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July 14, 2005 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 Service farm management specialist. “From 1995 to 2004, median gross revenue increased 60 percent and both total farm assets and liabilities increased nearly 50 percent,” Swenson says. “However, farm families still feel the need for off farm income, which nearly doubled during the 10-year period.” The publication "Financial Characteristics of North Dakota Farms, 2003 2004," 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 1995-to-2004 period also are 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 size of a farm and age of an operator in 2004 for farms enrolled in the North Dakota Farm Business Management program was 2,000 acres and 46 years old, respectively. Median gross sales were $265,254. “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 are larger and half are smaller.” Overall financial performance in 2004 was strong, but down slightly, compared with 2003. The median net farm income of $44,912 was the third highest in the past 10 years. Higher costs and very low soybean, corn, sunflower and drybean yields were offset by crop insurance and very high spring wheat, canola and field pea yields. In addition, beef cow-calf profit was the best since 1990 and flax prices were very strong. Net farm income is volatile, Swenson says. “Year-to-year changes in median net farm income averaged nearly 40 percent from 1995 to 2004. The 10-year high was $49,181 in 2003. The financial performance was the lowest in 1997 and 1998 when over half the farms could not make scheduled term debt payments with the year’s income.” In four of the past 10 years, 2003, 2004, 1999 and 2000, the rate of return on equity exceeded the rate of return on assets, which indicates that debt capital was employed profitably. “One financial measure that had improved each year from 1998 to 2003, 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 and 2004, interest expense amounted to only 5.6 percent of gross revenue; unfortunately, it probably will increase for 2005.” As expected, sales volume and the debt to asset ratio have a strong influence on financial performance. From 1995 through 2004, median rates of return on assets and equity increased with sales volume. Farms with sales less than $100,000 were twice as likely to have a debt-to-asset ratio of more than 70 percent than were farms with sales greater than $250,000. Crop farms from 1995 through 2004 have been larger, as measured by gross sales, and have had better solvency and profitability than livestock farms. However, in 2004, the financial performance of livestock farms improved and crop farms declined. Median net farm income was $52,414 for crop farms and $35,376 for livestock. As typical, the median asset turnover ratio (gross revenue divided by total assets) in 2004 was higher for crop farms (0.47) than for livestock farms (0.29). Regionally, Red River Valley farms usually display the best financial performance measures. From 1995 to 2004, the Red River Valley has had stronger profitability, solvency and repayment capacity measures than other regions. Although Red River Valley farms typically have smaller total acreage, they have higher total farm sales, assets and liabilities than farms in other regions. 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 also may 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. 568). ### Source: Andrew
Swenson, (701) 231-7379, aswenson@ndsuext.nodak.edu |
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