The nation’s ag bankers are meeting this week in Kansas City; and, with weakness in the US farm economy, there is a lot of focus on the financial health of farming operations. For grain and soybean farmers facing tighter margins, the bankers are keeping a close eye on the level of working capital their customers have. Joe Kessie, an Indiana ag banker, says lean times mean more financial scrutiny, “When things are going well nobody pays much attention to that; with the tight margins in grain farming, working capital is going to be key.”
Kessie, says bankers are looking at working capital in a couple of ways, “Primarily how much working capital do you have vs. what the farm is grossing.” How much working capital is enough? “Take your working capital and divide it by what the farm is grossing on an accrual basis; and, if you are above 35%, you are in good shape,” Kessie said. If your figure is in the 20% or lower range, it may be time to restructure your operation.