Capital Turnover Ratio

[tweety]

Not surprising given how farmers have been buying all the new toys because it "saves" them money. This isn't pretty. Heard Terry speak about this. Once again showing we are shopping ourselves to an outrageous cost of production versus revenue.

https://www.producer.com/2020/02/capital-turnover-ratio-declines/ https://www.producer.com/2020/02/capital-turnover-ratio-declines/

[burnt]

Not surprising given how farmers have been buying all the new toys because it "saves" them money. This isn't pretty. Heard Terry speak about this. Once again showing we are shopping ourselves to an outrageous cost of production versus revenue.

https://www.producer.com/2020/02/capital-turnover-ratio-declines/ https://www.producer.com/2020/02/capital-turnover-ratio-declines/

[ATTACH=CONFIG]5608[/ATTACH]

Interesting.

The chart you provided demonstrates a direct adverse correlation to the increase in CO2 concentrations.

The relationship to temperature and climate change is obvious.

[tmyrfield]

Not surprising given how farmers have been buying all the new toys because it "saves" them money. This isn't pretty. Heard Terry speak about this. Once again showing we are shopping ourselves to an outrageous cost of production versus revenue.

https://www.producer.com/2020/02/capital-turnover-ratio-declines/ https://www.producer.com/2020/02/capital-turnover-ratio-declines/

[ATTACH=CONFIG]5608[/ATTACH]

another interpretation is the lag between capital asset values [land and new equipment] and commodity values. the opposite occurs in periods where grain prices rise then land and equipment values follow later. then lenders look at these ratios and say yes to everything because times are obviously good and getting better.
There is no doubt that revenues are down but very little evidence that land costs or equipment costs have followed. It'll likely happen and that will not be much fun.

like someone mentioned earlier we should stop those evil people from making us borrow so much money...

[Hamloc]

another interpretation is the lag between capital asset values [land and new equipment] and commodity values. the opposite occurs in periods where grain prices rise then land and equipment values follow later. then lenders look at these ratios and say yes to everything because times are obviously good and getting better.
There is no doubt that revenues are down but very little evidence that land costs or equipment costs have followed. It'll likely happen and that will not be much fun.

like someone mentioned earlier we should stop those evil people from making us borrow so much money...

In my area land is $700,000 a quarter and still rising. Now if you took an average 3 year rotation of canola, wheat and peas or barley in a perfect world you could average over $400 gross return per acre and the best quarters have 150 acres of cultivated land but most are less. So 150 x $400=$60,000 so the ratio looks pretty sad without even considering debt payments or equipment costs. I am certainly baffled as to what continues to push the price of land and rent up, I have concluded the other farmers must have better calculators than me.

[shtferbrains]

another interpretation is the lag between capital asset values [land and new equipment] and commodity values. the opposite occurs in periods where grain prices rise then land and equipment values follow later. then lenders look at these ratios and say yes to everything because times are obviously good and getting better.
There is no doubt that revenues are down but very little evidence that land costs or equipment costs have followed. It'll likely happen and that will not be much fun.

like someone mentioned earlier we should stop those evil people from making us borrow so much money...

I think if you charted grain prices over that chart they would be similar.

At the 2009 peak were combines about 1/2 today's price?

[Sheepwheat]

I think if you charted grain prices over that chart they would be similar.

At the 2009 peak were combines about 1/2 today's price?

And land values. Rent as well.

[jazz]

I wish I could introduce tweety to my neigbor, Monette Farms. I will try to flag down Combine #15 this fall and ask them about this chart.

Anyway, yes we are driving up inflation chasing production which in turn is increasing risk and holding down prices with overproduction. There is no denying that.

IMO farmers are pretty good pencil sharpeners on yield, agronomy, even land prices. But they absolutely suck when it comes to accounting for risk. If farmers were equated with pokers players, we would be considered all in, all the time. That needs to change. There are a lot of acres being run just for the banks, fcc and input companies.

