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Cooperative Extension Service, University of Kentucky College of Agriculture, Food and Environment.

Agricultural Economics - Extension No. 2013-14

 

June 2013

By: Lauren E. Omer

University of Kentucky Department of Agricultural Economics

400 Charles E. Barnhart Building Lexington, Kentucky 40546-0276

Phone: 859-257-5762

Fax: 859-323-1913

http://www.uky.edu/Ag/AgEcon/

Agriculture and Natural Resources • Family and Consumer Sciences • 4-H Youth Development • Community and Economic Development

Kentucky Farm Business Management Program

Annual Summary Data Ohio Valley Farms - 2012

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Map of Area, Counties, and

Number of Area Cooperators, 2012

 

 

 

33 176

69

43

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Contents  

Map of Cooperator’s Locations by Area and County, 2012 .......................................................... ii

Acknowledgements ................................................................................................................................. iv

Kentucky Farm Business Management Program ............................................................................. 1

Source of Data Uses for This Report   

Definitions of Terms and Accounting Methods ................................................................................. 3

Sampling Technique Type of Farm       Accrual Accounting    Expense/Cost Items Revenue Items Financial Efficiency Ratios         Other Terms Used in This Report

 

Farm Size and Ownership ...................................................................................................................... 7

 

Farm Costs ......................................................................................................................................8 Production ....................................................................................................................................10 Crop Returns ................................................................................................................................11 Management Returns and Net Farm Income (NFI) .................................................................13 Description of Tables

Table 1. Income Statement Summary of Ohio Valley Farms ............................................14 Table 2A. Economic Management Analysis per Operator Acre: Ohio Valley Farms .........15 Table 2B. Economic Management Analysis per Operator Acre: Ohio Valley Farms .........16 Table 3A. Economic Management Analysis per Operator Acre ..........................................17 Table 3B. Economic Management Analysis per Operator Acre ..........................................18 Table 3. Ohio Valley Area Management Returns and Net Farm Income ..........................19 Table 4. Ohio Valley Area Crop Yield Data ......................................................................19 Table 5. Ohio Valley Area Price History ...........................................................................20  

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Acknowledgments  

Special credit should be given to the farm business management specialists who supplied data used in this report. Their attention to details and accuracy of records are what make these results so valuable to farmers and to those working with farmers throughout the state. Specialists who served in 2012 and provided summary data are: Jonathan D. Shepherd Lincoln Trail Farm Analysis Group, Inc. (270) 737-4799

JDSHEPHERD@uky.edu Lauren E. Omer Ohio Valley Farm Analysis Group, Inc. (270) 827-1395

lauren.omer@uky.edu Suzy L. Martin Ohio Valley Farm Analysis Group, Inc. (270) 685-8480

slmartin@uky.edu Amanda R. Jenkins Pennyroyal Farm Analysis Group, Inc. (270) 886-5281

amanda.r.jenkins@uky.edu Laura Powers Pennyroyal Farm Analysis Group, Inc. (270) 886-5281

lpowers@uky.edu Rush H. Midkiff Pennyroyal Farm Analysis Group, Inc. (270) 842-5823

rmidkiff@uky.edu Michael C. Forsythe Pennyroyal Farm Analysis Group, Inc. (270) 886-5281

Michael.Forsythe@uky.edu Jennifer L. Rogers Purchase Farm Analysis Group, Inc. (270) 562-2022

Jennifer.Rogers@uky.edu Jerry S. Pierce KFBM State Coordinator (270) 737-4799

Jerry.Pierce@uky.edu KFBM Website http://www.uky.edu/Ag/KFBM/

 

 

A Special Note to Our Readers

The data for this study are drawn from the detailed financial and production records of producers cooperating with the Kentucky Farm Business Management Program. The data are not drawn from a random sample of farms in the state. However, these data are the most accurate and detailed farm financial data available to researchers and educators. Every attempt has been made to select a set of farms for these research studies which are “typical” operations and have complete financial information available for analysis. These data are carefully cross-checked by our farm management specialists before inclusion in this analysis. It should be noted that farms included in this study are representative of commercial farms producing major commodities and livestock, but not of all farms in Kentucky.

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Source of Data

This report presents the summarized 2012 performance data, both financial and physical, on 256 Kentucky farm businesses. Some data are presented for previous years so that trends and changes can be studied. This is the 46th annual summary of records obtained from farmers participating in the Kentucky Farm Business Management (KFBM) program. The program is a cooperative effort between the Department of Agricultural Economics of the University of Kentucky and

four incorporated Farm Analysis Groups. This program was initiated to improve Kentucky farm management in general and specifically to:

• Provide farmers with an individual farm analysis and comparative analysis of farm business

records emphasizing information necessary for sound decision making and wise financial planning;

• Provide farmers with objective counseling in developing priorities and alternative plans;

• Provide the public with basic information about business conditions as well as costs and returns on Kentucky farms under current conditions;

• Provide Kentucky farmers, teachers, researchers and lending agencies actual on-farm

information about Kentucky farm businesses. In 2012, 493 farmers on 321 farms were members of the Kentucky Farm Business

Management program keeping records under the direction of 8 Farm Business Management

Specialists. The program serves farmers in 54 counties.

