The farm management education group of Minnesota maintains one of a number of agricultural benchmarking databases that allow producers to benchmark their financial metrics to peers. These financial metrics adhere to the Farm Financial Standards Council's recommendations. This database of peer benchmarks does not use average producers, however, because the average producer lacks the motivation or knowledge to develop and maintain a good set of financial records.
Al Brudelie, dean of management education, sent a summary of this past year’s benchmarking data that includes both crop and livestock producers for south-central and southwest Minnesota. What is interesting about this data set is that comparisons are made back 15 years, which encompasses numerous economic cycles.
The Profit Gap is Widening
Profits, measured by return on assets (ROA), show some interesting metrics. The top 10% and high 20% of producers in the database generated a return on assets above 15% in 2010. Surprisingly, the average farms garnished nearly a 12% return. An examination of the low 20% of farms discovers less than 1% ROA, consistent with past trends over the years. A look finds that over a 15-year period, the return to the low 20% of farms was negative 60% of the time, and was above 1% only one year.
The average farm group had the most variation in ROA over the period. One third of the time, returns were above 10%. The other two-thirds of the time, when returns were in single digits, the variation was between 3% and 8% by the average group.
What about the peak performers? Surprisingly, every year in the 15-year time span, the top 10% and high 20% generated above a 10% return, and two years the top group garnered over a 20|% ROA.
These are some compelling statistics that demonstrate money can be made in agriculture, and it happens consistently for the elite profit performers. Next week I will have more on financial benchmarking.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at email@example.com.