KAMS Mediator Training October 22, 2007 Manhattan, Kansas Kansas Farm Management Association Program Building on the past... Pursuing the Future

KAMS Mediator TrainingOctober 22, 2007Manhattan, Kansas

Kansas Farm Management Association Program

Building on the past . . . Pursuing the Future

KAMS Mediator Training

Kansas Farm Management AssociationVision/Mission . . .

Deliver educational programs and technical information

Enhance economic viability and quality of life

Sustainable and competitive agriculture Integrated research, analysis and

education Improved economic choices and

management decisions of individuals, families, farms


Over 2,300 farm operations representing over 3,000 farm families

Valuable analysis databank Over 1,550 farms for 2006 1,160 farms with data from 2002-2006 881 farms with 10-year history 399 farms with 20-year history

20 Extension Agricultural Economists in six associations



Develop a sound farm accounting system

Whole-farm and enterprise analysis Comparative and trend analysis Integrate tax planning, marketing

and asset investment strategies Assistance in understanding

financial information for making decisions

Enhanced decision-making process





$58,517

$22,645

$39,842

$57,960

$50,591

$39,861

KFMA Program2006 Net Farm Incomes

State Average $46,593


Kansas Farm Management Association Value of Farm Production, 1980-2006

0%

10%

20%

30%

40%

50%

60%

70%

80%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

% o

f Val

ue o

f Far

m P

rodu

ctio

n

Govt. Payments Livestock Income Crop/Misc Income


Kansas Farm Management Association Value of Farm Production, 1980-2006

-

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

$ of

Val

ue o

f Far

m P

rodu

ctio

n

Govt. Payments Livestock Income Crop/Misc Income


Kansas Farm Management Association Total Expense Trends, 1997-2006

-

50,000

100,000

150,000

200,000

250,000

300,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / F

arm

0.65

0.70

0.75

0.80

0.85

0.90

0.95

Expe

nse

/ $ F

arm

Pro

duct

ion

Total Farm Expense Total Expense Ratio


Kansas Farm Managment Association Accrual Net Farm Income, 1980-2006

($10,000)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

$/Fa

rm

1980's Average $18,087

1990's Average $37,441

2000's Average $43,361



Kansas Farm Management Assocation Solvency Trends, 1997-2006

25%

30%

35%

40%

45%

50%

55%

60%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Debt

Per

cent

age

DEBT/NET WORTH DEBT/ASSET



Kansas Farm Management Association Liquidity Trends, 1997-2006

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Wor

king

Cap

ital,

$ / F

arm

1.00

1.20

1.40

1.60

1.80

2.00

2.20

2.40

2.60

Curr

ent R

atio

Working Capital Current Ratio


Kansas Farm Management Association Beef Cowherd - Sell Calves

-$100

-$50

$0

$50

$100

$150

$200

$250

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / H

ead

Return over Variable Cost per Head


KFMA Beef Cow, Sell Calves Enterprise

$111.97 $112.04$116.21

-$400

-$200

$0

$200

$400

$600

$800

$1,000

High 1/3 Profit Mid 1/3 Profit Low 1/3 Profit

Co

sts

and

Ret

urn

s, $

/Co

w

$90

$95

$100

$105

$110

$115

$120

$125

$130

$135

$140

Pri

ce, $

/Cw

t

Total Cost Net Return Price


Kansas Farm Management Association Beef Backgrounding

-$100

-$50

$0

$50

$100

$150

$200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / H

ead



Kansas Farm Management Association Dairy Cows

$0

$200

$400

$600

$800

$1,000

$1,200

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / H

ead



Kansas Farm Management Association Sow & Litter, Sell Market Hogs

-$10

$0

$10

$20

$30

$40

$50

$60

$70

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / H

ead



Kansas Farm Management AssociationNon-Irrigated Crop Enterprise Net Returns to Labor and Management

