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Summary of Report

Financial Performance of U.S. Commercial Farms, 1991-94

AER-751, June 1997

Contact: Janet Perry, 202-694-5583

U.S. GROSS FARM INCOME reached record-high levels in 1991-94, but expenses also increased, leaving commercial farm operators with net farm income that was, on average, relatively stable. Commercial farms were more profitable in 1994 than 1993.

These conclusions are based on data from USDA's annual Farm Costs and Returns Survey, which measures financial performance for commercial farms (at least $50,000 gross annual sales).

Commercial farms, which represent 27 percent of U.S. farms, produce just over 75 percent of agricultural products. While the operations vary by size, commodities produced, financial status, and operator demographics, the proportion of commercial farms experiencing extreme financial stress remained steady during the early 1990's. The 1980's and 1990's have been a transitional time in U.S. agriculture. The farm sector has been moving from the financial crises of the 1980's to the 1996 Federal Agriculture Improvement and Reform Act, under which government intervention in markets will end.

NET FARM INCOME, an effective measure of long-term profitability because it takes into account capital replacement costs and non-cash business income (land, capital, and labor services), averaged $38,284 in 1994. This was up from $37,997 in 1993, but below the 1992 record of $44,601. Net farm income ranged from $15,000 for small farms to almost $190,000 for larger farms. Larger farms typically split the proceeds among multiple owners or equity suppliers.

Based on net farm income and debt/asset ratios, 41,000 of the 553,000 commercial farms surveyed were in a financially vulnerable position in 1994. Vulnerable farms are highly leveraged and demonstrate income deficiencies that diminish the viability of their business operations. They do not generate sufficient income either to meet current expenses or to reduce existing indebtedness.

Average income increased for crop farms in 1994, with the exception of wheat, rice, and tobacco operations. Cotton, peanuts, corn, and soybean operations had dramatic increases over 1993. Regionally, the largest average income increases occurred in the Lake, Southeast, and Delta States, while the largest reductions were in the Southern Plains and Pacific States.

In 1994, equity was 82 percent of farm assets, the same as previous years. Liquidity, the measure of how well financial obligations can be met, improved from 1993 to 1994. The average current liquidity ratio moved from 2.4 to 2.9, reflecting higher assets relative to liabilities. In 1994, 36 percent of commercial farms received direct government commodity program payments. Farms with sales of more than $150,000 received 28 percent of payments, and generated 46 percent of program commodity sales. Because most of the payments went to producers of cash grains, payments generally went to Corn Belt and Northern Plains States.

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