October 11, 2001

New Publication Shows Trends in N.D. Farm Financial Performance

The debt-to-asset ratio of North Dakota farms improved in 2000 and in 1999 after declining each year from 1994-1998. This finding is among many relating to North Dakota farms in a new publication from North Dakota State University.

Titled "Financial Characteristics of North Dakota Farms, 1998-2000," the publication contains highlights from a financial analysis of more than 530 farms enrolled in the North Dakota Farm Business Management program, along with useful benchmarks to evaluate the financial performance of farms of various types and sizes and in different regions, says Andrew Swenson, farm management specialist for the NDSU Extension Service. Farm financial trends for the 1991-2000 period are also presented.

These benchmarks are in the form of 16 median financial performance figures including net farm income, debt-to-asset ratio, current ratio (current assets divided by current liabilities), rate of return on assets and interest expense as a percentage of gross revenue. "The median provides a better indicator of how the typical farm is faring," Swenson explains, "because a few very large farms can significantly raise the average. The median is a midpoint: half the farms have a higher amount and half are lower."

The farms in this study are larger and the operators are younger than the state average. Average size of farm and age of operator in 2000 was 2,289 acres and 44 years, respectively, compared to 1,300 acres and 51 years for all farms in the state.

"These farms may be representative of operators who rely on farming for a substantial portion of their livelihood," Swenson concludes. "Nearly five percent of all North Dakota farms with gross revenue greater than $100,000 are included in the analysis."

Swenson points to other significant findings in the new study:

• Median net farm income of $45,085 in 2000 was the highest in the decade but 1993 and 1992 had the highest profit after adjusting for inflation.
• Despite very low crop prices, financial performance was strong in 2000 and 1999 because of extraordinary government and crop insurance payments, improved beef prices and generally strong yields.
• The worst financial performance in the 1990s occurred in 1997 and 1998 when one-fourth of farms had negative net farm income and more than half of farms could not make scheduled term debt payments with farm and non-farm income.
• Farm size continues to increase. In 2000, median farm acreage and sales were 38 percent and 55 percent higher, respectively, than 1991.
• Red River Valley farms typically have smaller total acreage and percent of crop land owned, but have much larger total farm sales, assets and liabilities than farms in other regions.
• The Red River Valley region had the highest median net farm income every year from 1991 to 2000, except for 1993 and 1998.
• Crop farms tend to have more total assets and liabilities and greater gross and net income than livestock and mixed enterprise farms. In the 1991-2000 period profitability of livestock farms was similar to crop farms only in 1993 (both high) and 1997 (both low).
• Median net farm income as a percent of gross revenue, a financial efficiency measure, was the highest in the 1991-1993 period, averaging 26.5% and the lowest in the 1995-1998 period, averaging 13.8%.
• Farms that own some crop land, but less than 20% of the land they operate, typically are larger and more profitable.
• One-half of farms with sales greater than $250,000 had low debt (less than 40% debt) compared to only one-fourth of farms with sales less than $100,000
• Farmers between 35 and 45 years old typically had more debt, higher gross sales, larger farms and were more profitable than the younger or older age groups.

For a free copy of the publication, contact the Department of Agribusiness and Applied Economics, NDSU, Fargo ND 58105-5437, or call (701) 231-7441. This publication may also be obtained on the World Wide Web (http://agecon.lib.umn.edu/).

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Gary Moran, (701) 231-7865, gmoran@ndsuext.nodak.edu