressure needs to checked at least once per week. Regular rotation of tires promotes uniform tire wear.

Precision Agriculture/Farming, Computer Control & Monitoring, Telemetry, Real Time Kinematic (RTK) Steering Systems and GPS Equipment

In-tractor computer terminals can be either key control or touch screen. The computer terminal controls tractor settings (fuel use, engine and transmission, time in operation), implement control and monitoring, automatic steering / maps, and cab cameras (to view rear-mounted implements).

The Real Time Kinematic (RTK) steering systems allow the machinery operator an almost hands-free driving option in order to operate the implement equipment. The RTK system consists of a single base station receiver and several mobile receivers. The system utilizes the higher frequency, modulated waveform carrier (carrier wave) as the actual communication signal, not the lower frequency input signal usually transmitted by the carrier wave. This allows for greater accuracy as the single reference station provides the real-time corrections to a mobile receiver on the vehicle in the field (rover vehicle).

Telemetry equipment allows for the remote tracking of agricultural equipment from a central or field office, and the wireless transfer of records between the equipment and the central / field office.

GNSS is the acronym for Global Navigation Satellite System, which utilizes a satellite-based positioning system. The two most well known are the U.S. owned and operated NAVSTAR GPS (Global Positioning System) and GLONASS (the Russian owned and operated GNSS system). The European Union is constructing the Galileo GNSS system. The Compass (BeiDou-2) system is owned and operated by the People's Republic of China, and is partially in operation.

DGPS is the acronym for Differential GPS, which consists of 2 GPS receivers, one which is stationary and a second which is mobile. This technology was an enhancement to GPS but is now being replaced by RTK.

Attachments, Scales, Tarps / Cover, Augers, Replacement Parts

Irrigation

Issues for Financial Institutions

  Federal Reserve Bank of Kansas City, Agricultural Finance Databook

  Federal Reserve Bank of Kansas City, Agricultural Credit survey

  Federal Reserve Bank of Dallas, Agricultural Credit Conditions Survey

  Federal Reserve Bank of Minneapolis, Agricultural Credit Conditions Survey

  Federal Reserve Bank of Chicago, Agricultural Conditions Survey

  Federal Reserve Bank of Richmond, Agricultural Credit Conditions Survey

Financial institutions provide operating loans, farm real estate, farm machinery and equipment loans, grain storage construction loans, and livestock loans.

Financial institutions must be cognizant of, and familiar with, global markets and the influences underlying the demand for various agricultural products.

All anticipated expensess required to take a crop from planting to harvesting (fuel, labor, fertilizer, seeds, etc.) must be accurately and thoroughly identified and estimated at the time of credit analysis. Unanticipated costs may, however, require additional short-term credit to assure that the product makes it to harvest.

Revisions of government agricultural policies can reduce the amount of support / subsidies that was originally in effect at the loan was underwritten.

Local financial institutions can have a concentration of loans to area and regional farms / ranches that all cultivate the same crop or raise the same type of livestock. Thus, problems related to weather, pests or markets has the same simultaneous affect on all of the loans in the portfolio. Similarly, the financial institution may also have lent to local and regional businesses / companies that sell or provide services exclusively to local and regional agricultural enterprises (i.e. seed companies, grain elevators, farm machinery dealers, etc.), and these borrowers will experience reduced cash flow related to stress in the farm / ranch portion of the portfolio.

Stored crops and livestock collateral should be re-evaluated on a periodic basis and whenever market conditions or other information indicates that the collateral’s original assigned value may have become impaired.

Many farms and ranches have no agricultural commodity production in a given year.

Record crop production may sound great but it may actually depress prices for harvested crops.

Agriculture-related collateral have few or no alternative uses, and value can decline substantially if there is widespread problems within a specific region or area as other farmers / ranchers will not be in a financial position to purchase the collateral at auction. Fixed assets have a higher value but cannot be sold outside of a region or area. Portable assets can be sold outside of a region or area but have the lower residual value.

Agricultural lending includes substantial documentation, inspection, control, and monitoring requirements.

Improper pesticide application at farms or improper waste management / disposal at livestock operations can result in government or local litigation that can substantially reduce the farm or ranch's ability to continue to operate due to investigations, restrictions, fees and penalties.

A specific foreclosure proceeding, or series of foreclosures by the financial institution, may result in a poor relationship with the local or regional community.

Loan Structure

Lending should be extended only to full-time farmers or part-time farmers. Farming is not defined only as the cultivation of edible crops or livestock. The borrower also normally files Schedule F or E with their Federal tax returns.

Term loans are for the purchase of new or used tractors and machinery / equipment, grain bins and facilities, farm trucks and vehicles, new buildings of all types, farm improvements (like tiling), livestock facilities and breeding livestock.

Operating lines of credit are for the production of agricultural products. The source of repayment (crops, livestock, other income) should generally be taken as primary collateral. Crop insurance should be required when crops secure the loan.

Ratios for Examining Farm Operations

The calculation of these ratios provides some insight into the strength of the operations of the farm or ranch. By calculating the raios for the most recent fiscal period the credit analyst will obtain an analysis that provides an indication of the present condition of the farm or ranch. By calculating the ratios for several fiscal periods the credit analyst will obtain a trend analysis (comparison of past performance), and the direction of the trend is more important then the actual values. They are also used by the financial institution to make financial decisions with regard to extending credit to the farm or ranch, and are then utilized to monitor the performance of the farm or ranch by comparing them against the benchmark of a group similar sized operations (comparative analysis).

When determining the reason(s) behind a trend analysis it is important to ascertain whether the trend is related entirely to the operations of the individual farm or ranch, whether it is an industry-wide trend, or whether it is a regional or national economic trend.

Any and all ratio values must always be evaluated in the context of the other ratio values. No operation is ever going to be entirely perfect. In addition, farm and ranch operating ratios often reflect seasonal patterns.

Profitability

Net Farm Income, plus interest earned, minus value of operator and family labor / Total Average Farm Assets owned.

Farm Cash Receipts, plus Change in product inventory (usually values for grain and livestock), plus Change in accounts receivable, plus Government payments, minus Livestock Purchases, minus Feed Purchases.

Efficiency

Gross Farm Income / Farm Business Assets

Liquidity

Liquidity is the ability of the farm or ranch operation to cover short-term expenses and debt payments.

Current Farm Assets / Current Farm Liabilities

Total Current Farm Assets - Total Current Farm Liabilities

Current Farm Liabilities / Total Farm Laibilities

Current Farm Assets, minus Inventory, Supplies, Crops in the field / Current Farm Liabilities

Solvency

Solvency is the ability of the farm or ranch operation to cover long-term expenses and debt payments, and to pay off debt if all assets were liquidated for that purpose.

Total Farm Debt / Total Farm Assets

Total Farm Stockholder's Equity / Total Farm Assets

Total Farm Debt / Total Farm Stockholder's Equity

Net Farm Income, plus Interest Expense / Interest Expense

Total Debt / Annual Net Farm Income

Regulation

Section 502 of the Agricultural Credit Act of 1987 (P.L. 100-233) authorized the Secretary of Agriculture to help States develop USDA Certified State Mediation Programs and to participate in those programs. The Farm Service Agency (FSA) through the Advisory and Corporate Operations Staff administers the program.