Kentucky Farm Business Management Program. Annual Summary Data

Transcription

1 Kentucky Farm Business Management Program Annual Summary Data 2010 Agricultural Economics - Extension No June 2011 By: KFBM Specialists See page 7 University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Building Lexington, Kentucky Phone: Fax: AGRICULTURE & NATURAL RESOURCES C FAMILY & CONSUMER SCIENCES 4 - H / YOUTH DEVELOPMENT C COMMUNITY & ECONOMIC DEVELOPMENT

2 Contents Acknowledgements...7 Source of Data...8 Definitions of Terms and Accounting Methods...9 Sampling Technique Type of Farm Expense/Cost Items Revenue Items Other Terms Used in This Report Kentucky Net Farm Income and Management Returns...11 Kentucky Net Farm Income Kentucky Management Returns Summary Description of Tables Table 1.1 Historical Data: Operator-Only Net Farm Income by Area...14 Table 1.2 Historical Data: Operator-Only Management Returns by Area...15 Table 1.3 Summary of All Farms by Farm Management Association...16 Table 1.4 Summary of All Farms by Type...17 Table 1.5A Economic Management Analysis per Operator Acre by Area Table 1.5B Economic Management Analysis per Operator Acre by Area Table 1.6A Economic Management Analysis per Operator Acre by Type Table 1.6B Economic Management Analysis per Operator Acre by Type Kentucky Grain Farms...22 Management Returns and Net Farm Income (NFI) Farm Size and Ownership Production Crop Returns Farm Costs Management Return Sorts Income by Area Description of Tables Table 2.1 Kentucky Grain Farms Net Income...29 Table 2.2 Kentucky Grain Farms Management Returns...29 Table 2.3 Summary of Kentucky Grain Farms, Table 2.3A Summary of Kentucky Grain Farms, Table 2.3B Summary of Kentucky Grain Farms, Table Crop Yields All Farms by Area...33 Table 2.5 Crop Yield History All Kentucky Farms...33 Table Summary of Kentucky Grain Farms by Returns...34 Table 2.6A 2010 Summary of Kentucky Grain Farms by Returns...35 Table 2.6B Summary of Kentucky Grain Farms by Returns

3 Table 2.7 Summary of Kentucky Grain Farms by Size & Management Table 2.7A Summary of Kentucky Grain Farms by Size & Management Table 2.7B Summary of Kentucky Grain Farms by Size & Management Table 2.8 Summary of Kentucky Grain Farms by Area Table 2.8A Summary of Kentucky Grain Farms by Area Table 2.8B Summary of Kentucky Grain Farms by Area Kentucky Dairy Farms...43 Farm Size and Ownership Production Returns Net Farm Income (NFI) and Management Returns Description of Tables Table 3.1 Summary of Kentucky Dairy Farms by Size, Table 3.2 Dairy Cow Herds: Production, Returns and Feed Costs, Table 3.3 Economic Management Analysis: Kentucky Dairy Farms by Size, Kentucky Beef Farms...50 Farm Size and Ownership Production Returns Net Farm Income (NFI) and Management Returns Description of Tables Table 4.1 Summary of Kentucky Beef Farms...53 Table 4.2 Historical Summary of Kentucky Beef Farms...54 Table 4.3 Beef Cow Herds: Production, Returns, and Feed Costs, Table 4.4 Average Beef Prices & Weights, Table 4.5 Historical Beef Production & Returns...56 Kentucky Tobacco Farms...57 Central Kentucky Area Farms...59 Central Kentucky (Lincoln Trail and Bluegrass Associations) Financial Efficiency Production and Marketing Description of Tables Table 6.1 Historical Data: Operator-Only Net Farm Income by Area...62 Table 6.2 Historical Data: Operator-Only Management Returns by Area...63 Table 6.3 Summary of All Farms by Farm Management Association...64 Table 6.4 Crop Yields by Area and Crop Yield History (All Kentucky Farms)...65 Table 6.5 Average Crop Prices by Area and Crop Price History (All Kentucky Farms).66 3