Uses for This Report

This annual summary is meant to be used as a reference for obtaining information about Kentucky farms. The results are therefore presented without interpretation. Throughout the year, Extension specialists and researchers will develop programs and publications that try to interpret the results and their implications. For more information, see http://www.uky.edu/Ag/KFBM for these Agricultural Economics - Extension Publications. Current publications include:

Kentucky Grain Farms 2012 Kentucky Beef Farms 2012 Kentucky Dairy Farms 2012 Kentucky Tobacco Farms 2012 Kentucky Poultry Farms 2012

Pennyroyal Farms 2012 Purchase Area Farms 2012 Ohio Valley Farms 2012 Central Kentucky Farms 2012

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Managing a farm business is almost impossible without a complete set of farm records. Records such as those underlying the KFBM program provide the essential information required by lenders and tax preparers, and also provide the means for farmers to fully analyze their businesses. Analyzing this complete record gives an accurate evaluation of how profitable and efficient the business is, indicates the business' weak points and strong points, and provides reliable data (particularly physical production data) for use in planning.

The farm business summaries in this report are used by individual farmers to analyze their

business operations and to develop future plans for their farming operations. This report summarizes information so that specialists in agricultural Extension, teaching, and research can use the data to enhance their programs. The definition of terms and income and expense measures below may provide assistance in using the data.

Farmers must be able to evaluate changes in their financial position. They must look at the

interrelationships of the cash flow, income statement, and balance sheet to evaluate financial progress. For "real" progress to be made, the business must generate an increase in net worth as measured by a reconciled set of financial statements.

To thoroughly evaluate performance – to learn how the business is progressing – farmers

need a record summary that includes considerable detail (i.e., production per person, yields per acre or head, feed conversion rates, etc.), and they must make trend and comparative analysis.

Trend analysis compares the farm’s current year record summary with summaries from

previous years. It allows farmers to identify trends and changes in their business over time and thereby detect improvements and deteriorations in various parts of the business.

Comparative analysis allows farmers to examine the similarities and differences in business

performance between their farm and that of other similar farms. Comparative analysis is an important part of the work that Farm Business Management Specialists do with farmers in the program. The data presented here, however, can be useful to any farmer in Kentucky as a benchmark for performance.

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Definition of Terms and Accounting Methods

Sampling Technique

Data from all farm business records certified to be usable for comparative analysis by field staff were aggregated by area, type of farm, size (i.e., tillable acres, number of animal production units, etc.), and management. Illinois Farm Business Farm Management Association's Farm Business Farm Management software was used to compile and summarize the data. It is important to note the farms represented in the KFBM dataset can change from year to year, and that fluctuations within the data could be due to this change of sample.

Type of Farm

Farm type is based on the percent feed fed. To determine percent feed fed, the total value of feed fed to all livestock enterprises is divided by the value of crop returns. However, tobacco revenue is excluded from crop returns for this calculation. Values for percent feed fed can range from zero to infinity. Large values are possible if a farm has limited grain production and thus purchases much of its feed.

Grain farms are defined as farms on which the value of feed fed was less than 40 percent of

the crop returns and the value of feed fed to dairy was less than one-sixth of the crop returns. Beef farms are defined as farms on which the value of feed fed was more than 40 percent of

the crop returns and the beef enterprise utilized more than one-half of the value of feed fed. Dairy farms are defined as farms on which the value of feed fed was more than 40 percent

of the crop returns and the dairy enterprise utilized more than one-third of the value of feed fed. Hog farms are defined as farms on which the value of feed fed was more than 40 percent of

the crop returns and the hog enterprise utilized more than one-half of the value of feed fed.

Accrual Accounting

Accrual accounting matches the year’s cost and returns to the farm’s physical production. It differs from cash accounting, which records payments as made and income as received. For KFBM purposes, cash records are adjusted to approximate accrual accounting. Changes in inventories of commodities and livestock, accounts receivable, prepaid expenses, and accounts payable are added to or subtracted from cash income and expense records for the calendar or fiscal year. Accrual accounting provides a more realistic reflection of net farm income for the period as well as more accurate income statements and balance sheets in accordance with Farm Financial Standards Council recommendations.

Expense/Cost Items

Total operating expenses include cash operating expenses plus depreciation plus the net effect on expenses when accounting for the accrual change in accounts payable and prepaid expenses. Cash operating expenses include cash outlays for the following non-depreciable items:

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· Fertilizer · Pesticides · Seed (including homegrown seed) · Machinery repairs · Machinery hire and leases · Fuel and oil (lubricants) · Farm share of utilities and light vehicle

expenses

· Building repairs · Drying and storage · Hired labor · Livestock expense · Taxes · Insurance · Miscellaneous expenses

Purchased feed, grain and livestock are not included because they are deducted from Gross Revenue to calculate the Value of Farm Production.

Depreciation used here is Economic Depreciation. It is calculated on each item using the

Alternative Depreciation System (ADS) under the Modified Accelerated Cost Recovery System of the Internal Revenue Code of 1986. ADS imposes straight line depreciation over a longer cost recovery period than the General Depreciation System and other expense deductions allowed for income tax purposes.

Total interest expense includes cash interest paid on operating and term debt plus the net change in accrued interest on farm business debt.

Interest on equity capital is a charge of 3.5 percent on the current value of land and 4.95

percent on non-land items less total interest expense. It is the opportunity cost of investing in the farm business. The non-land charge is calculated by multiplying 4.95 percent times: 1) the average of the beginning and ending of year value of livestock, economic book value of machinery, and building investment; 2) one-half of the average of the beginning and ending of year balance of inventory items; and 3) one-half of the total year's cash operating expense.

Land Charge Total is the sum of land equity charge, real estate taxes, cash rent, and lease

cost. Lease cost is the cost calculated to be paid by the landlord for the operator(s) share of acres paid less costs paid by the operator(s) for the landlord on share crop acres.

