It did not look very promising, on paper, going into 2010. Costs were to remain high after rising sharply, along with crop prices, during the high-profit years of 2007 and 2008, but crop prices had worked down from about midway in 2008. However, an unusually fortunate combination of events occurred in 2010 for North Dakota producers.
Yields were very strong. Corn and sugarbeet yields were at all-time highs, while barley, canola and spring wheat yields were the second-best in history. Grain prices turned around during small-grain harvest and continued upward the rest of the year.
This provided additional profit opportunities for those who had inventories of 2009 crop-year grain to sell. Also, per-acre cost of production was flat to down in 2010, federal disaster payments for the 2008 crop year were finally determined and paid in 2010, and beef prices improved, leading to the largest year-to-year increase in beef cow profit in two decades.
• Yields and prices combined to make 2010 a good year.
• The rate of return on equity averaged 23.5%.
• Profits averaged $110/a for wheat and $200/a for corn.
Given the fortunate events of 2010, farm financial measures were very strong for the 541 farms in the North Dakota Farm and Ranch Business Management education program annual report. Current assets averaged more than twice that of current liabilities and, on average, there was four times the capacity needed to make scheduled term principal and interest payments.
The rate of return on equity of 23.5% was greater than the rate of return on assets of 15.6%. This indicates that debt capital was profitably employed in 2010.
Average farm profit nearly tripled to $252,635, compared to $86,665 in 2009. Median net farm income, probably a better measure of the typical farm, was $174,010, compared to $47,768 in 2009 and $114,520 in 2008. Net farm income is measured in accrual terms. It includes changes in inventories. In 2010, one-half of net farm income was due to an increase in inventories.
As always, there were differences by farm type, farmer age and size of farm. The most profitable combination was large crop farms whose owners were between the ages of 40 and 50 years.
Beef farm average profits increased sharply in 2010 from $8,440 in 2009 to $85,291. But profits were lower than for crop farms. The strong profit of crop farms relative to livestock farms is highlighted by the average net return per acre, on cash-rented ground, of the three largest acreage crops in the state.
It was $110 for spring wheat, about $125 for soybeans and slightly over $200 for corn. Average net return per beef cow was $113. It is much easier to raise 100 acres of wheat than take care of 100 beef cows.
Producers who were 30 years old or less, as one would expect, had the lowest net farm income by age group. The average and median was $113,000 and $75,000, respectively. The two most profitable groups by age were 40 to 50 years old and 50 to 60 years old. Both had average and median net farm incomes of about $320,000 and $240,000, respectively.
Although 2010 was a most profitable year, borrowing was the highest in history. The average farm borrowed $462,705 and made $414,155 principal payments, thereby increasing farm debt by nearly $50,000 during the year. However, total farm assets increased by a greater percentage than debt, and solvency measures such as debt-to-asset ratio improved.
One reason for the large borrowing and increase in debt is that farms increased inventories by $126,000 on average. This was probably to delay the income tax liabilities that would have accompanied the conversion of inventories to cash.
Also, there were unusually large purchases of machinery, equipment and farm buildings, averaging nearly $117,000 per farm. Again, part of the reason is income tax management; a large amount of business investment can be written off the first year.
The average-size farm was 2,580 acres, of which 738 acres was pasture. This was slightly below last year because of an increase in young farmers in the program. The average age of producers in the business management education program decreased slightly to 44.7 years.
The state farm business management summary is available online at www.ndfarmmanagement.com. Regional summaries also are available. In addition to whole-farm financial information, these books detail costs and returns of livestock and crop enterprises.
Swenson is a North Dakota State University Extension farm management specialist. Contact him at 701-231-7379.
This article published in the July, 2011 edition of DAKOTA FARMER.