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Spotlight on Economics: Area Agriculture Experiences Regional and Farm Type Role Reversal

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Andy Swenson, NDSU Extension farm and family resource management specialist, Agribusiness and Applied Economics Department Andy Swenson, NDSU Extension farm and family resource management specialist, Agribusiness and Applied Economics Department
Farms outside of the Red River Valley and livestock operations outperformed Red River Valley farms and crop farms in 2014.

By Andy Swenson, Farm and Family Resource Management Specialist

NDSU Agribusiness and Applied Economics Department

Typically, Red River Valley and crop farms have better financial performance than North Dakota farms outside of the Red River Valley and livestock farms.

In only three of the 20 years prior to 2013 did farms west of the Red River Valley have average net farm income greater than farms in the valley. During this time period, having livestock farms financially outperform crop farms was even rarer.

The averages from farms enrolled in the North Dakota and Minnesota Farm Business Management programs clearly show a role reversal in regard to farm performance during 2013 and 2014.

Red River Valley average net farm income was $61,749 in 2013 and $12,723 in 2014. Net farm income of North Dakota farms west of the Red River Valley was substantially higher, averaging $148,514 in 2013 and $94,413 in 2014. The median, which might be considered more representative of the typical farm, was $96,794 in 2013 and $63,549 in 2014.

The average net farm income for livestock farms was slightly lower than crop farms in 2013 but was substantially higher than crop farms in 2014.

Obviously, a farm’s annual performance is tied to the enterprises in which it is engaged. Farms in the Red River Valley of North Dakota and Minnesota are nearly exclusively cash crop farms. In 2014, only 2.5 percent of gross cash income was generated from livestock.

Farms enrolled in the North Dakota Farm Business Management Education program that were west of the Red River Valley had about 20 percent of gross cash sales from livestock. Eighty-two percent of the livestock income was associated with beef cattle.

North Dakota agriculture west of the Red River Valley is more diverse than Red River Valley farms in two ways: A wider variety of crops are grown and livestock are more prevalent. In 2013 and 2014, this provided better financial performance.

Red River Valley farms need to generate more revenue per acre than North Dakota farms outside of the valley because they have higher costs. Land rents are higher, fertilizer expenditures are greater because of higher yield goals, and machinery-related costs are greater because of more field operations.

During the past two years, lower prices for major commodities grown in the Red River Valley have put net farm income in a tailspin. Net return per acre on cash-rented land for soybeans was $213 in 2012, $79 in 2013 and $6 in 2014. During the past three years, net return per acre of wheat dropped from $135 to $30 and minus $28. Corn went from $331 per acre to minus $62 in 2013 and minus $77 in 2014. Sugar beets also experienced a similar trend from strong profit to significant losses.

Corn and sugar beets had poor net income, and these crops make up a greater portion of total crop acres in the Red River Valley than North Dakota farms west of the valley.

Profitability of growing soybeans, wheat and corn in North Dakota outside of the Red River Valley also has collapsed since 2012, but all three crops had better returns in 2014 than on Red River Valley farms. Per-acre net return on cash-rented land was $25 for soybeans, $23 for spring wheat and minus $51 for corn.

Durum wheat and lentils, crops that mainly are grown in western North Dakota, actually had price increases in 2014. Also, other crops that are more common outside of the Red River Valley had strong profit in 2014. Net income per acre on cash-rented land averaged about $50 for flax and field peas and around $100 for barley and confection sunflowers.

Lastly, profitability of the beef cow-calf enterprise, which is the dominant livestock activity in North Dakota but basically nonexistent in the Red River Valley, was phenomenal. It averaged a $659 net return per cow, which was more the 2 1/2 times larger than the previous record profit for the enterprise.

Record profit for the beef cow-calf enterprise was the reason livestock farms had better financial performance than crop farms in 2014 and was a factor in North Dakota farms west of the Red River Valley outperforming the Red River Valley farms of North Dakota and Minnesota.


NDSU Agriculture Communication - June 8, 2015

Source:Andy Swenson, (701) 231-7379, andrew.swenson@ndsu.edu
Editor:Ellen Crawford, (701) 231-5391, ellen.crawford@ndsu.edu
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