Unpaid family and operator labor is the opportunity cost of using the operator's own and

unpaid family labor in the farm business. A charge of $2,700 per month for unpaid operator and family labor is made for each farm. This labor charge is per labor month and is based on unpaid labor of 2,500 hours per year. Part-time family labor is therefore prorated. (Like any other resource, unpaid labor must be accounted for when studying profitability of a farm business). Revenue Items

Crop returns is the sum of the feed and grain sold, value of all feed fed (except milk), government crop subsidy program payments, and the change in value of feed and grain inventories less the value of crops and feed purchased. Tobacco revenue is excluded from crop returns for this calculation.

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Livestock returns above feed is the sum of the sale of livestock and livestock products, value of livestock products consumed, and value of the livestock on hand at the end of the year minus livestock purchases and the value of the livestock on hand at the beginning of the year minus the cost of all feed fed, whether purchased or raised.

Gross farm returns is the sum of cash and accrued value of sales of farm products and services, government payments, and other farm-related revenue less the cost of purchased feed and livestock, plus the change in inventory value for grain and livestock, plus the value of farm products used. Farm products used are products consumed on farm and not sold. This is also called Value of farm production.

Net Farm Income is the value of farm production less total operating expenses, less total

interest expense plus net gain or loss on machinery and buildings sold. Net Farm Income includes returns to the farm for unpaid family and operator labor, the interest on invested capital, and management. It is the net total earnings to the farm operator(s).

Operator(s) labor and management income is Net Farm Income less the interest charge on

equity capital, less the opportunity cost of unpaid family labor. It represents the operators' return to their labor and management.

Management return is the residual after a charge for unpaid operator labor is deducted from

operator(s) labor and management income. Operator-only refers to the revenue, costs, production, and returns that accrue to the

farmer(s) involved in the farm’s management and NOT that of landlords. Financial Efficiency Ratios

Expense Ratios are measures of how economically farm businesses operate. Each ratio compares some aspect of expense or Net Farm Income to gross farm returns.

Other Terms Used in this Report

Inventory value of crops and livestock is based on average year-end prices reported for the four KFBM areas in the Kentucky Department of Agriculture Market Reports and the USDA Agriculture Marketing Service reports.

Old Crop is any crop that was produced in a prior year, but inventoried and held for sell in the current year.

New Crop is any crop that was produced in the current year.

Hi 1/3 and Lo 1/3 refer to groupings by management returns. Thirds are the net of Gross Farm Returns less Total Non-Feed Cost.

Operator Acres is owned and cash rented acres plus the operator’s share of tillable acres under crop share leases.

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Pasture Days is the number of days the operator(s) reported that livestock derived a significant portion of nutrition from pasture. The charge to livestock for pasture days is the number of days multiplied times the number of animal units involved at a calculated cost of $0.31/day for producing grass in pasture.

Total Acres Planted – Selected Crops is the total number of acres planted to a particular crop divided by the number of farms that planted that crop for all farms in a particular comparative sort.

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The Ohio Valley area of Kentucky is in the western part of Kentucky with many counties bordering the Ohio River. Counties included in the Ohio Valley area are: Daviess, Hancock, Henderson, Hopkins, McLean, Ohio, Union, and Webster. The Ohio Valley Farm Analysis Group, Inc. served 81 farms in the area during 2012. Due to current Kentucky Farm Business Management (KFBM) data standards, only 58 farms were included in the average data. The majority of the farms were grain farms (corn, wheat, and soybeans). However, there were also tobacco, contract broiler production, contract hog production, and beef cattle farms. Ohio Valley averages were computed for grain farms. Limited data prevents the publication of Ohio Valley specific tobacco, contract broiler, contract hog, and beef cattle farms.

Farm Size and Ownership

The average Ohio Valley farm is 2,128 acres, of which 2,023 are tillable acres. Average tillable operator acres, acres from which the farmer receives revenue, are 1,707 acres. The average Ohio Valley farm owns 25.6% of their tillable acres and rents the remainder on a crop share or cash rent agreement. The percentage of land owned by operators in the Ohio Valley area is considerably lower than other areas of the state as the average Kentucky KFBM farm owns 33.4%. Crop share continues to be the dominant rental agreement as 43.7% of the acreage is crop shared and 30.7% is cash rented. Ohio Valley is the only area of the state where some type of crop share is dominant. This could be the favored agreement since Ohio Valley is a more rural area and landlords are more attached to the land and care about how it is treated. In the more competitive counties in the area, cash rent is the dominant rental agreement.

When comparing grain farms in the Ohio Valley area, farms are divided into two size groups: those with less than 1,000 acres and those with greater than 1,000 acres. The average size of the smaller group is 763 acres, while the average size of the larger group is 2,654 acres. Crop share is the dominant rental agreement among both groups (Table 1 and Table 2A), but the smaller farms own a slightly larger percentage of their land (25.2%) than the larger farms (22.5%).

Owned25%

Cash Rent32%

Crop Share43%

Ohio Valley Grain Farms0-999 acres

Owned23%

Cash Rent31%

Crop Share46%

Ohio Valley Grain Farms1000+ acres

 

Ohio Valley farms can also be divided by Management Returns into an upper and lower third. The upper third of the farms averaged 2,270 acres, of which 1,793 acres are tillable operator acres. In other words, 79% of their acres are tillable operator acres. This group owned 22.1% of their land, rented on a crop share 46.7%, and cash rented the remaining 31.3%. The lower third group averaged 2,483 acres, of which 1,996 acres are tillable operator acres. 80% of their acres

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are tillable operator acres. Cash rent was the prominent rental agreement among this group. The lower third owned 24.1%, crop shared 36.4%, and cash rented 39.5% (Table 3A and Table 3B).

