Gap Between Highest, Lowest Profit Farms Widens

The gap between the highest and lowest profit farms is the widest that I have seen.”

That’s one key conclusion Andrew Swenson has on data from 475 farms enrolled in North Dakota’s Farm Business Management Education Program in 2000, sponsored by the State Board of Vocational Technical Education.

Swenson, extension farm management specialist at NDSU, says that the 20% high profit farms in the 2000 analysis netted $142,400 income compared to a $7,500 loss for the 20% of farms in the low profit group. The high profit farms were larger, averaging 3,357 total acres compared to 1,613 crop and pasture acres for the low profit farms.

High profit farms had relatively less debt at 38%, compared to the 72% debt level of low profit farms. Also, high profit farms generally had better yields, but also had higher government payments and crop insurance income, on a per acre basis, than the low profit farms.

The net farm income of the 60% of producers in the middle range profit group was $45,100. “I believe that group is a good representation of the typical family farm,” Swenson says.

He notes that net farm income is not equivalent to an annual wage or salary, because it represents the return to the farm operator’s usually substantial investment in the business, as well as the return to operator’s labor and management. Also, the farm operator must pay all social security and medicare taxes. “Remember that the operator receives no employee benefits,” Swenson says. “Health insurance must be purchased, and retirement plans funded, out of net farm income.”

According to the analysis of ND farm business management participants, the average net farm income of farms that operate outside of the Red River Valley was $54,000 in 2000, compared to $51,200 in 1999. Average profitability was fairly uniform geographically throughout the state, says Swenson. An exception was the northwest corner of North Dakota where durum, the major enterprise of the region, was poor quality and low price. For example, the 19 farms in the report from Mountrail County averaged only $22,100 net farm income.

Another exception was the northeast region where average profit was higher because of crop insurance income. Forty-four farms in Ramsey, Nelson, Cavalier, and Towner counties averaged $85,500 net income. Also, farms in the southwest quarter of North Dakota fared better than average last year because of strong yields and profitable cow calf enterprises, Swenson notes. Profitability of the beef cow-calf enterprise improved to $124 per cow in 2000, compared to $97 in 1999, and a dismal annual average of $3 for the five years, 1994 to 1998.

Total crop production costs were higher in 2000, mainly because of fuel. However, crop yields were generally good. Spring wheat had the highest yield since 1992 and achieved a $9 profit per acre on cash rented ground, including loan deficiency and disaster payments. Similar crop enterprise analysis, which showed a profit, was flax at just over breakeven, corn at $8 per acre, soybeans and sunflowers at about $15 per acre and confectionery sunflowers, pinto beans, and winter wheat with more than $20 return per acre.

“The need for government support in an environment of low grain prices was highlighted in the figures for 2000,” Swenson says. “Despite generally strong yields and improved beef cattle profitability, average net farm income would have been negative in the absence of all government payments. Looking forward, unless grain prices have a significant rally, crop producers will again be dependent on emergency federal legislation in 2001 to maintain income levels.”

Several consistent trends of the past decade held true for 2000 in the analysis:

•  Farm size increased, whether measured in acres or gross cash revenue. In 2000 the average size of farms in the program had increased by about 47%: from 1,600 total acres in 1991 to over 2,350 crop and pasture acres in 2000.

•  The proportion of cropland being rented versus being owned increased from 62% to 70%.

•  Average gross cash revenue has increased every year, from $132,300 in 1991 to $231,400 in 2000.

•  Off-farm wages and salaries have doubled, from about $5,900 in 1991 to over $12,200 in 2000.

•  The average age of farmer increased from 39.4 in 1991 to 43.8 in 2000.

The state summary is available on the Web at www.state.nd.us/vte/programs/ag or www.ag.ndsu.nodak.edu/aginfo/farmmgmt/ndfbm/stavg00/stavgs00.htm.    It includes a detailed enterprise analysis for various crops and livestock.  Regional summaries for western, north central, and south central North Dakota, and the Red River Valley of Minnesota and North Dakota are available. In addition to whole-farm financial information, these books detail costs and returns of livestock and crop enterprises. For more information, call (701) 328-9640.

The ND crop enterprise analysis for spring wheat on rented land (statewide excluding the Red River Valley)from the 2000 ND Farm Business Management Education Program report is on page 21, followed by the crop enterprise analysis for cash rent spring wheat and soybeans in the Red River Valley, from Northwestern Minnesota Farm Business Management averages, as compiled by Northland Community and Technical College, Thief River Falls, MN. A link to Minnesota Farm Business Management reports for 2000, from six regions across the state can be found on the Web: www.mgt.org/fbm/reports/index.htm

ND Crop Enterprise Analysis, 2000: Spring Wheat on Cash rent North Dakota Farm Business Management Education Program (Farm Sorted by net Return)   Ave. of All Farms Low 20 % High 20% Number of fields 394 71 88 Number of Farms 167 33 34 Acres 156.82 129.92 160.46 Yield per acre (bushel) 33.49 23.91 40.34 Operators share of yield % 100.00 100.00 100.00 Value per bushel 3.39 3.13 3.58 Other product return per acre 0.00 0.03 -- Total product return per acre 113.58 74.90 144.58 Misc. income per acre 9.42 6.39 12.92 Gross return per acre 123.00 81.30 157.49         Direct Expenses         Seed 7.29 8.13 6.85   Ferrtilizer 14.95 13.70 14.36   Crop Chemicals 11.88 15.41 11.35   Crop Insurance 6.48 8.02 6.46   Fuel & Oil 6.40 6.77 6.37   Repairs 9.81 10.85 9.38   Custom Hire 3.28 3.40 3.17   Land rent 29.10 27.78 28.22   Operating Interest 3.12 4.32 2.51   Misc. 0.57 0.45 0.60 Total direct expenses per acre 92.86 98.83 89.27 Return over direct exp per acre 30.14 -17.54 68.22         Overhead Expenses       Hired labor 3.12 2.39 3.10 Machinery & bldg leases 1.54 2.00 1.42 Farm insurance 1.43 1.24 1.35 Utilities 1.13 1.11 1.21 Dues & professional fees 0.44 0.58 0.56 Interest 3.24 3.31 2.77 Mach & bldg depreciation 8.03 6.07 7.89 Misc 1.86 1.79 1.76 Total overhead expenses per acre 20.78 18.49 20.07 Total dir & ovhd expenses per acre 113.65 117.32 109.34 Net return per acre 9.35 -36.03 48.15         Lbr & mgt charge per acre 12.25 13.37 11.99 Net return over lbr & mgt -2.90 -49.39 36.16 Government payments 17.48 -27.39 56.32         Cost of Production       Total direct expense per bushel 2.77 4.13 2.21 Total dir & ovhd exp per bushel 3.39 4.91 2.71 With labor & management 3.76 5.47 3.01 Total exp less govt & other income 2.87 4.28 2.19 Link to MN FBM reports for 2000, six regions across the state www.mgt.org/fbm/reports/index.htm