[helmsdale]

I wish I could introduce tweety to my neigbor, Monette Farms. I will try to flag down Combine #15 this fall and ask them about this chart.

Anyway, yes we are driving up inflation chasing production which in turn is increasing risk and holding down prices with overproduction. There is no denying that.

IMO farmers are pretty good pencil sharpeners on yield, agronomy, even land prices. But they absolutely suck when it comes to accounting for risk. If farmers were equated with pokers players, we would be considered all in, all the time. That needs to change. There are a lot of acres being run just for the banks, fcc and input companies.

Wonder what would shake if we had to bare ball it like they do down under? If I recall, I think Mallee said there is no all encompassing crop insurance program in Aus... All In, all the time would eventually sink you. Perhaps it makes no difference, and All in, all the time will still sink many a guy in this neighborhood as well. It's all good, so long as balance sheets continue to grow with asset inflation. If we start to decline, are there many balls deep operators, that would be able to make what would amount to a "margin call."?

[ajl]

If the FED had not started QE 4 last fall in the repo market, that margin call would have come last September. Operating loan renewals at 8 to 9% would nicely deal with any surplus grain. Obviously central banks are not completely out of ammo yet.

[farming101]

Not surprising given how farmers have been buying all the new toys because it "saves" them money. This isn't pretty. Heard Terry speak about this. Once again showing we are shopping ourselves to an outrageous cost of production versus revenue.

https://www.producer.com/2020/02/capital-turnover-ratio-declines/ https://www.producer.com/2020/02/capital-turnover-ratio-declines/

[ATTACH=CONFIG]5608[/ATTACH]

What does the number on the vertical axis represent?

[furrowtickler]

I wish I could introduce tweety to my neigbor, Monette Farms. I will try to flag down Combine #15 this fall and ask them about this chart.

Anyway, yes we are driving up inflation chasing production which in turn is increasing risk and holding down prices with overproduction. There is no denying that.

IMO farmers are pretty good pencil sharpeners on yield, agronomy, even land prices. But they absolutely suck when it comes to accounting for risk. If farmers were equated with pokers players, we would be considered all in, all the time. That needs to change. There are a lot of acres being run just for the banks, fcc and input companies.

And Input Capital.......

[tmyrfield]

What does the number on the vertical axis represent?

good question.
Gross revenue is pretty easy.
capital asset value can mean different things. depending on if you are using
book value or
fair market value or some blend of the two.
$1 dollar of assets producing $1 dollar of gross revenue would give you a ratio of 100.
the ratio change year over year shows what direction productivity is heading. so its going down indicating you'll need more and more dollars of assets to maintain gross revenue.

my understanding of it anyways

[tweety]

What does the number on the vertical axis represent?

Gross revenue divided by capital assets.

[tweety]

good question.
Gross revenue is pretty easy.
capital asset value can mean different things. depending on if you are using
book value or
fair market value or some blend of the two.
$1 dollar of assets producing $1 dollar of gross revenue would give you a ratio of 100.
the ratio change year over year shows what direction productivity is heading. so its going down indicating you'll need more and more dollars of assets to maintain gross revenue.

my understanding of it anyways

Terry said what happens is as the curve goes down, the asset rich cash poor model gets worse and worse. Old money eventually runs out because there is often the assumption the farm is profitable and sustainable.

He also had a chart of the top producers (long term solid farms) in the presentation and the trend of the curve was exactly the same, only a bit taller bars. It's unlikely grain prices will rise, if anything, go the other way. A chart of raw agricultural since farming is more then just grain. However, the ratio does not follow the price. So its obvious it's the denominator that's the issue.



On the plus side, most here don't farm in the US https://data.ers.usda.gov/reports.aspx?ID=17838 https://data.ers.usda.gov/reports.aspx?ID=17838

[Hamloc]

Gross revenue divided by capital assets.

Ok if that is the case gross revenue would have to far exceed capital assets. Does that mean land value is not included? I don't believe anywhere in western Canada the gross revenue of a quarter would exceed its value on a yearly basis, certainly could be wrong.