High fuel and operating costs conspired to drive down net farm profit by an average of nearly 33 percent in 2008, says a financial report developed with the cooperation of area farmers.
Roger DeRouchey, an instructor with Mitchell Technical Institute's Farm and Ranch Business Management Program, said the 90 enrolled farms reported a 32.8 percent decrease in net farm profit between 2007 and 2008. The program helps farmers and ranchers upgrade their management skills.
DeRouchey said net farm profit represents money earned prior to the payment of business expansion, loan principal payments and family living expenses.
The average net farm profit of enrolled farmers fell from $167,411 in 2007 to $112,390 in 2008, with the most profitable operations showing a net profit of $293,028 and the least profitable a loss of $1,268.
Placed in context, however, the numbers are not as grim as they might appear. The dramatic drop in 2008 profits followed a record 2007 harvest.
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Historical reports from the management program show that net farm profit in 2006 was $85,252.
Other recent years include:
- 2005, $72,904;
- 2004, $103,445;
- 2003, $85,911;
- 2002, $25,736.
High feed prices for livestock enterprises and soaring fuel costs took their toll on 2008 profits, said DeRouchey
Will Haugen, an agricultural lender with Mitchell's First Dakota Bank, agreed that livestock operations suffered the heaviest losses in 2008.
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"If your operation was more livestock intensive, last year wasn't a good year," said Haugen, who said many area livestock operations performed below the program's report. On the other hand, farming operations that were "grain intensive" had a decent year, he said.
Haugen predicts profit margins could be even thinner in 2009.
On the positive side, the tight credit market has not adversely affected ag lending, he said, although lenders could be "asking a few more questions."
"We haven't scaled back our lending from previous years," said Haugen.
The report also shows that farm families depend on outside income.
The average enrolled family spent $48,720 for living expenses, but also earned $39,210 from non-farm sources.
Other report findings show the net worth, or equity, of farmers in the program increased 5.2 percent, or $58,502, in 2008. That's down from a 13.7 percent, or $137,563, gain in 2007. Equity gains can be realized by investing capital assets such as machinery or by paying down debt, explained DeRouchey.
The most profitable farms in the program achieved a $186,360 increase in equity, while low-profit farms showed a $33,548 decrease in equity.
