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September 23, 2004 Publication Shows Trends in N.D. Farm Financial Performance Farms are getting larger in North Dakota, according to Andrew Swenson, North Dakota State University Extension farm management specialist. “Over a 10 year period, 1994 to 2003, median acreage increased 32 percent and median gross revenue increased 53 percent. However, farm families still feel the need for off-farm income, which more than doubled.” The publication "Financial Characteristics of North Dakota Farms, 2001-2003," 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. Farm financial trends for the 1994 to 2003 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. Median size of farm and age of operator in 2003 for farms enrolled in the North Dakota Farm Business Management program was 2,000 acres and 45 years, respectively. Median gross sales were $248,000. “The median may be a better indicator of the typical farm because a few very large farms can significantly raise the average,” Swenson says. “The median is a midpoint: half the farms have a higher amount and half are lower.” Financial performance in 2003 was the highest of the 1994-2003 period because of a good wheat and barley crop, strong crop prices and improved livestock profit. Median net farm income was $49,181 in 2003, $38,079 in 2002, and $27,729 in 2001. Financial performance for the 1994-2003 period was poorest in 1997 and 1998 when over half of the farms could not make scheduled term debt payments with the year’s income. A strong improvement occurred in 2000 and 1999 because of extraordinary government and crop insurance payments, record yields for some crops and improved beef cattle prices. All 16 financial performance measures declined in 2001, except interest expense ratio, because of lower government subsidies, higher costs and continued low commodity prices. Performance rebounded in 2002, except for the drought-stricken west region and livestock farms, because of strong crop prices and lower costs. Regionally, Red River Valley farms usually display the best financial performance measures. From 1994 to 2003 this region had the highest net farm income each year, except for 1998. Although Red River Valley farms typically have smaller total acreage (but a higher proportion of acreage in crop land), they have much higher total farm sales, assets and liabilities than farms in other regions. Crop farms tend to have higher gross and net income, assets and liabilities than do livestock or mixed enterprise farms. Farms are much more likely to be classified as livestock in the west than in other regions. In 2003, the median net farm income was $71,300 for crop farms, $25,200 for livestock farms and $31,000 for mixed (crop and livestock) enterprise farms. “One financial measure that has improved consistently over the past 6 years, regardless of region or farm type, is interest expense as a percent of gross revenue,” Swenson says. “This has been driven by lower interest rates and higher gross revenues. In 2003, interest expense amounted to 5.6 percent of gross revenue.” As expected, sales volume and debt-to-asset have a strong influence on financial performance. Every year, 1994-2003, median rates of return on assets and equity increased with sales volume. Low debt farms are three to five times more likely to have net farm income greater than $50,000 than farms with a high debt-to-asset ratio. “Interestingly, financial efficiency measures of smaller farms (less than 1,600 acres) tend to be similar with larger farms,” Swenson says. “This indicates that greater profitability of farms larger than 1,600 acres is due to larger sales volume and/or greater operator labor efficiencies not lower operating expenses per dollar of sales.” 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 Report No. 546). ### Source:
Andrew Swenson, (701) 231-7379, andrew.l.swenson@ndsu.nodak.edu |
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North Dakota State University |