Farm Costs

There are six categories of farm costs that are analyzed. These categories are: crop expense, power and equipment, building expense, labor, other expense, and land charges. Feed costs are deducted from livestock sales as a cost of goods sold rather than a cost of production. Both cash and non-cash costs are analyzed on an accrual basis. Non-cash costs include depreciation, unpaid labor, non-land interest charge, and interest on owned land. In 2012, Ohio Valley farms averaged non-feed costs of $745.39 per acre, nearly a $70 per acre increase from 2011. Crop expenses made up over one-third of all costs. Land Charge accounted for 20%, Power and Equipment 20%, Other Costs 12%, Labor 8%, and Building 4% (Table 2A).

Crop36%

Power & Equipment

20%

Building 4%

Labor8%

Other Costs12%

Land Charge20%

Percentage of Non-Feed Costs

 

Crop expenses account for the majority of the costs, thus it is essential to manage these costs efficiently to maintain profitability. Even a change in a single crop input can have a significant impact on the budget. In 2012, Ohio Valley grain farms spent $271.61 per acre on crop expenses. The smaller farms spent $268.84 while the larger farms spent $271.87 per acre. Of the crop expenses, the pesticide cost was very similar for the two groups. Fertilizer cost varied by $5.23 per acre as the smaller farms incurred higher fertilizer cost. For fertilizer, the small farms spent $148.21 and the larger farms spent $142.98 per acre. Seed cost varied by $7.74 per acre. The larger farms incurred higher seed cost, likely a result of having double crop acres and possibly having to replant some acres due to weather conditions. The average Ohio Valley grain farm spent $143.42 on fertilizer, $47.61 on pesticides, and $80.58 on seed (Table 2A). This was a 28% increase in fertilizer costs and an 18% increase in seed cost from 2011.

Power and Equipment costs can vary largely from one operation to another operation depending on the desire for new paint and how efficiently the equipment is used in the operation. If the farm upgrades equipment on a regular basis, the repair costs will likely be lower, but depreciation will be higher. The farms with older equipment and a smaller labor force will have higher repair costs and more machine hire, but the machinery depreciation will be lower. The number of acres farmed greatly affects the power and equipment costs as well, since the fixed

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costs are spread over more acres. In 2012, the average power and equipment cost for Ohio Valley grain farms was $147.48 per acre, with depreciation making up $63, or 43%, of the cost. Smaller farms averaged $142.72 per acre and larger farms averaged $147.92 per acre (Table 2A). The larger farms had higher depreciation, lower repairs, more machine hire, and higher fuel costs. Having more depreciation and machine hire, caused lower repair costs, as expected. The higher fuel costs are a result of double crop acres. The higher economic depreciation could be driven by tax depreciation. After a couple of years of good returns, many farms amped up equipment purchases, taking advantage of tax depreciation laws.

Utilities5%

Machine Repairs22%

Machine Hire & Lease

8%

Fuel & Oil22%

Light Vehicle0%

Machine Depreciation

43%

Percentage Power & Equipment Costs Spent

 

Building costs averaged $26.77 per acre for Ohio Valley grain farms. Building costs consist of drying, storage, building repair and rent, and building depreciation. Building costs are higher for the larger farms ($27.76 per acre) than the smaller farms ($16.18 per acre). Higher profits in 2011 led larger operators to put efforts into improving grain bin facilities, field drainage, and other buildings in 2012. This caused building repairs and depreciation to increase for the larger farms (Table 2A).

Labor is essential to all operations and thus, it is always an item of concern. Good labor is costly and hard to find. When high-quality employees are found, employers like to retain them, regardless of the cost. The average cost of labor for Ohio Valley grain farms was $58.68 per acre, which includes paid and unpaid (operator) labor. The average Kentucky farm incurred labor costs of $83.56 per acre. Smaller Ohio Valley grain farms had average labor costs of $74.57 per acre, while the larger farms averaged $57.20. This is a fairly large variance in the two groups and there are a couple of factors contributing to this variance. Many of the smaller farms have livestock and thus a larger percentage of their land in forages. Livestock are more labor intensive than crops. Many of the smaller farms are also tobacco intensive and thus require more labor. Also, the charge for unpaid operator labor was $2700 per month for all farms, but the smaller farms have fewer acres to spread the unpaid labor expense. These factors result in the much higher labor cost for the smaller farms (Table 2A). The graph below is a good illustration of the impact of the unpaid labor on the smaller farms.

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$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

Kentucky Farms Ohio ValleyGrain Farms

Ohio ValleyGrain Farms

<1000 ac

Ohio ValleyGrain Farms

>1000 ac

$23.32 $23.98$49.30

$21.62

$60.24$34.70

$25.27

$35.58

Labor Costs

Paid

Unpaid

 Other costs include vet, medicine, and livestock supplies; insurance, miscellaneous, and non-land interest. Non-land interest accounts for the major portion of this category, but insurance costs have been rising. Non-land interest is calculated by charging 4.95% interest on the investment in capital (livestock, machinery, and buildings) and cash operating expenses for each farm. If the money was not invested in the farm, it would most likely be earning a return elsewhere. The average Ohio Valley grain farm averaged other costs of $92.32 per acre, with $55.08 of this being non-land interest. Insurance costs were $27.27 per acre (Table 2A). Of this, $16.73 per acre was the average cost of crop insurance for Ohio Valley grain farms. Insurance includes crop, liability, and property insurance on farm assets. Land costs include charges for rent, property taxes, and non-cash interest on owned tillable acres. The interest charge on land is essentially the opportunity cost of having money invested in land for farming rather than investing elsewhere to earn a return. In 2012, the interest charge was 3.5%. The average Ohio Valley grain farm averaged land charges of $150.02 per acre. There was some variance in this cost between the smaller and larger farms. The smaller farms averaged land charges of $142.83 per acre and the larger farms averaged $150.69 (Table 2A). Both groups saw an increase in this cost from 2011; however, the larger farms saw a greater increase. This is further evidence that the larger farms may be paying higher cash rents. Total non-feed costs averaged $746.88 per acre for Ohio Valley grain farms. The average Kentucky farm averaged $828.15 in total non-feed costs. Smaller Ohio Valley farms had average non-feed costs over $15 lower than the larger Ohio Valley farms, which had average costs of $748.24 (Table 2A).

