August 2, 2002

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

In 2001, farms with less than 40 percent debt were five times as likely to have net farm income in excess of $50,000 than farms with greater than 70 percent debt. 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, 1999-2001," 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 1992-2001 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 2001 was 2,292 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 5 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 study:

• Median net farm income was $27,729, 40 percent less than in 2000 because of lower government subsidies, higher costs and continued low commodity prices.
• In 2001, all 16 measures of financial performance declined in each region except the median interest expense ratio improved in the west region. The north central region experienced the greatest decline in financial performance compared to 2000.
• Financial performance in 2000 and 1999 was the highest since 1993 because low crop prices were offset by extraordinary government and crop insurance payments, good yields and improved beef cattle prices.
• Profitability of livestock and mixed farms was very poor in 1995-1998. In 1997 the performance of all farm types was extremely weak.
• In the 1992-2001 period median gross revenue increased from $142,262 to $216, 697 but profit margins have generally decreased. Median net farm income as a percent of gross revenue was the highest, for the 1992-1994 period, averaging 25.4 percent, and lowest, for the 1995-1998 period, averaging 13.8 percent. It was 14 percent in 2001.
• A strong relationship between gross sales and financial performance is typical. Every year, 1992-2001, median rates of return on assets and equity increased with sales volume.
• Typically, repayment capacity is directly related to amount of sales. However, in 1997, when farms had poor profitability regardless of sales level, farms with less than $100,000 sales had the best repayment capacity.
• Farms that own some land, but not a lot, are typically the most profitable. Farms in the 1 to 20 percent crop land ownership category are also more likely to be crop farms, have more acreage, and have larger sales.
• The Red River Valley region had the highest median net farm income every year from 1992 to 2001, except for 1993 and 1998.
• 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.
• In each year, 1992-2001, farmers less than 35 years old employed assets more efficiently than farmers older than 45 years.

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 at http://agecon.lib.umn.edu/  (select North Dakota State University and Report No. 490).

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Source: Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu