October 2019

Farm liquidity slightly up, but still subdued

Average accrued net farm income in Iowa declined by 89% from its peak at $243,072 in 2012 to $27,927 in 2015, before recovering to $58,832 in 2018 (Plastina 2019a). Because of this erosion in farm profitability, a deterioration of the overall financial health of the farm sector ensued, in terms of both lower average liquidity1 levels and higher average farm debt levels, particularly in short- and medium- term liabilities (Figure 1).

figure 1

The average current ratio (calculated as current assets divided by current liabilities) for Iowa farms peaked in 2012 at 7.08, and it has since declined to 2.77 in 2017, its lowest level since 2001, before increasing slightly to 3.14 in 2018. Similarly, the average working capital (calculated as the difference between current assets and current liabilities) per dollar of gross revenue declined from 0.78 in 2013 to 0.55 in 2017, and increased to 0.56 in 2018. However, understanding the actual distribution of liquidity across farms is more relevant to track the financial health of the farm sector than measuring the liquidity of the "average" farm. This is particularly true for a low-commodity-price environment with sticky costs that puts extra strain on cash-flow budgets.


Following Plastina (2019b), and based on the availability of complete and detailed financial statements for the years 2014- 2018, 214 mid-sized commercial farms were selected from the Iowa Farm Business Association2 (IFBA) database. The sample farms are believed to be representative of mid-scale commercial farms largely managed by experienced farmers.

Liquidity Ratings

Based on their current ratio in December of each year, each of the 214 sample farms were assigned a liquidity rating in each year: vulnerable, normal, or strong. A current ratio above 1.7 indicates a strong liquidity position; a ratio below 1.3 indicates a vulnerable liquidity position, and a ratio between 1.3 and 1.7 is normal and indicates that liquidity should be kept under close watch (Becker et al. 2014).3 To avoid outliers, only farms with non-negative current ratio values below 50 were selected.

figures 2-3

The distribution of counts of farms across the three categories is used as an indicator of the overall financial liquidity situation among mid-scale commercial farms in Iowa at calendar year-end. The count of farms that switched categories across years is used as an indicator of the change in the liquidity situation for Iowa farms.


While farms with strong liquidity ratings accounted for 45.8% of the sample in December 2014, they only represented 33.6% of the sample in December 2018 (Figure 2). Conversely, while farms with vulnerable liquidity ratings represented 31.3% of the sample in 2014, they accounted for 43.9% of the sample in 2018.

As shown in Figure 3, most of the increase in the number of farms with vulnerable liquidity ratings occurred in 2015, followed by another increase in 2016 (8.9% and 4.2%, respectively). However, the decline in the number of farms with strong liquidity ratings took place mostly in 2015 and 2017, with a slight improvement in 2016.

The average loss in working capital per acre across all farms in the sample amounted to $139 in 2015, $76 in 2016, and $22 in 2017, accumulating a $237 loss between December 2014 and December 2017. In 2018, average working capital per acre increased by $47, the equivalent of 20% of the accumulated loss in 2014-2017. More importantly, between December 2014 and December 2017, 5% of the farms lost at least $100 of working capital per acre per year, 6% lost between $50 and $100, and 6% lost between $25 and $50. However, only 1 in 12 farms that lost at least $25 of working capital per acre per year in 2015-2017 was able to offset those losses in 2018.

Figure 4 shows the annual evolution of average working capital per acre by group of farms. However, since the composition of each group of farms varies from year to year, a more informative comparison is provided in Figure 5, which shows the annual evolution of working capital per acre for all sample farms grouped according to their vulnerability ratings in December 2018. The average working capital per acre increased for the three groups of farms in 2018. However, while the vulnerable farms only recovered 7% of the working capital lost in 2014-2017 ($20 vs. $307), the group of farms with normal liquidity recovered 18% of its loss ($44 vs. $245), and the group of farms with strong liquidity recovered 63% of its working capital loss ($88 vs. $140).

figures 4-5


This article describes the slight improvement in financial liquidity across Iowa farms in 2018, and confronts it to the strong deterioration observed over 2014- 2017. Although the sample size is small, the results of this study are intended to serve as an initial guide to understanding the extent of financial stress across agricultural operations in Iowa, and to highlight the critical relevance of developing and implementing realistic cash-flow budgets in production agriculture.


Becker, K., Kauppila D., Rogers G., Parsons R., Nordquist D., and R. Craven. 2014. "Farm Finance Scorecard." Center for Farm Financial Management, University of Minnesota.
Plastina, A. 2019a. "Iowa Farm Costs and Returns." Iowa State University Extension and Outreach. Ag Decision Maker File C1-10.
Plastina, A. 2019b. "Declining Liquidity in Iowa Farms: 2014-2017." Journal of the American Society of Farm Managers and Rural Appraisers.

1 Liquidity indicates the degree to which debt obligations coming due over the following year can be paid from cash or assets that soon will be turned into cash, and is typically measured by the current ratio and the working capital.
2 The IFBA is an independent association, managed and controlled by its farmer-members.
3 While dairy farms or other farms that have continuous sales throughout the year can safely operate with lower CRs, operations that concentrate sales during several periods each year (such as cash grain farms) need to strive for higher CRs, especially near the beginning of the crop year.

Alejandro Plastina, extension economist, 515-294-6160, plastina@iastate.edu


Alejandro Plastina

extension economist
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