October 18, 2001

Net Farm Income Will Be Lower in 2010

Net farm income in North Dakota will decline between 2001 and 2010 low-profit farms may not have the financial resiliency to survive, according to a study released by the Center for Agricultural Policy and Trade Studies at North Dakota State University.

Richard Taylor, research associate in NDSU’s agribusiness and applied economics department, says the major objective of the analysis was to evaluate changes in net farm income and debt-to-asset ratios for different sizes and profit categories of representative farms. The model used had 24 representative farms, six each from four regions of North Dakota, including the Red River Valley, north central, south central and west. The farms are representative of average, high and low profit and small medium and large farms enrolled in the North Dakota Farm and Ranch Business Management Education Program.

The simulation model assumes a yield trend based on historical data and predicted prices based on historical relationships between Food and Agricultural Policy Research Institute (FAPRI) prices and prices received by North Dakota farmers. Also, trade and agricultural policy assumptions made by FAPRI are used.

Each representative farm is an average of all farms in its production region. Large farms, representative of the largest 25 percent of farms for each region, averaged 3,164 cropland acres. Medium size farms averaged 1,424 cropland acres, and small farms, an average of the smallest 25 percent of farms in each region, averaged 564 cropland acres.

According to study results, net farm income for the large size farm will decrease from $122,000 in 2000 to $82,000 in 2002, then slowly increase to $91,000 in 2006 and remain relatively flat until 2010. Net income in 2010 will be 25 percent lower then that in 2000. For the medium size farm, net farm income will decrease from $68,000 in 2000 to $47,000 in 2002, then increase to $53,000 in 2010. Net income for the small size farm will decrease from $33,000 in 2000 to $24,000 in 2002, then increase to $26,000 in 2010.

All representative farms benefitted from government payments and cash crop insurance in 2000. In 2002 and beyond, it is assumed that government payments will be reduced to the 1996 Federal Agriculture Improvement Reform (FAIR) Act, Taylor says.

"The result implies that the large size farm has enough net income to survive and expand, the medium and small size farms under the FAIR act and current international market conditions may not be able to expand and take advantage of current and future technology," says Taylor.

Higher debt-to-asset ratios for the low profit and small size farms, when coupled with low net farm income, suggest problems in sustaining the farm business unless substantial off-farm income is earned, he says. Without off-farm income to provide family living requirements, it is unlikely that the low profit farm can survive or obtain operating credit.

For a copy of the report, "2001 North Dakota Agricultural Outlook: Representative Farms 2001-2010," by Taylor, Won Koo and Andrew Swenson, contact Carol Jensen, P.O. Box 5636, Fargo, ND 58105, phone (701) 231-7441, Fax (701) 231-7400 or e-mail cjensen@ndsuext.nodak.edu . It is also available on the World Wide Web at http://agecon.lib.umn.edu/.

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Source: Richard Taylor, (701) 231-7990, staylor@ndsuext.nodak.edu
Editor: Gary Moran, (701) 231-7865, gmoran@ndsuext.nodak.edu