Average net farm income declined for the third consecutive year in North Dakota to the lowest level since 1998.
This occurred despite generally strong yields, with spring wheat reaching an all-time high, the second highest annual profit for the beef cow-calf enterprise, an increase in government payments and slightly lower crop production costs. Lower crop prices overwhelmed the positives and pushed profit down to the lowest level in nearly two decades.
The average farm profit for 525 farms that were in the 2015 North Dakota Farm Business Management education program state report was $28,600, compared with $76,404 in 2014 and $133,466 in 2013.
Median net farm income, probably a better measure of the typical farm, was $18,999, compared with $54,666 in 2014 and $91,650 in 2013. Net farm income is measured in accrual terms. It includes changes in inventories.
The average size of these farms was 2,371 acres, of which 533 acres were pasture. The average age of the farm operator and number of years farming were 45.2 and 21.2 years, respectively.
Financial performance varied across the state according to the profitability of enterprises in which producers were engaged. The statewide average net return per acre on cash-rented ground was minus $25 for spring wheat, minus $24 for soybeans and minus $50 for corn.
For smaller-acreage crops, it was minus $27 for canola, minus $25 for pinto beans, minus $14 for flax, $23 for oil sunflowers and a strong $60 to $90 per-acre profit on cash-rented ground for barley, confection sunflowers, durum wheat, field peas and sugar beets. For soybeans and pinto beans not to show a profit, on average, is very unusual.
Usually crop farms have greater net farm income than livestock farms, but not in 2015 or 2014. The beef cow-calf enterprise profit averaged $288 per cow and was the second highest ever, although it was a fraction of the $660 all-time high in 2014.
Farm financial measures in 2015 were substantially lower than in 2013. On average, the current ratio dropped from 2.04 in 2013 to 1.45, and the term debt coverage ratio declined from 1.40 to 0.60 during the past two years.
In 2015, the rate of return on equity was less than the rate of return on assets, which indicates that debt capital was not employed profitably. The average rate of return on equity, minus 1.7 percent, and the rate of return on assets, 0.5 percent, were extremely low. The average of the previous 10 years was 13.3 and 9.9 percent, respectively.
The average farm borrowed $562,007 during the year and made principal payments of $513,173, thereby increasing farm debt by nearly $50,000 per farm. The relationship between debt and assets (solvency) deteriorated in 2015.
Capital purchases have declined because of the sharp drop in net farm income. Average purchases of machinery, equipment and buildings such as grain and machinery storage and farm shops dropped to $76,996 in 2015, compared with $121,488 in 2014 and $194,064 in 2013.
Total government payments, including conservation incentive programs, received in 2015 averaged $27,301 per farm, compared with $15,495 in 2014. A year lag occurs in commodity-based safety net program payments under the 2014 farm program. Payments that will be received in the last quarter of 2016, based on the 2015 crop year, will be higher.
Similar to 2014, the finding that the least profitable farms were larger than average was unusual. The least profitable 20 percent of farms had negative net farm income of minus $141,049 on 2,614 crop and 424 pasture acres.
The 20 percent, or one-fifth, of the most profitable farms had an average net farm income of $214,214 and were slightly larger, at 2,770 crop and 684 pasture acres.
The remaining farms, the middle 60 percent profit group, had average net farm income of $23,278 but were much smaller at 1,260 crop and 519 pasture acres.