My work with the farm business management instructor teams in south-central and southwest Minnesota provides an excellent source of data on progressive producers. Analyzing the data over the past 12 years finds some interesting trends.
The 80/20 rule is alive and well. That is, 80% of profits are generated by 20% of the producers. Drilling down in the data, one finds that the top 10% of producers’ rate of return on assets over the past three years was 18-20%. This figure was derived using cost-based asset values rather than market value, and some assets were leased. The top 20% of producers averaged 16-19% return on assets (ROA). It is interesting to note that the average producers in the database had an ROA exceeding 10% in the last three years.
When examining the low 20% of producers’ ROA in the same time period, they were slightly positive, below 0.5% to a -0.9% in 2007. Granted, some of these producers may have been startup businesses or had a goal or mindset of working off the farm and maximizing rural lifestyle instead of returns.
Since 1995, the top 20% of producers in this database earned above a 10% ROA, while the low 20% was averaging -1%. Yes, this database does not include “average” producers. They do keep records and work with the farm management instructors, which are two key elements of financial success.
Editor’s note: Dave Kohl, The Corn And 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 sullylab@vt.edu.