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N.D. Net Farm Income Drops 30 Percent

May 23, 2018

The average net income of farms in the North Dakota Farm Business Management Program dropped 30 percent to $88,026 in 2017, compared with $126,752 in 2016, according to Andrew Swenson, North Dakota State University Extension farm and family resource management specialist.

In 2017, one-half of the farms had net farm income less than $50,996, compared with a median net farm income of $83,683 in 2016.

In 2017, the average farm size was 1,937 crop acres and 490 pasture acres, the age of the operator was 45.8 years and the number of years farming was 21.5 years. Crop farms had higher crop acres, 2,321, and beef farms tended to be smaller averaging 362 crop acres and 1,245 pasture acres.

The decline in 2017 net farm income was expected because the higher 2016 income was due to extremely high record yields of corn and soybeans and also strong government payments received, which were based on the 2015 crop.

Previously, average net farm income dropped to $133,466 in 2013, $76,404 in 2014 and $28,600 in 2015 as North Dakota marketing year average cash prices from 2012 to 2015 plummeted from $14 to $8.49 for soybeans, $6.46 to $3.28 for corn and $8.19 to $4.59 for spring wheat.

In 2017, gross cash revenue was $737,370 per farm, of which 75.4 percent were from crop sales, 10.2 percent from livestock sales, about 5 percent each from government payments and insurance indemnities, and 4.3 percent from other sources such as custom work performed and patronage dividends.

More than 20 crops were grown, but 75 percent of crop revenues came from three crops: soybeans, corn and spring wheat. Soybeans accounted for one-third of all crop sales.

Capital purchases of farm machinery, equipment and trucks collapsed from $158,990 per farm in 2013 to $53,146 in 2016. They rebounded in 2017 to $78,389, probably because of some pent-up demand and the financial wherewithal following the 2016 uptick in net farm income.

Farms continue to add debt to their balance sheets every year. In 2017, the average farm borrowed $546,907 and made principal payments of $513,173 during the year.

Difference in farm size and income was noteable. Swenson categorized the farms by level of gross cash income: small being less than $500,000, medium being $500,000 to $1 million and large being greater than $1 million. Forty-five percent of farms were in the small category, one-third were medium-size and 22 percent were in the large farm category.

The small farms had average net farm income of $28,760 on 744 crop acres and 601 pasture acres. Medium-size farms averaged $80,428 net farm income, with 1,939 crop acres and 403 pasture acres. Large farms averaged $220,077 net farm income and had more than 5,100 total acres, of which 4,370 were cropped.

Because of differences in relative debt levels and/or interest rates, small farms used 5.8 percent of gross revenue to cover interest expense, compared with 4.9 percent for medium-size farms and 4.2 percent for large farms.

The smaller farms were less efficient in employing their assets to generate gross revenue. The average asset turnover rate was 29 percent for small farms, 31 percent for medium farms and 36 percent for large farms. This could be due to small farms being more likely to be beef cow-calf operations, which typically have a lower asset turnover ratio than crop farms.

Due to drought, many spring wheat fields in western North Dakota had zero yield. However, some other areas of the state had bumper yields. Overall, the average yield of farms in the North Dakota Farm Business Management program dropped from 53 bushels per acre to 44 bushels in 2017.

However, per-acre net return from spring wheat on cash-rented land increased from $1 in 2016 to $26 per acre in 2017. This occurred because the value per bushel was 20 percent greater, crop insurance payments were higher and total costs were slightly lower due to lower fertilizer expense.

Soybean gross revenue per acre on cash-rented land dropped from $402 per acre in 2016 to $335 in 2017 because the average yield dropped from 43 bushels to 36 bushels. Costs were $7 per acre higher because of more chemical expenditure to combat herbicide-resistant weeds and higher fuel prices. The net return per acre plummeted from $101 per acre in 2016 to $27 in 2017.

The return to operator labor, management and equity from corn on cash-rented land was minus $16 per acre in 2017, compared with a positive $28 in 2016 because of lower yields and slightly higher total costs.

Stronger revenue caused net return per beef cow to increase from $60 in 2016 to $185 in 2017 despite 10 percent higher production costs. The average calf sale price increased from $1.32 to $1.61 per pound and government drought disaster payments averaged about $46 per head.

Costs per beef cow increased from $573 in 2016 to $629 in 2017. Feed costs, including pasture, accounts for about 60 percent of total costs. Higher feed expenditures in 2017 were the main reason for greater production costs, but veterinary expenses, livestock supplies and fuel also contributed.

The 2017 analysis consists of 457 farms throughout North Dakota. The north-central, south-central and south Red River Valley areas had the best representation and the northwest and north Red River Valley areas had the least representation.

The state farm business management summary is available online at Regional summaries also are available. In addition to whole-farm financial information, these books detail costs and returns of livestock and crop enterprises.

Source: North Dakota State University