Production

High temperatures and drought were detrimental to 2012 crop production. An early spring led to good planting conditions, but lack of rain during early summer and scorching temperatures during pollination caused problems. Corn and double-crop soybean yields were lower than average. Wheat and full season soybean yields were surprisingly pleasant. Beef producers were forced to feed hay in late summer and hay production suffered.

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Producers in the Ohio Valley area saw corn yields lower than the five and ten-year averages. Yellow corn yield in 2012 was 93 bu/acre, a 42% decrease over 2011 yields. This is over 50 bu/acre lower than the five and ten-year averages. White corn was 67 bu/acre, a 70 bu decrease from 2011 yields. Pollination issues and lack of moisture are evident in the low yields (Table 5).

Soybean yields in the Ohio Valley area have been fairly consistent over the past ten years. Full season soybeans averaged 46 bu/acre. This is right at the five and ten-year average. Double crop soybeans were impacted by the weather and only averaged 34 bu/acre, a 5 bushel decrease from the five and ten-year averages (Table 5).

Since wheat prices remained stable, wheat remained a popular commodity in the Ohio Valley area. Wheat yields were outstanding. Producers averaged 69 bu/acre, higher than both the five and ten-year averages of 66 bu/acre and 64 bu/acre, respectively (Table 5).

Tobacco yields were decent in 2012. Burley tobacco averaged 2,628 lb/acre, an increase of 180 lb/acre over 2011 yields. Air cured tobacco averaged 2,866 lb/acre in 2012.

0

20

40

60

80

100

120

140

160

Yellow Corn White Corn Full SeasonSoybeans

Double-CropSoybeans

Wheat

Ohio Valley 2012 Crop Yields and Averages

2012

5 Year Average

10 Year Average

 

Crop Returns

Despite low yields, producers generated outstanding crop returns. Gross crop returns for Ohio Valley grain farms averaged $789.02 per acre, the highest over the past ten years (Table 2A). The five-year average is $693.29 per acre. High prices and crop insurance claims kept crop returns at record levels for 2012. Kentucky grain farms averaged crop returns of $840.67 per acre. Ohio Valley farms had a much smaller percentage of double crop acres than the other areas of the state, thus the lower crop returns. The smaller Ohio Valley grain farm (less than 1,000 acres) averaged crop returns of $746.66 per acre, while the larger farms (greater than 1,000 acre) averaged crop returns of $792.97 per acre. The larger farms had a slight yield advantage over the smaller farms in corn and soybeans. Those producers also had double crop acres, thus the higher returns (Table 2A).

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0

100

200

300

400

500

600

700

800

900

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$/acre

Ohio Valley Crop Returns

 

In terms of crop price assessment, both new crop and old crop prices are examined. Old crop price is the price received for the 2011 crop sold in 2012, while the new crop price is the price received for the 2012 crop sold in 2012. Prices received were at record highs. The new crop prices were higher than old crop (Table 6). Looking forward into the 2013 crop, market prices have dropped off of that high. Old crop prices will most likely be significantly higher than new crop prices in 2013.

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

$10.00$11.00$12.00$13.00$14.00$15.00$16.00

YellowCorn

WhiteCorn

Full SeasonSoybeans

DoubleCrop

Soybeans

Wheat

Crop Prices

Old Crop Price

New Crop Price

 

 

 

 

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Management Returns and Net Farm Income

Ohio Valley saw a decrease in both Net Farm Income (NFI) and Management Returns in 2012. NFI averaged $312,648, below the five-year average, but well above the ten-year average. This was nearly a $120,000 decrease from 2011. Management Returns averaged $168,180, once again below the five-year average, but above the ten-year average. The chart below demonstrates the trend over the past years. The past six years have been the most successful years (Table 4).   

-$100,000

-$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

$500,000

Ohio Valley Area Management Returns and Net Farm Income

Management Returns Net Farm Income

 Ohio Valley grain farms had an average NFI of $323,687 and Management Returns of $177,144 or $101.28 per acre in 2012. The NFI for smaller farms was 33% of the NFI of the larger farms, $128,301 and $388,816, respectively. However, the smaller farms were 18% more profitable per acre with net income of $181.47 per acre compared to $153.44 per acre for larger farms. Management Returns for the smaller farms was 30% of the Management Returns of the larger farms, $64,704 and $214,624, respectively. The smaller farms produced about 7.7% more return for management, or $7.79 more per acre. The smaller farms are more efficient in operating and depreciation expense. The larger farms had management returns of $100.61 per acre, while the smaller farms had returns of $108.40 per acre (Table 1 and Table 2A). It is interesting to analyze the upper and lower third of Ohio Valley grain farms as well. The upper third had Management Returns of $427,106, or $238.21 per acre and NFI of $567,754, or $316.65 per acre. The upper third had 79% of tillable acres as operator acres and farmed 200 less operator acres on average than the lower third. This group did a better job marketing as reflected in the crop prices received, and also had crop yields slightly higher on all crops than the

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lower third. The lower third averaged Management Returns of ($44,523), or ($22.31) per acre and NFI of $129,425, or $64.84 per acre. The lower third cash rents a larger percentage (8% more) of ground than the upper third.  The lower third also had more paid labor on a per acre basis. Higher cash rents, reflected in the higher land charges, are another factor that likely caused this group's management returns to be lower. The upper third was much more efficient in operating expense, as shown with the operating expense ratio of 54.13% versus 75.46% for the lower third, and depreciation expense. That translates to nearly a 25% advantage in the NFI from operations ratio for the upper third (Table 3A and Table 3B). 

