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Performance of Ag Producers. Young vs Experienced

Dr. David Kohl
Educational Opportunities: 
Grain, Dairy, Swine, Beef, Young, Beginning Farmers
Home > Education & Events > November 2019 > Performance of Ag Producers. Young vs Experienced

Today's subject matter is the younger and older farmer performance. A major journalist in agriculture asked me a question the other day that was very intriguing. Who is actually doing better post Supercycle? Younger agriculture producer or the experienced agriculture producer? Well I drew on some data, farm record data. I compared 2012 which was the height of the economic Supercycle in agriculture, and compared it to 2018 data. Interestingly enough, the young and beginning farmer who has been in the business under 10 years, was actually doing better. One might ask, "Well how are they doing better financially and economically?" First, they had a higher rate of return on asset. How did they get through higher rate of return on asset? They had a higher asset turnover ratio and that coupled by higher margin equated to a higher rate of return on asset, but also a higher rate of return on equity.

Second, they had higher levels of working capital. One of the things that was very apparent was, they had the discipline to build working capital. Not only in the good economic times, but also in preserving the working capital in this economic downturn. Another element was that they had a higher term debt lease coverage ratio. How did they do it? Well, first of all, they had little higher net farm income, but they had off farm income, while also having lower family living costs. This coupled together, even though they had higher debt service requirements, resulted in a more positive and higher term debt lease coverage ratio.

Overall, the success of young farmers compared to older farmers, the old farmer has a distinct advantage. They've had years of experience and they have built equity. So this often times allows them to refinance, particularly in the down economic cycle. That is, taking operating losses and turning it out onto term debt. But overall, the young farmers invested in productive assets. They were modest in living. They're very coachable with an advisory team. And then finally they demonstrated a high business IQ. These are the attributes that bodes very well for the future of agriculture. 
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