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New Simulation Tool to Benchmark Farmers' Financial Health
USAgNet - 03/16/2018

The Gardner Agriculture Policy Program at the University of Illinois has introduced a comprehensive tool for farm income, economics, and policy analysis. The Gardner Farm Income and Policy Simulator (GFIPS) project simulates future farm financial performance using a starting set of farm characteristics and financial data.

Krista Swanson, a U of I research specialist, wants farmers to visualize their financial health. "The GFIPS is not meant to predict the future," she explains. "It's a tool for benchmarking and looking at financial and policy scenarios."

GFIPS generates a set of financial statements over a five-year projection period. The financial statements, including a balance sheet, income statement, cash flow, and debt capital repayment report, can be used to evaluate financial health, risk and performance.

When simulating performance, yields and prices can be changed to quantify yield and price impacts on financial performance. "Right now, the model is set up to analyze corn, soybeans, and wheat. We are looking to consider more commodities in the future," Swanson adds.

The simulation engine includes current agricultural policy options for Agricultural Risk Coverage and Price Loss Coverage. The model also considers crop insurance products such as Revenue Protection (RP), RP with harvest price option, and Yield Protection, as well as different tax policies. If policy-related debates present potential for change from current programs, those options can be built in and evaluated in GFIPS.

GFIPS works through detailed economic and financial modelling, using a case farm developed from data collected by the Illinois Farm Business Farm Management Association (FBFM). A case farm was created to provide a unique representation of actual Illinois grain farms under real-world economic conditions.

Researchers used the GFIPS model to simulate a 1,700-acre central Illinois grain farm from 2017 to 2021. According to the case study, this farm has 1,700 acres, with 11 percent owned, 44 percent share-rented, and 45 percent cash rented. More data from the case study can be found on the farmdoc website.

The case farm study concluded that if relatively low prices and trend yields occur over the next five years, deterioration in working capital, debt-to-asset position, and debt coverage will occur. Higher yields like those in 2016 and 2017 could continue in future years and alternatively, prices could increase.

Using the GFIPS model, farmers would be able to explore different scenarios in accordance with agriculture policies and other factors. Swanson believes that this will help farmers in the long run.

"With commodities entering the fourth year of relatively lower prices, financial health is coming to the forefront for many farmers," Swanson explains. "Farmers are thinking more about financials, inputs, and yields. They want to make sure they are staying competitive."

Swanson says the next steps are to continue using the GFIPS model internally and in different scenarios. "We're planning to do a lot of different studies over the next several months in accordance with agriculture policies -- more specifically with the Farm Bill," she adds.

For more information about GFIPS and the case study, visit the farmdoc website.


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