 

 

 

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Kentucky Ohio Valley Ohio Valley Ohio Valley Ohio Valley

Grain Grain Grain

Range in Size (Acres) All All All 0-999 1000+Management Returns All All All All AllNumber of Farms 256 58 56 14 42

Total Acres in Farm 2,151 2,128 2,181 763 2,654

Tillable Acres in Farm 1,980 2,023 2,077 707 2,534

Operator Tillable Acres 1,820 1,707 1,749 597 2,133

Percent Land Owned 33.4% 25.6% 23.2% 25.2% 22.5%

Percent Land Crop Share 22.7% 43.7% 45.3% 43.1% 46.0%

Percent Land Cash Rent 44.0% 30.7% 31.5% 31.6% 31.4%

Months of Hired Labor 43.5 27.5 28.5 8.8 35.0

Months of Unpaid Labor 17.2 18.0 18.5 12.9 20.4

Total Months Labor 60.7 45.5 47.0 21.7 55.4

FARM RETURNS

Total Cash Operating 1,964,582 1,528,941 1,574,147 539,435 1,919,051

Inventory Change (23,215) (83,625) (85,335) (19,381) (107,320)

Accounts Receivable Change 38,555 64,612 66,920 41 89,213

Farm Products Used 0 0 0 0 0

Less Purchased Feed & Grain 112,230 45,106 46,716 2,748 61,373

Less Purchased Livestock 14,826 3,676 3,807 884 4,782

GROSS FARM RETURNS 1,852,867 1,461,147 1,505,208 516,463 1,834,790

FARM COSTS

Total Cash Operating 1,335,605 1,043,345 1,073,004 381,135 1,303,628

Farm Products Used 0 0 0 0 0

Prepaid Expense Change (62,425) (35,791) (36,624) (24,651) (40,615)

Accounts Payable Change 514 (4,430) (4,589) (12,032) (2,108)

TOTAL OPERATING EXPENSE 1,273,695 1,003,124 1,031,792 344,452 1,260,905

INCOME BEFORE DEPRECIATION 579,171 458,023 473,416 172,011 573,885

Less Depreciation 151,727 149,104 153,592 40,697 191,223

FARM OPERATING INCOME 427,444 308,919 319,824 131,314 382,661

Capital Account Adjustment 5,705 3,729 3,863 (3,013) 6,154

NET FARM INCOME (NFI) 433,150 312,648 323,687 128,301 388,816 Less Unpaid Family Labor 1,860 0 0 0 0

RETURNS TO OPERATOR LABOR

CAPITAL, & MANAGEMENT 431,289 312,648 323,687 128,301 388,816

Less Unpaid Operator Labor 44,472 48,484 50,022 34,811 55,093

RETURNS TO EQUITY CAPITAL

& MANAGEMENT 386,817 264,165 273,665 93,490 333,723

Less Equity Capital Charge 115,518 95,985 96,521 28,786 119,099

MANAGEMENT RETURNS 271,299 168,180 177,144 64,704 214,624

FINANCIAL EFFICIENCY RATIOS

Operating Expense Ratio (%) 65.62% 64.90% 64.77% 62.00% 65.03%

Depreciation Expense Ratio (%) 8.19% 10.20% 10.20% 7.88% 10.42%

Interest Expense Ratio (%) 3.12% 3.76% 3.78% 4.69% 3.69%NFI from Operations Ratio (%) 23.07% 21.14% 21.25% 25.43% 20.86%

Table 1 - Income Statement Summary of Ohio Valley Farms

 

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Table 2A - Economic Management Analysis per Operator Acre: Ohio Valley Farms

Kentucky Ohio Valley Ohio Valley Ohio Valley Ohio Valley

Grain Grain Grain

Range in Size (Acres) All All All 0-999 1000+Management Returns All All All All AllNumber of Farms 256 58 56 14 42

Total Acres in Farm 2,151 2,128 2,181 763 2,654

Tillable Acres in Farm 1,980 2,023 2,077 707 2,534

Operator Tillable Acres 1,820 1,707 1,749 597 2,133

Percent Land Owned 33.4% 25.6% 23.2% 25.2% 22.5%

Percent Land Crop Share 22.7% 43.7% 45.3% 43.1% 46.0%

Percent Land Cash Rent 44.0% 30.7% 31.5% 31.6% 31.4%

Months of Hired Labor 43.5 27.5 28.5 8.8 35.0

Months of Unpaid Labor 17.2 18.0 18.5 12.9 20.4

Total Months Labor 60.7 45.5 47.0 21.7 55.4

FARM RETURNS

Crop Returns 840.67 785.38 789.02 746.66 792.97

Livestock Return Above Feed 40.13 16.96 17.14 7.99 17.99

Custom Work 9.33 6.13 6.20 6.57 6.16

Other Farm Receipts 34.29 6.34 6.37 7.42 6.28

Tobacco Returns 49.60 26.94 27.22 77.14 22.57

GROSS FARM RETURNS 974.01 841.75 845.95 845.77 845.97FARM COSTS

Soil Fertility 145.88 143.71 143.42 148.21 142.98

Pesticides 49.74 47.55 47.61 47.13 47.66

Seed 79.27 80.45 80.58 73.50 81.24

Crop Total 274.88 271.71 271.61 268.84 271.87Utilities 10.47 6.86 6.84 10.14 6.54

