Farm Profit Trends 1998 to 2008
The Iowa Farm Business Association, comprised of various farm management companies, recently issued a nice 4 page newsletter that had a lot of good information on farm profit trends. All of this information relates to farms in Iowa but the trends show hold true for most states that grow corn and s0ybeans.
The newsletter recapped the overall net income from 1998 to 2008. The low net income was in 1998 at $4,547 per average farm. The high net income year was 2007 at $176,401. The interesting trend is that only three years was over $100,000 per year which is the last three years of 2006 – 2008 and the top five years are the last five years.
Another really interesting trend is the amount of gross farm income per full-time equivalent employee. In 1998, this was about $143,000. In both 2007 and 2008, this amount was greater than $400,000 per man. This is a very important calculation that should perform on your farm each year. I am assuming you have your history of total income and number of employees for the last five to ten years. I would work up these numbers on a historical basis and compare it to these averages. You should try to shoot for exceeding this average since this is probably one of the better indicators for farm profitability.
Machinery costs had held steady at about $60-65 per acre from 1998 to 2003. Beginning in 2004, this number rapidly increase from $73 per acre to $106 per acre in 2008. I think a lot of farmers bought new equipment in 2007 and 2008 so I think a lot of this increase is due to new iron purchases.
Another indicator of increase farm profitability is the ratio of gross farm profit to total cash expenses. The greater this number is the higher your overall profit should be. In 1998 this was at a low of 1.07 and averaged around 1.2 to 1.3 until 2006 and 2007 when it was over 1.5. For 2008, the number dropped back to 1.5. Any number over 1.4 would indicate good farm profitability. Do you know your number.
I think every good profitable farmer will know these numbers and try to exceed the averages each year. Are you doing it?!!!!!!!!!!!!!!!!!
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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