—April 04, 2006

With the addition of the Minnesota 2005 data, it is a good time to look at how the Minnesota group did last year. We have selected to feature a Financial Summary sorted by Years to provide an historical perspective. We have only included data from 1996-2005 (prior data did not include the Minnesota Farm Business Management education programs).

Profitability

Of the 2,381 farms that completed financial analyses, the average Minnesota farm earned a net farm income of $87,491 from farm operations in 2005, up 18% over 2004. This is the highest average net farm income for the Minnesota farms in the history of the FINBIN database, in nominal or real terms. Those earnings translated into an 8.7% rate of return on assets (ROA) and an 11.9% rate of return on equity (ROE) with assets valued at adjusted cost basis. One of the thumb-rules for evaluating profitability is that ROE should exceed ROA. If so, borrowed money earned more than its interest cost. So on average, the Minnesota farms passed that test. There was one year in the past, 2000, when the FINBIN farms earned slightly higher returns on assets.

Liquidity

Even though their current ratios did not change much, the average working capital increased over $8,000 compared to last year’s farms. Working capital to gross income, a comparison of liquid assets that takes farm size into account, increased just slightly from 12.1% to 13.1%. Term debt coverage was the highest for any year in the database, with the average farm generating $1.80 for each $1.00 of scheduled term debt payments.

Solvency

With assets valued at estimated market value, the average farm showed a net worth change of $79,725. These farms continued to grow, with ending total assets increasing by $105,075. Ending total debt to asset ratio declined slightly, to 45% when deferred liabilities are included.

Nonfarm Information

Average total family living expenses topped $40,000 for the first time (for the sole proprietors who kept living records). The average operation earned $23,843 from off-farm sources, continuing a steady increase in nonfarm income for these farms.

Crop Acres

The average land ownership was unchanged from 2004 at 276 acres. The average farm operated 763 crop acres, of which the operators owned 29% and rented 71%.