N.D. Farm Financial Performance From 1997 to 2006 is Mixed

Farm financial performance in North Dakota is volatile. Year-to-year changes in median net farm income within regions and farm types often exceed 50 percent.

"An extreme example is the west Missouri River region, where, because of drought, high production costs and lower cattle prices, median net farm income dropped to only $689 in 2006 from $43,987 in 2005," says Andrew Swenson, North Dakota State University Extension Service farm management specialist.

This was the lowest net farm income for any region during the past 10 years, according to the publication "Financial Characteristics of North Dakota Farms, 2005-2006," which summarizes the financial analysis of more than 500 farms enrolled in the North Dakota Farm Business Management program.

The publication contains highlights and useful benchmarks to evaluate the financial performance of groups of farms categorized by region, type, gross cash sales, farm tenure, net farm income, debt-to-asset ratio and the age of the farmer.

The benchmarks are in the form of 16 median financial performance figures, which include net farm income, debt-to-asset ratio, current ratio, term debt coverage ratio and interest expense as a percentage of gross revenue.

In 2006, the median and average acreage of the farms was 1,966 and 2,386, respectively. Median and average cash farm revenue was $281,751 and $361,418, respectively.

“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 at which half the farms have a higher amount and half are lower.”

Statewide, the median net farm income of $35,980 in 2006 was the lowest in five years, even though there was a 71 percent increase in the Red River Valley region from 2005. Median net farm income in 2006 for the north-central region improved 18 percent, to $34,777, but declined 47 percent, to $32,576, in the south-central region.

From 1997 to 2006, the Red River Valley and the crop farm category had stronger profitability, solvency and repayment capacity than other regions and farm types, except in 2005, when the south-central region and livestock farms performed better. One reason is that Red River Valley farms and crop farms tend to be larger, as measured by gross revenue and total assets, than farms in other regions and livestock and mixed crop-livestock farms.

"The return on equity exceeded the return on assets, which indicates that debt capital was employed profitably in 1999, 2000, 2003 and 2004," Swenson says. "The economic incentive for farms to get larger is apparent as net farm income, rates of return on assets and equity, asset turnover, and measures of liquidity, repayment capacity and solvency typically improved with sales volume. For example, in 2006, farms with sales of less than $100,000 were twice as likely to have a debt-to-asset ratio higher than 70 percent than were farms with sales greater than $500,000."

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. Also, this publication will soon be available 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. 608).

NDSU Agriculture Communication