Machine Repairs 35.56 32.70 32.94 45.07 31.81

Machine Hire & Lease 23.66 11.66 11.67 7.52 12.06

Fuel & Oil 40.48 32.21 32.29 26.88 32.79

Light Vehicle 0.15 0.26 0.26 1.97 0.10

Machine Depreciation 63.19 63.11 63.47 51.14 64.62

Power & Equip. Total 173.51 146.80 147.48 142.72 147.92Drying 2.74 1.39 1.40 1.05 1.43

Storage 1.12 0.29 0.30 0.96 0.23

Building Repair & Rent 9.13 11.15 11.08 6.00 11.55

Building Depreciation 15.19 14.02 14.00 8.17 14.54

Building Total 28.19 26.85 26.77 16.18 27.76Labor, Unpaid 23.32 23.84 23.98 49.30 21.62

Labor, Paid 60.24 34.35 34.70 25.27 35.58

Labor Total 83.56 58.19 58.68 74.57 57.20Vet, Med, Livestock Supply 7.74 0.80 0.81 1.63 0.73

Insurance 32.32 27.15 27.27 28.83 27.12

Miscellaneous 10.63 9.10 9.16 9.07 9.17

Interest Charge - Nonland 56.79 54.89 55.08 47.65 55.78

Other Costs Total 107.48 91.93 92.32 87.19 92.79Land Charge Total 160.54 149.90 150.02 142.83 150.69TOTAL NON-FEED COSTS 828.15 745.39 746.88 732.32 748.24

Gain/loss Capital Sales 3.13 2.19 2.21 -5.05 2.89

MANAGEMENT RETURNS 149.00 98.55 101.28 108.40 100.61

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Table 2B - Economic Management Analysis per Operator Acre: Ohio Valley Farms

Kentucky Ohio Valley Ohio Valley Ohio Valley Ohio Valley

Grain Grain Grain

Range in Size (Acres) All All All 0-999 1000+Management Returns All All All All AllNumber of Farms 256 58 56 14 42Crop Yields

Yellow Corn 78 93 93 81 94

Full Season Soybeans 45 46 46 45 47

Wheat 66 69 69 69

Double Crop Soybeans 44 34 34 34

Milo 59 59 59 59

White Corn 69 67 67 63 68

Tobacco - Burley 2,268 2,628 2,628 2,482 2,673

Tobacco - Dark Air Cured 2,771 2,866 2,866 2,900 2,847

Total Acres Planted-Selected Crops

Yellow Corn 974 1,048 1,079 358 1,319

Full Season Soybeans 521 797 821 307 1,001

Wheat 716 379 394 394

Double Crop Soybeans 740 367 381 381

Milo 119 229 229 229

White Corn 655 260 260 148 288

Tobacco - Burley 46 45 45 53 43

Tobacco - Dark Air Cured 14 7 7 5 8

Forages 507 96 96 70 114

Land Use %

Yellow Corn 45.9% 52.9% 52.9% 51.1% 53.1% Full Season Soybeans 21.3% 38.8% 38.8% 43.7% 38.4% Wheat 21.7% 5.6% 5.5% 6.0% Double Crop Soybeans 22.5% 5.4% 5.3% 5.8% Milo 0.1% 0.2% 0.2% 0.2% White Corn 2.4% 1.1% 1.1% 1.5% 1.1% Tobacco - Burley 0.5% 0.4% 0.4% 1.1% 0.3% Tobacco - Dark Air Cured 0.1% 0.0% 0.0% 0.2% 0.0% Forages 6.8% 0.9% 0.9% 2.4% 0.8%Price Received - Old Crop

Yellow Corn 6.25 6.26 6.26 6.42 6.25

Soybeans 12.42 12.34 12.34 12.65 12.31

Wheat 7.32 5.50 5.50 5.50

White Corn 6.90 6.84 6.84 6.32 6.97

Tobacco - Burley 1.79 1.78 1.78 1.79 1.78

Tobacco - Dark Air Cured 2.22 2.20 2.20 2.23 2.17

Price Received - New Crop

Yellow Corn 6.50 6.68 6.68 6.73 6.68

Soybeans 13.88 14.07 14.05 14.11 14.05

Wheat 7.35 7.19 7.18 7.18

Milo 5.61 4.50 4.50 4.50

White Corn 8.89 8.15 8.15 8.15

Tobacco - Burley 1.97 1.96 1.96 1.98 1.96

Tobacco - Dark Air Cured 2.22 2.34 2.34 2.41 2.32

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Table 3A - Economic Management Analysis per Operator Acre

Ohio Valley Ohio Valley Ohio Valley

Grain Grain Grain

Range in Size (Acres) All All AllManagement Returns All Hi 1/3 Lo 1/3Number of Farms 56 18 18

