Judicious use of risk management tools and other key management decisions saved the day for many Kansas farmers last year even as the state endured its worst drought in decades, according to Kansas Farm Management Association program director, Kevin Herbel.
“Without a doubt, the farm income picture would look very different without crop insurance,” said Herbel as he described highlights of the 2012 KFMA Executive Summary released recently, which sheds light annually on the financial picture of KFMA member farms.
The data, available at www.kfma.ksu.edu, showed net farm income across 1,290 of the KFMA member farms last year averaged $151,127, down from $166,375 in 2011 but above the five-year average of $141,288. According to Herbel, during 2012 the average KFMA farm had crop insurance proceeds of $87,998, which accounts for 14 percent of the value of farm production (VFP) and 58 percent of net farm income for the year. In 2011, crop insurance also was important as 45 percent of the net farm income (12 percent of VFP) was from crop insurance proceeds.
Again in 2012, net farm income varied widely by region, with northwest Kansas averaging $288,176 and southwest averaging $98,071. In the north central part of the state, net farm income averaged $114,357; in south central, $160,703; northeast, $138,024 and in southeast Kansas, $150,644.
The differences by region are at least in part, a reflection of the different types of farming operations, irrigation options and severity of the drought itself, KFMA economists said.
The value of farm production averaged $620,109 in 2012, up from $607,854 in 2011 and the five-year average of $543,418.
The KFMA annual report is, to some extent, a reflection of Kansas agriculture statewide. It also provides yearly comparisons and between different types of farming operations.
“The average net farm income number at $151,127 was higher than what you’d think, given the drought,” said Gregg Ibendahl, associate professor of agricultural economics at Kansas State University. “Thanks to crop insurance, we stayed above the five year average of about $141,000. Across the state, although we had dry conditions, overall net farm income wasn’t bad.”
About half of the KFMA member farms made $100,000 or less and 10 percent lost money, but about eight percent made more than $400,000, said Ibendahl, who is a farm management specialist with K-State Research and Extension.
In addressing the disparity, he noted that 20 percent of the farms that made more than $400,000 were in the northwest part of the state which is also home to some of the state’s largest farms, so economies of scale come into play somewhat.
Ibendahl noted that in any given year, it’s typical to have about 10 percent of KFMA member farms lose money and 10 percent that break even. That means that about 80 percent are actually making money.
Crop farms fare best
Crop operations, both dryland and irrigated, had net farm income that exceeded the previous year and the five-year average. Net income for dryland farming operations in 2012 averaged $166,174, up from the previous year at $157,296 and above the five-year average of $151,417. Net income for irrigated crop farms averaged $323,889, down from $449,115 in 2011 but up from the five-year average of $302,420.
“If you were a cattle person, and if you weren’t backgrounding or finishing, you probably did okay. If you were backgrounding or finishing – that’s the group that took it on the chin last year,” Ibendahl said, noting that grain and feed costs during the drought cut deep into those operations’ net income.
Those cattle operations described as backgrounding-finishing showed an average net income of $46,519, sharply lower than the previous year at $397,138 and below the five-year average of $146,297.
“Cow-calf operators did somewhat better,” Ibendahl said. Operations listed as “cowherd” on the summary saw an average net income of $98,178, up from $60,016 in 2011 and above the $37,859 average.
Overall differences and return on net worth
“High income farms made quite a bit of money on the price side by selling their product, but they also did a good job of holding expenses down,” Ibendahl said. “Conversely, the lower 25 percent may have had some debt issues that weighed on their debt-to-income ratio.
He noted that overall, KFMA members showed a return on net worth (equity) of 5.74 percent: “That’s better than any savings account or CD right now. It’s been 7.3 and 7.67 the prior two years, so it’s down, but still good.”
Ibendahl said that overall debt levels reflected in the summary are not too high, which paints a pretty healthy picture for Kansas agriculture.
Herbel added that while total dollars of debt per farm have increased from $368,031 to $438,155 during the past five years, the debt-to-asset ratio for KFMA farms has declined from 28.3 percent in 2008 to 21.5 percent in 2012. During this same time period, the current ratio, which measures current assets compared to current liabilities, has increased from 3.00 to 3.41, indicating an improved current financial position for KFMA farms.
Whether a Kansas farmer is a KFMA member or not, they can look at the numbers and compare them to their own, Ibendahl added. That can help determine areas in which they’re doing a good job or where they may want to focus more effort.
“We like to say that benchmarks don’t give you the right answer, but they do tend to point you in the direction you should go,” Ibendahl said.
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The Kansas Farm Management Association (http://kfma.ksu.edu/), based at Kansas State University, is part of K-State Research and Extension. KFMA agricultural economists, who are faculty members in K-State’s Department of Agricultural Economics, work cooperatively with members, providing production and financial management information for Kansas farmers through on-farm visits, enterprise analyses, and other educational programs and resources.