North Dakota State University -- NDSU Agriculture Communication
7 Morrill Hall, Fargo ND, 58105-5655, Tel: 701-231-7881, Fax: 701-231-7044
agcomm@ndsuext.nodak.edu

September 5, 2003

 

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

In 2002, farms with less than 40 percent debt were three times as likely to have net farm income greater than $50,000 than farms with more 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, 2000-2002," the publication contains highlights from a financial analysis of more than 500 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 1993-2002 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, term debt coverage ratio, 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 2002 was 2,400 acres and 44 years, respectively, compared to 1,313 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. "More than 42 percent of farms included in the analysis had gross revenue greater than $250,000."

Median net farm income in 2002 was $38,100. That is 37 percent higher than 2001 because crop prices were sharply higher and costs were lower. However, livestock prices were lower and areas of the west and south central suffered drought. As a result, financial performance greatly improved in the Red River Valley and north central regions and deteriorated in the west. Median net farm income for crop farms doubled to $60,591, but mixed enterprise and livestock farms declined by over 30 percent to $17,645 and $16,935, respectively, compared to 2001.

Swenson points to other significant findings in the study:

  • Performance for the 1993-2002 period was the poorest in 1997 and 1998 when more than one-half of farms could not make scheduled term debt payments with the years income. Profitability of livestock and mixed farms was very poor in 1995-1998. In 1997 the performance of all farm types was extremely weak.
  • 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 for some crops and improved beef cattle prices.
  • In 2001, all 16 measures of financial performance, except the median interest expense ratio, deteriorated in each region.
  • In the 1993-2002 period median farm acreage and gross cash revenue increased about 40 percent.
  • Median net farm income as a percent of gross revenue was 17.3 percent in 2002 and 14 percent in 2001. In the 1993-2002 period, it was the highest, 26.6 percent, in 1993 and lowest, averaging 10.4 percent, during 1997-1998.
  • A strong relationship between gross sales and financial performance is typical. Every year median rates of return on assets and equity increased with sales volume.
  • 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 1993 to 2002, 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 farmers less than 35 years old employed assets more efficiently than farmers older than 45 years.
  • The 6.6 percent interest expense as a percent of gross revenue for 2002 is the lowest in the 1993-2002 period. It has declined five consecutive years because of lower interest rates and higher gross revenue.
  • In the 1993-2002 period, crop farms tended to have more total assets and liabilities and greater gross and net income than livestock and mixed enterprise farms. Profitability of livestock farms was similar to crop farms only in 1993, 1997 and 2001.
  • The median asset turnover ratio was 0.47 for crop farms, 0.29 for mixed enterprise farms and 0.22 for livestock farms in 2002. A higher ratio for crop farms is typical.
  • Farm type and sales are correlated. In 2002, over one-half of crop farms had sales in excess of $250,000 compared to only one-fifth of livestock farms.
  • As expected, farms with greater than 1,600 acres have greater assets, liabilities, sales and profitability than smaller farms. Larger farms also have better liquidity and solvency.
  • As debt-to-asset increases, the measures of liquidity, repayment capacity, profitability and financial efficiency, deteriorate.
  • Red River Valley farms, crop farms, farms with greater than 1,600 acres and farms with sales greater than $250,000 had lower median debt-to-asset than other regions, farm types, farm size and farm sales groups, respectively, during the years 1996-2002.
  • Farmers in the middle age group typically had more total farm liabilities, 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 Web at http://agecon.lib.umn.edu/  (select "North Dakota State University," then select "display all records for the institution/department" and choose 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