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May 5, 2005 North Dakota Farm Profit Down Slightly in 2004 A recently published summary of North Dakota’s farm business management education program showed an average 2004 net farm income of $58,000 for 434 farms outside of the Red River Valley. Andrew Swenson, North Dakota State University farm management specialist, believes this summary provides excellent information to track the health of North Dakota agriculture because of its detail and the size of farms participating in the program. The farms enrolled in the program represent 6 percent of the state’s population of farms with gross cash revenue exceeding $250,000. In addition, the farms are located in almost every county of the state. The average net farm income was down almost 12 percent, from $65,700 in 2003, which was the highest in a decade. However, Swenson notes that in the risky business of production agriculture, a 12 percent movement is very modest. The year-to-year change in net farm income during the previous 10 years averaged 48 percent. “On average, 2004 was a good year, not because of gains in cost efficiencies, but because of strong gross revenue,” Swenson says. “Accrual gross revenue averaged $322,430 in 2004. Total expenses usually consume about 80 percent to 85 percent of gross revenue, or alternatively, net farm income is often 15 percent to 20 percent of gross revenue.” In 2004, net farm income as a percent of gross averaged 18 percent. Family living expenses and taxes averaged $48,000, indicating a farm with average margins had to gross $266,666 to generate enough profit to cover family living and taxes. Not only did farms, on average, have more than enough profit to pay living expenses and taxes, but farm households also reported $20,000 in nonfarm income, mainly from off- farm wages. Therefore, net worth of farm households generally increased. “Of course, not all farms fared well in 2004,” Swenson says. “A fifth lost an average of $12,000 and the middle three-fifths of farms averaged $46,000 net farm income. In contrast, the most profitable one-fifth of farms achieved average net farm income of $163,000 on 4,200 acres (cropland and pasture).” The low-profit farms
averaged 1,700 acres and the farms contained in the middle 60 percent
profit group averaged 2,300 total crop and pasture acres. “In one sense, 2004 was a year of extremes,” Swenson says. “We had very low corn and soybean yields, the second highest wheat yield in history and the best profit per beef cow since 1990 at $190. Yet, this combination of unlikely events produced a scenario where profit per farm between regions and farm types was more level than in most years.” Negatives were offset by positives or vice versa, Swenson notes. “For instance, in the southwest, spotty crop yields from dry weather were offset by livestock profit and protein premiums on wheat. Another example is the northeast quarter of the state, where poor corn, soybean, sunflower and dry bean yields, plus small-grain quality concerns were balanced by strong small-grain, canola and field pea yields, high flax and dry bean prices, crop insurance and estimated disaster payments (accounts receivable). Looking ahead, the challenge for 2005 will be to generate enough gross revenue to stay ahead of spiraling costs. In 2004, the costs of production for wheat increased 8 percent to the highest amount on record. It will be worse in 2005 because of higher energy and fertilizer costs and higher interest rates. Interest expense as a percent of gross revenue has declined each of the past seven years, from 10.5 percent in 1997 to 5.5 percent in 2004. That trend will change in 2005. The state farm business management summary is available on the Web at www.ag.ndsu.nodak.edu/aginfo/farmmgmt/FBM.htm. It can be ordered by mail for $6 by writing to Farm Business Management, P.O. Box 6022, Bismarck, ND 58506. The price includes postage and handling. To order by phone, call (701) 328-9640. Regional summaries for western, north-central, and south-central North Dakota and the Red River Valley of Minnesota and North Dakota also are available. In addition to whole-farm financial information, these books detail costs and returns of livestock and crop enterprises. ### Source:
Andrew Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu |
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North Dakota State University |