Total Acres in Farm 2,181 2,270 2,483

Tillable Acres in Farm 2,077 2,181 2,290

Operator Tillable Acres 1,749 1,793 1,996

Percent Land Owned 23.2% 22.1% 24.1%

Percent Land Crop Share 45.3% 46.7% 36.4%

Percent Land Cash Rent 31.5% 31.3% 39.5%

Months of Hired Labor 28.5 25.7 36.3

Months of Unpaid Labor 18.5 18.8 20.1

Total Months Labor 47.0 44.6 56.3

FARM RETURNS

Crop Returns 789.02 862.03 717.58

Livestock Return Above Feed 17.14 42.15 6.23

Custom Work 6.20 7.27 4.80

Other Farm Receipts 6.37 5.93 9.31

Tobacco Returns 27.22 20.77 32.04

GROSS FARM RETURNS 845.95 938.14 769.96FARM COSTS

Soil Fertility 143.42 135.22 150.96

Pesticides 47.61 36.38 50.74

Seed 80.58 75.72 78.63

Crop Total 271.61 247.32 280.32Utilities 6.84 8.28 5.89

Machine Repairs 32.94 33.34 31.94

Machine Hire & Lease 11.67 6.49 17.59

Fuel & Oil 32.29 29.60 33.12

Light Vehicle 0.26 0.27 0.23

Machine Depreciation 63.47 61.13 73.95

Power & Equip. Total 147.48 139.11 162.73Drying 1.40 1.13 1.77

Storage 0.30 0.09 0.50

Building Repair & Rent 11.08 13.81 10.46

Building Depreciation 14.00 13.35 15.51

Building Total 26.77 28.38 28.23Labor, Unpaid 23.98 23.11 23.84

Labor, Paid 34.70 30.71 40.24

Labor Total 58.68 53.82 64.08Vet, Med, Livestock Supply 0.81 0.72 0.94

Insurance 27.27 26.72 29.99

Miscellaneous 9.16 11.31 7.23

Interest Charge - Nonland 55.08 55.09 57.71

Other Costs Total 92.32 93.84 95.88Land Charge Total 150.02 138.40 163.46TOTAL NON-FEED COSTS 746.88 700.87 794.71

Gain/loss Capital Sales 2.21 0.94 2.44

MANAGEMENT RETURNS 101.28 238.21 (22.31)

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Table 3B - Economic Management Analysis per Operator Acre

Ohio Valley Ohio Valley Ohio Valley

Grain Grain Grain

Range in Size (Acres) All All AllManagement Returns All Hi 1/3 Lo 1/3Number of Farms 56 18 18Crop Yields

Yellow Corn 93 98 85

Full Season Soybeans 46 47 44

Wheat 69 73 72

Double Crop Soybeans 34 38 28

Milo 59 59

White Corn 67 64

Tobacco - Burley 2,628 2,866 2,630

Tobacco - Dark Air Cured 2,866 3,145 3,017

Total Acres Planted-Selected Crops

Yellow Corn 1,079 1,078 1,262

Full Season Soybeans 821 921 868

Wheat 394 501 239

Double Crop Soybeans 381 500 230

Milo 229 229

White Corn 260 316

Tobacco - Burley 45 57 47

Tobacco - Dark Air Cured 7 5 9

Forages 96 49 104

Land Use %

Yellow Corn 52.9% 49.6% 56.3% Full Season Soybeans 38.8% 42.3% 36.6% Wheat 5.5% 5.1% 4.2% Double Crop Soybeans 5.3% 5.1% 4.0% Milo 0.2% 0.6% White Corn 1.1% 2.4% Tobacco - Burley 0.4% 0.3% 0.5% Tobacco - Dark Air Cured 0.0% 0.0% 0.1% Forages 0.9% 0.3% 1.8%Price Received - Old Crop

Yellow Corn 6.26 6.34 6.10

Soybeans 12.34 12.48 12.11

Wheat 5.50 8.50 6.67

White Corn 6.84 6.85

Tobacco - Burley 1.78 1.80 1.76

Tobacco - Dark Air Cured 2.20 2.12 2.24

Price Received - New Crop

Yellow Corn 6.68 6.93 6.54

Soybeans 14.05 14.77 13.35

Wheat 7.18 7.23 7.25

Milo 4.50 4.50

White Corn 8.15 8.15

Tobacco - Burley 1.96 1.92 1.97

Tobacco - Dark Air Cured 2.34 2.32

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Table 4 - Ohio Valley Area Management Returns & Net Farm Income

YEAR Kentucky Ohio Valley Kentucky Ohio Valley1999 (80,987) (36,098) 112,623 51,7152000 35,675 51,857 127,357 144,8042001 15,557 (1,686) 112,832 90,3932002 (48,294) (85,662) 48,653 8,0342003 49,032 31,803 152,018 129,5402004 41,968 37,096 144,669 132,8842005 17,728 27,119 132,867 138,5442006 55,984 13,730 193,375 143,2622007 35,153 135,824 232,824 292,4052008 168,343 166,095 311,469 322,2552009 152,237 248,294 307,633 412,4642010 127,940 134,872 282,523 269,8752011 289,803 276,716 453,681 431,049 2012 271,239 168,180 433,090 312,648

5 Year Average 201,912 198,831 357,679 349,658

10 Year Average 120,943 123,973 264,415 258,493

Management Returns Net Farm Income

 

Table 5 - Ohio Valley Area Crop Yield Data

Yellow CornWhite Corn Full Season Soybeans Double-Crop Soybeans Wheat2008 165 168 45 38 702009 178 191 54 48 622010 135 108 40 33 662011 161 137 45 41 632012 93 67 46 34 69

5 Year Average 146.4 134.2 46 38.8 66

10 Year Average 149.2 141.7 46 39.4 64 

 

 

 

 

 

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Table 6 - Ohio Valley Area Price History

Old Crop New Crop Old Crop New Crop Old Crop New Crop Old Crop New Crop Old Crop New Crop2008 4.44 4.25 4.84 4.94 10.1 10.08 9.89 9.95 4.15 5.852009 4.33 3.55 5.34 3.76 10.13 9.88 10.15 10.24 5.78 4.422010 3.9 4.17 4.10 4.36 9.97 10.04 10.08 9.90 5.05 4.872011 5.12 5.83 5.49 7.05 11.35 11.93 11.64 11.80 7.072012 6.26 6.68 6.84 8.15 12.34 14.07 11.81 14.81 5.50 7.19

5 Year Average 4.81 4.90 5.32 5.65 10.78 11.20 10.71 11.34 4.99 5.88

CornFull SeasonSoybeans

Double CropSoybeans WheatWhite Corn

 

 

 

 

   

 

 

 

 

 

 

 

 

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