0

10

20

30

40

50

60

70

Corn Grain Sorghum Wheat Soybeans Alfalfa

$ / A

cre

2001-2005 Average 2006


KFMA Nonirrigated Wheat Enterprise

$4.27$4.26

$4.49

-$100

-$50

$0

$50

$100

$150

$200


Cos

ts a

nd R

etur

ns, $

/ A

cre

$3.50

$3.75

$4.00

$4.25

$4.50

$4.75

$5.00

$5.25

$5.50

Pri

ce, $

/ B

ushe

l



KFMA Nonirrigated Soybean Enterprise

$5.99$6.17

$6.01

-$100

-$50

$0

$50

$100

$150

$200

$250


Co

sts

and

Ret

urn

s, $

/ A

cre

$5.00

$5.25

$5.50

$5.75

$6.00

$6.25

$6.50

$6.75

$7.00

Pri

ce, $

/ B

ush

el



Kansas Farm Management Association Family Living Analysis, 1997-2006

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ / F

arm

Family Living Expenditures Income Tax Net Farm Income


Personal-Recreation

15.2%Clothing3.4%

Education-Other4.3%

Medical-Health Ins

18.9%Contributions-

Gifts10.4%

Household18.3%

Food Purchased13.1%

Auto-Utilities9.2%Life Insurance

5.3%

Kansas Farm Management Association 2006 Family Living Expenses


Financial Stress

Components of financial stress: negative earnings

rate of return on farm equity net farm income from operations minus

opportunity cost for unpaid labor debt to asset ratio above 0.70


Financial Stress

Percentage of Farms Negative Return on Equity = 51.20% High Debt = 13.79% Financially Stressed = 8.79%


Financial Stress

MeasureAverage Top 25% by

Profit Margin

Negative ROE 51.20% 2.76%

High Debt 13.79% 11.38%

Financial Stress

8.79% 1.38%


Financial Stress

0.0879 0.0897

0.1724

0.0759

0.0138

0.000

0.100

0.200

0.300

All First Second Third Fourth

Profit Margin Quartile

Rat

io


Financial Performanceby Farm Type

Number of farms: Dryland Crop 698 Irrigated Crop 27 Crop/Beef Cow 78 Crop/Dairy 30


Profit Margin Ratioby Farm Type

0.09400.0831

0.1118

0.0344

0.0671

0.000

0.050

0.100

0.150

0.200

All Dryland Irrigated Crop/ Beef Cow Crop/ Dairy

Farm Type

Rat

io


Profit Margin RatioDryland Crop Farms

0.0831

-0.1714

0.01650.1001

0.1862

-0.400

-0.200

0.000

0.200

0.400



Rat

io


Profit Margin RatioCrop/Beef Cow Farms

0.0344

-0.2789

-0.0123

0.1653

-0.400

-0.200

0.000

0.200

0.400

All First Second Third

Profit Margin Thirds

Rat

io


Profit Margin Persistence

Profitability, efficiency, and per-unit costs vary significantly among farms and ranches

Are these differences in performance due to: Random events such as weather? Controllable factors such as managerial

ability?



Five-Year Averages (1,160 KFMA Farms): Value of Farm Production = $259,095 Net Farm Income = $51,085 Unpaid Labor = $42,423 Operating Profit Margin = 0.0940 Asset Turnover Ratio = 0.2942 Total Expense Ratio = 0.803 Adjusted Total Expense Ratio = 0.967 Economic Total Expense Ratio = 1.156


Financial Performance

Operating Profit Margin Ratio (Net Farm Income + Interest – Unpaid

Labor) / (Value of Farm Production) Average:

(51,085 + 15,686 – 42,423) / (259,095) = 0.0940

Top 25%: 0.2058


Profit Margin Ratio

0.0940

-0.1985

0.0162

0.1025

0.2058

-0.400

-0.200

0.000

0.200

0.400



Rat

io



CategoryTop Profit

MarginBottom Profit

Margin

Zero Years 39.74% 45.69%

One Year 25.09% 22.24%

Two Years 15.52% 11.72%

Three Years 11.81% 8.36%

Four Years 5.78% 5.69%

Five Years 2.07% 6.29%




Are these differences in performance due to: Random events such as weather? Controllable factors such as managerial

ability?




Are these differences in performance due to: Random events such as weather? Yes Controllable factors such as managerial

ability? Yes


Profit Margin Persistence Weather and other external factors have a

significant impact Managerial ability and other controllable

factors have a significant impact as well Nearly one-half of the farms were able to stay out of

the bottom profit margin quartile during the five-year period

It is essential that farms benchmark using average data for a longer time period

It is possible for farms to have a competitive advantage


For More Information Kansas Farm Management Association (KFMA)

www.kmar105.com/kfma Extension Agricultural Economics

www.agmanager.info

Kevin L. Herbel Office: 785-532-1513308 Waters Hall Cell: 785-532-8706 Manhattan, KS 66506 [email protected]

Documents

KAMS Mediator Training October 22, 2007 Manhattan, Kansas Kansas Farm Management Association Program Building on the past... Pursuing the Future