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Farm Profit Cut in Half in 2009

There was a large difference in profit by farm type.

Farm profit declined by more than half in 2009, according to records from farms enrolled in the North Dakota Farm Business Management Education program. The average net farm income was $86,665. The large drop followed the historically high farm profit years of 2007 and 2008.

“Median net farm income in 2009, at $47,768, was substantially less than the average,” says Andy Swenson, North Dakota State University Extension Service farm management specialist. “Highly profitable farms raised the overall average relative to the profit of the farm, which was the midpoint, or median, (one-half of farms had higher profit and one-half had lower profit). The average net income of the top 20 percent of the most profitable farms was $318,895. The 20 percent least profitable farms lost an average $55,493.”

There was a large difference in profit by farm type. Although profit for crop farms declined from last year, most still had a strong year, averaging $122,962. Beef farms averaged only $8,440 in net income. The beef farms were smaller, as measured by gross revenues, averaging about $250,000, compared with nearly $700,000 for crop farms. Also, for every dollar of gross revenue, beef farms managed only 3.3 cents of net income after expenses, compared with 17.9 cents for crop farms.

“Higher costs and lower prices have been difficult on beef cow-calf producers the past few years,” Swenson says. “Hopefully, these negative trends peaked in 2009 when net income per beef cow was the lowest since 1996.”

Prices for many crops, such as spring wheat, durum, corn, sunflowers, flax and field peas, tumbled by one-fourth or more from 2008 average prices. Quality problems and associated price discounts for crops, such as wheat and corn, aggravated the situation. The drop in crop prices reduced income per bushel for the crops grown in 2009 and caused losses from beginning inventories of grain, which were sold at lower prices during 2009.

“Fortunately, soybeans, lentils and dry edible beans resisted the general decline in crop prices, and state record yields of wheat, durum, barley, canola and field peas helped to offset the impact of lower prices,” Swenson says.

Crop insurance revenues were high, more than $45,000 per farm, for the second year. In 2008, most payouts were because of low yields caused by the drought in western North Dakota. In 2009, it was too wet to plant crops in parts of North Dakota and payments for prevented planting were made.

In 2009, the cost of producing a crop was similar to the all-time record high level of 2008. From 2003 through 2008, crop production costs had increased every year, culminating with a one-year jump of about 30 percent in 2008.

In 2009, the state average total costs on cash-rented land increased 6 percent for corn, to $430 per acre, but decreased 3.5 percent for spring wheat, to $225 per acre.

“Although total crop costs per acre were similar to 2008, there were significant changes in some individual cost items,” Swenson says. “Fertilizer prices peaked in the fall of 2008 and dropped throughout 2009. However, many producers, coming off high income years and concerned about potential fertilizer shortages, made early purchases of fertilizer at very high prices. Therefore, per-acre fertilizer expenses were higher for the 2009 crop year than for 2008. For example, it increased from $50 to $57 for spring wheat and from $86 to $111 for corn.”

Seed expenditures per acre, relative to 2008, varied greatly by crop. The percentage increases were 14, 17, 25 and 33 for sunflowers, corn, soybeans and canola, respectively. Per-acre seed expenses for wheat and barley declined by one-fourth.

Per-acre fuel expenses declined by about 25 percent and crop insurance expenditures dropped by 25 to 40 percent, depending on the crop.

“Most crops had a positive return to the operator’s labor, management and equity,” Swenson says. “For example, the average profit per acre on cash-rented land was $133 for pinto beans, $83 for barley, $74 for canola, $53 for soybeans, $33 for spring wheat and $17 for oil sunflowers. However, corn lost an average of $34 per acre in 2009.”

Farms in the Red River Valley had lower returns than the overall state average. This has occurred only twice in the prior 15 years. It happened again in 2009 because of a higher concentration of corn acres and because wheat production in the Red River Valley had negative returns. The negative returns for wheat were due to greater price discounts for low-protein grain and higher production costs relative to the rest of the state.

The average acreage per farm in the state summary of the North Dakota Farm Business Management Education Program was 2,522 acres. Of that total, 641 acres were dedicated to pasture land. The average age of the operator was 45.3 years.

Net farm income is calculated by adjusting net cash income less depreciation by changes in inventory. Management depreciation of machinery is used instead of tax depreciation.

“Farmers have substantial investments in equipment, livestock and land,” Swenson says. “Net farm income represents the annual payment a producer receives on these farm investments and for the management and labor the farm family provides. Farmers are self-employed and, therefore, do not receive benefits that employers often provide wage earners, such as pension plans and health insurance. Farm operators need to provide for those items and for self-employment and income taxes from their net farm income.”

The state farm business management summary is available online at http://www.ndfarmmanagement.com. It also can be ordered for $6 from Farm Business Management, P.O. Box 6022, Bismarck, ND 58506. The price includes postage and handling. Phone orders can be made by calling (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.


NDSU Agriculture Communication

Source:Andy Swenson, (701) 231-7379, andrew.swenson@ndsu.edu
Editor:Rich Mattern, (701) 231- 6136, richard.mattern@ndsu.edu
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