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Metrics: How do Beginning Farmers Compare?

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Dr. David Kohl
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Home > Education & Events > March 2020 > Metrics: How do Beginning Farmers Compare?
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Hi, I'm Dr Dave Kohl, Professor Emeritus Agricultural Economics, and academic Hall of Famer from Virginia Tech, Blacksburg, Virginia. Today's subject matter is the secret sauce. One of the leading writers for a major farm magazine was retiring and she wanted to do one last interview with yours truly. The subject matter was the plight of the young farmers. I asked her to send a series of questions and she did and the questions sounded like the farm crisis in 1980s and I called her back and I says, "I'm actually finding that the young and beginning farmers are actually doing better than the older or vintage farmers." She says, "I'm going to check that out." She did and she led me to the FINBIN database that compared farms that were in business 10 to 40 years versus the farms under 10 years.
 
Guess what we found? The secret sauce. It was real interesting. The operating profit margin in 2018, while not stellar, was almost double, about 12% to 6% when you compare the beginning farmers to the vintage farmers. Also, we found that the debt coverage ratio, this is ability to cover debt, was about 1.52 for the under 10 year versus 0.94 for the people 10 to 40 years. Matter of fact, people in 10 to 40 years, were going to have difficulty making their debt service payments. We also found that other financial metrics were much more positive for the junior generation versus the senior generation and with my interaction with the junior generation, I'm going to give you three reasons why. Here's your secret sauce. First of all, the junior generation tends to know their numbers better than the senior generation. I know that's a generality, but again, they know line by line on the balance sheet and the income statement and the cash flow statement.
 
What they're doing is making little adjustments. The second thing is they're much more likely to have a marketing and risk management plan and execute that risk management plan and be satisfied for base hits versus home runs. Another thing I noticed amongst the junior generation is they know how to utilize their assets very, very well. That being capital assets, but also the human assets. Those combined with more off farm income and modest family living compared to our older or vintage group gives them the competitive advantage. I do believe some of those components are going to be very, very important in managing your business in the decade of the 2020s. Well we'll see next time for another subject matter.
 
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