Farmers’ Working Capital Expected to Dip in 2021

KANSAS CITY, MO – Liquidity is the ability to convert assets to cash quickly to satisfy short-term obligations without the assets losing material value.

Researchers with the Economic Research Service (ERS) examined two measures of the U.S. farm sector’s liquidity: working capital and the times interest earned ratio.

Working capital measures the amount of cash available to fund operating expenses after paying off debt to creditors due within 12 months, also known as current debt. ERS forecasts farm sector working capital in 2021 at $74.3 billion, a 13.6 percent decrease from 2020 after adjusting for inflation. If realized, this would be the largest decline since 2016.

By comparison, the times interest earned ratio measures the farm sector’s ability to service debt out of net farm income, so a higher times interest earned ratio indicates greater ease in making debt payments. ERS forecasts the times interest earned ratio will decrease from 9.2 in 2020 to 8.4 in 2021. The weakening of this ratio reflects the forecast decline in net farm income as well as the expected increase in interest expenses. Still, the times interest earned ratio is forecast to remain above levels experienced between 2014 and 2019.
(SOURCE: All Ag News)