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N.D. Farm Financial Performance Reviewed

The study uses 16 financial measures to evaluate North Dakota farms.

Of the past 10 years, 2012 was the best for North Dakota farmers, while 2015 was the worst, according to a 2007-2016 farm performance review.

The results of that review are in “Financial Characteristic of North Dakota Farms 2007-2016.” The publication summarizes the performance of more than 500 farms enrolled in the North Dakota Farm Business Management Education program.

The study uses 16 financial measures to evaluate the liquidity, solvency, repayment capacity, profitability and financial efficiency of North Dakota farms.

“The study is useful to producers who would like to compare their farm financial performance with farms that have similar characteristics,” says Andy Swenson, North Dakota State University Extension farm management specialist.

“Financial performance in 2007-2012, excluding 2009, was superior to other years in the 2007 through 2016 period,” says Swenson. “Overall performance was best in 2012 and poorest in 2015, which had the lowest net farm income, rates of return on assets and equity, repayment capacity and financial efficiency measures in the 10 year period.”

Swenson adds, “The median term debt and capital repayment margin, which is the amount available after making term debt payments and providing for family living expenses and taxes, increased from a negative $16,382 in 2015 to $35,318 in 2016. It was the highest, at $185,291, in 2012.

Farms are grouped by region of North Dakota, enterprise type (crop, livestock or mixed), size, gross cash sales, land tenure, profit, debt-to-asset ratio and age of the farmer.

In 2016, the median asset turnover ratio was .38 for crop farms, .28 for mixed crop-livestock farms and .18 for livestock farms. It was .63 for farms that rented all their cropland and .23 for farms that owned greater than 40 percent of cropland.

The appropriate group of farms to use as a benchmark for the asset turnover ratio (gross revenue divided by total farm assets) would be one with similar farm type and land tenure. The asset turnover ratio is a measure of how efficiently a producer is using farm assets to generate revenue.

In North Dakota, livestock farms (mainly beef cow-calf operations) and farms with high crop land ownership tend to have lower revenue relative to the value of farm assets. Young farmers should use the solvency of the young producer group as a benchmark because older farmers tend to have better solvency than young producers, according to Swenson.

“Also, farms with sales of less than $500,000 were nearly twice as likely to have a debt-to-asset ratio higher than 70 percent than farms with sales greater than $500,000,” Swenson says.

The Red River Valley region and crop farms typically have stronger profitability, solvency and repayment capacity than other regions and farm types, respectively, but not in 2013 and 2014, the study showed.

Farms in this study are larger and the age of farm operators younger than the state average. In 2016, there were 29,800 farms in North Dakota. Only 10,500, or 35 percent, had gross receipts greater than $500,000, whereas 53 percent of the 531 farms in this study exceeded that sales volume. The average age of the farm operators was 46, compared with a state average of 57.

The average total acreage per farm in the study was the least in the Red River Valley at 1,448 acres, and the greatest was in the west region of the study at 3,140 acres. Seventy-five percent of farms were categorized as crop farms, ranging from 98 percent in the Red River Valley to 41 percent in the west region.

The “Financial Characteristics of North Dakota Farms” publication is available online at http://bit.ly/NDFarmReview or by request from the NDSU Agribusiness and Applied Economics Department at 701-231-7441.

NDSU Agriculture Communication - Aug. 25, 2017

Source:Andrew Swenson, 701-231-7379, andrew.swenson@ndsu.edu
Editor:Kelli Anderson, 701-231-6136, kelli.c.anderson@ndsu.edu
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