Farm Horizons, May 2010

The year 2009 in review

By Myron Oftedahl
Farm Business Management Instructor, South Central College

The year 2009 is over, and many of you would probably like to forget the fall of 2009. How did the year actually turn out financially? Was it profitable for you? Do you know?

Let’s take a look at the numbers from the Farm Management Program. We will be looking at the summaries for 1,238 farms across all of southern Minnesota.

As a group, the net cash income was down 10.8 percent from the previous year, while operating expenses were down 2.7 percent. Keep in mind that the 1,238 farmers are a combination of grain farms and a mixture of various livestock operations. While 2009 was fairly positive for the grain side of the farming operation, the livestock sector really suffered. We’ll take a look at that later.

How much have the dollars invested in your operation changed in the last 10 years? According to our data, the average operator investment has more than doubled, from 2000 to 2009. The average investment was about $750,000 in 2000, and has risen to $1,600,000 in 2009.

As you can see in the graph, the average farm operation spent $755,975 in 2009. Much of this money stays in the local area, as it pays land rent, fertilizer and other inputs, feed, parts and repairs, plus reinvesting into the operation in the form of equipment and other capital purchases.

Did you know that Minnesota’s agriculture industry (including production and processing) is the second largest economic sector in Minnesota? The ag industry also accounts for one of five jobs in Minnesota and is the second largest employer. That $750,000 that the average farm operation spent helps support that economic engine and helps support the employment numbers.

Now, let’s look at some of the individual enterprises and see how they compare to the previous years.

I’ll start with corn, as most of you that are farming know, your costs for raising corn were higher than in 2008. Rents went up an average of $12 an acre, this is in addition to the $23 increase from 2007 to 2008. Fertilizer took a dramatic increase this year. Seed and drying costs also saw a sizable increase. If you look back two years, the total cost for rent, fertilizer, chemical, seed, and drying went up from about $290 in 2007, to $480 in 2009. Did your income increase by the same amount?

We see a similar story in soybeans, with input costs for seed, fertilizer, and rent being higher than 2008. Seed costs alone were nearly 20 percent higher than 2008. Farmers have also spent more on insecticides and fungicides for soybeans in the past couple of years, driving total chemical costs to $32.80 an acre on average.

The high grain prices in 2007 and 2008 really had an effect on the livestock sector in 2009. Coupled with the economic crisis at the end of 2008 and into 2009, the livestock got a double whammy. Dairy operations showed a loss across southern Minnesota for the first time in more than 30 years.

Hog operations were struggling in 2008 and looked to be going into a profitable level of production until April, when H1N1 was announced and mistakenly labeled as swine flu. In a matter of a month, the hog prices dropped more than $12 per hundred weight.

Generally, all livestock operations were affected by a combination of high feed prices, due to high corn and soybean prices, the economy crash, and the strength of the dollar. The effect of the economy has held down the beef and hog markets, due to less consumer spending, especially on higher-priced cuts of meat, while the dollar affected the export market.

The dairy market is still struggling to get above profitable levels, but we are at least looking at lower feed costs versus a year ago. Hogs and beef are looking very good on the futures quotes right now, so hopefully, that will continue as the economy recovers.

How do you fit in? What are your expenses and returns for each enterprise of your farming operation? What happened, and why did it happen? Could you control it, or not? Are you a low-cost producer that can maintain a profit margin? If you need help with these questions, contact a Farm Business Management instructor and get some answers.

Now, let’s move into 2010 and develop a plan to be profitable and protect the margins. Have a prosperous 2010.

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