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517farm biz mgmt

By Janet Kubat Willette

jkubat@agrinews.com

In central and west central Minnesota, net farm income on average was just about the same in 2006 as in 2005.

Average net farm income was $89,951 in 2006, up from $88,569 in 2005.

The high 20 percent reported a net farm income of $267,762 and the low 20 percent had a net farm loss of $16,272. The middle 40 to 60 percent of producers reported a net farm income of $63,262.

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Less income came from government payments in 2006, and more revenue came from higher prices for crops. There was virtually no loan deficiency payment, said Jim Molenaar, dean of management education at Ridgewater College in Willmar.

Another thing that stands out for Molenaar when he looks over the report is the actual price received for commodities. There’s been a lot of press about $3 corn, he said, but the actual price received by central Minnesota farmers in 2006 was $2.08 for corn and $5.47 for soybeans.

Farmers did advance marketing of their crop and weren’t able to take advantage of the late season rally, he said.

What led to a successful year in the region was outstanding crop yields. Some of that commodity is still in the bins, increasing the value of inventory, which is included in the net farm income.

The farm business management program uses accrual accounting, which takes into account inventory on hand from year-to-year. The value of crop and feed on hand increased by an average $43,000, Molenaar said.

Last year wasn’t the best in terms of cash, it was inventory that lead to a strong net farm income, he said.

Cash farm expenses grew at a faster rate than cash farm income on average, a continuing trend. Farms are also growing larger and paying more for land rent.

Molenaar says some non-farmers may look at the $89,951 earned by the average farmer in central Minnesota and say "man that’s a huge income."

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"I don’t know that you can equate that to a wage," he said.

The average rate of return on investments for farmers was 8.6 percent. The average return on a stock market investment is 12.5 percent.

"I’m glad for farmers that they had a good return, but the public shouldn’t look at it and say this is exorbitant," he said.

Red River Valley and Northern Minnesota

In the Red River Valley, 2006 turned out quite good for several people, said Ron Dvergsten, dean of management education at Northland Community and Technical College in Thief River Falls. Prices were up for producers who harvested good yields.

But in other parts of northern Minnesota, the story wasn’t the same. Hay yields were diminished because of lack of rainfall and cattle producers were hit by higher commodity prices when they supplemented browning pastures.

Timely rains will be critical this year, Dvergsten said. Rainfall was quite spotty in 2006. Fields that received rainfall yielded 40 bushel soybeans and fields that didn’t produced 12 bushel soybeans, Dvergsten said.

No third crop of hay was harvested on some fields, after taking a small second cutting.

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Farmers in Kittson and Roseau counties, who really needed a good year, got one. The farmers suffered major weather-related financial setbacks in 2004 and 2005.

Reduced dairy prices also had a major impact on prices in northern Minnesota, said Del Lecy, dean of management education, because there is a fairly high concentration of dairy farms in the region.

The inventory in the bins is a huge piece of net farm income, but in northern Minnesota, with its weather challenges, there is less in the bin.

It paid to have a risk management plan in place in 2006, Dvergsten said. It’s fairly common for farmers to take a revenue product on their crop insurance. The 70 percent coverage level is most economical and offers a pretty decent safety net, he said. Farmers don’t want to forward price more than the guaranteed bushel.

There are four instructors in northern Minnesota who have marketing classes for producers in 12 different communities in northwest Minnesota. The classes started in 1999, Dvergsten said, and ramped up in 2000.

The average farmer in northern Minnesota had a net farm income of $39,556 and the middle 40 percent to 60 percent earned $21,674. The high 20 percent reported a net farm income of $161,427 and the low 20 percent reported a net farm loss of $35,791.

The most important numbers for farmers to look at are their own numbers, Dvergsten said. They need to benchmark themselves and see if they are meeting their business goals. There are opportunities in agriculture, but there are also risks: $3 gas at the pumps, $600 plus per ton anhydrous, higher interest rates and higher costs for repairs and equipment.

Technology and sharing machinery and equipment resources may offer opportunities.

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