On average, Kansas farms are continuing to grow at an annual rate of 2.87% according to a 10-year study conducted by the Kansas Farm Management Association (KFMA), says Michael Langemeier, an agricultural economics professor at Kansas State University. Langemeier spoke about his study, "Factors Impacting Farm Growth," at the 2006 Risk and Profit Conference held last month in Manhattan.
The KFMA program is a part of K-State Research and Extension and is one of the largest publicly-funded farm management programs in the United States, says Sam Funk, KFMA administrator.
The goals of the program are to provide Kansas farm families with information about business and family costs to improve farm business organization, decisions and profitability; and how to minimize risk. Current membership in the KFMA is approximately 2,300 farms and 3,000 families.
In the study from 1996-2005, the KFMA compiled data on 719 Kansas farms and divided the farms into four categories. The first category represented farms with less than $100,000 in value of farm production. The second category included farms between $100,000 and $250,000. Farms in the third category had a value of farm production between $250,000 and $500,000 and the fourth category included those farms greater than $500,000.
The average annual growth rate of KFMA farms ranged from 1.79% in the first category to 3.82% in the fourth category.
"From this study, we discovered that medium to large farms are growing at a faster rate," Langemeier says. "And that some smaller farms, particularly older farmers, are continuing to downsize."
The average KFMA farm in 1975 was 1,350 acres and in 2005 the average was 1,850 acres, according to the KFMA. This is a growth rate of about one percent per year or 500 acres over the 30-year period.
Factors that positively affected farm growth rates were farm size, non-farm income and the debt to asset ratio, Langemeier says. Percent acres owned, operator age, the adjusted total expense ratio and labor costs as a percent of value of farm production were associated with downsizing farms.
The average age of farmers that owned growing farms was 49 years old, while the average age of farmers who were downsizing was 60 years old.
Farms that were growing at a slower rate, or downsizing, tended to spend more money on labor (about 43% of their value of farm production), but they also owned a higher percentage of their acres than the larger farms did. Larger farms spent about 14% of their value of farm production on labor.
While 31% of KFMA farms had negative annual growth rates, about 20% had an annual growth rate of 7.20%, which resulted in those farms doubling in size during the 10-year study, Langemeier says.
Farms in the fourth category or farms that were growing at the highest annual rates had younger owners, were larger operations and received more income off the farm, he says. They also owned a lower percent of their acres, had a lower adjusted total expense ratio, used less of their value of farm production to cover labor expense and had a higher debt to asset ratio compared to farms in the first category.
"As expected, the farms that were growing faster had a higher debt to asset ratio," Langemeier says. "In most instances, it takes both debt and equity capital for a farm to grow at a relatively rapid rate. Liquidity, on the other hand, was not significantly correlated with farm growth rates."
In the end of the study, it was discovered that the debt to asset ratio is the most positively correlated with farm growth and the age of operator was most negatively correlated with farm growth, Langemeier says.