4 Ohio Valley Area Farms...67 Farm Size and Ownership Production Crop Returns Farm Costs Management Returns and Net Farm Income Description of Tables Table 7.1 Income Statement Summary of Ohio Valley Area Farms...74 Table 7.2A EMA Summary of Ohio Valley Area Farms...75 Table 7.2B EMA Summary of Ohio Valley Area Farms continued...76 Table 7.3 Ohio Valley Area Management Returns & Net Farm Income...77 Table 7.4 Ohio Valley Area Crop Yield Data...77 Table 7.5 Ohio Valley Area Price History...78 Pennyroyal Area Farms...79 Management Returns and Net Farm Income Farm Land Resources Production Crop Returns Farm Costs Description of Tables Table 8.1 Historical Data: Operator-Only Management Returns by Area...84 Table 8.2 Historical Data: Operator-Only Net Farm Income by Area...84 Table 8.3 Summary of Pennyroyal Grain Farms by Size...85 Table 8.4 Economic Management Analysis per Operator Acre Table 8.5 Summary of Pennyroyal Grain Farms by Size and Management Table 8.6 Summary of All Farms by Type Table 8.7 Pennyroyal Area Crop Yield Data...89 Table 8.8 Pennyroyal Area Crop Price History...89 Purchase Area Farms...90 Management Returns and Net Farm Income Farm Land Resources Production Crop Returns Farm Costs Description of Tables Table 9.1 Income Statement Summary of Purchase Area Farms...97 Table 9.2A EMA Summary of Purchase Area Farms...98 Table 9.2B EMA Summary of Purchase Area Farms...99 Table 9.3 Purchase Area Management Returns and Net Farm Income (NFI) Table 9.4 Purchase Area Crop Yield Data Table 9.5 Purchase Area Crop Price History

5 Appendix Table A Summary of All Farms by Farm Management Association Table B Summary of All Farms by Type Table C Summary of Kentucky Grain Farms by Size and Management Table D Summary of Kentucky Grain Farms by Size Table E Summary of Kentucky Grain Farms by Area Table F Summary of Kentucky Grain Farms by Size, 0% Feed Fed Table G Summary of Kentucky Grain Farms by Returns to Non-Feed Costs Table H Summary of Kentucky Beef Farms Table I Summary of Kentucky Dairy Farms by Size Table J Summary of Pennyroyal Grain Farms by Size and Management Table K Summary of Pennyroyal Grain Farms by Size Table L Summary of Ohio Valley Grain Farms by Size and Management Table M Summary of Purchase and Central Kentucky Grain Farms by Size Table N Historical Data: Operator-Only Management Returns by Area Table O Historical Data: Net Farm Income by Area Table P Crop Yield Data Table Q Crop Price Data Table R Average Livestock Price and Weights, Table S Beef Cow Herds: Production, Returns and Feed Costs Table T Dairy Cow Herds: Production, Returns, and Feed Costs Table U.1 Economic Management Analysis per Operator Acre by Area Table U.2 Economic Management Analysis per Operator Acre by Area-2010 continued Table V.1 Economic Management Analysis: All Farms by Type Table V.2 Economic Management Analysis: All Farms by Type-2010 continued Table W.1 Economic Management Analysis: Kentucky Grain Farms by Size and Management..126 Table W.2 Economic Management Analysis: Kentucky Grain Farms by Size and Management continued Table X.1 Economic Management Analysis: Kentucky Grain Farms by Size Table X.2 Economic Management Analysis: Kentucky Grain Farms by Size-2010 continued Table Y.1 Economic Management Analysis: Kentucky Grain Farms by Area Table Y.2 Economic Management Analysis: Kentucky Grain Farms by Area-2010 continued Table Z.1 Economic Management Analysis: Kentucky Grain Farms by Returns to Table Z.2 Non-Feed Costs Economic Management Analysis: Kentucky Grain Farms by Returns to Non-Feed Costs-2010 continued Table AA.1 Economic Management Analysis: Kentucky Beef Farms Table AA.2 Economic Management Analysis: Kentucky Beef Farms-2010 continued Table BB.1 Economic Management Analysis: Kentucky Dairy Farms by Size Table BB.2 Economic Management Analysis: Kentucky Dairy Farms by Size-2010 continued Table CC.1 Table CC.2 Table DD.1 Table DD.2 Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010 continued Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010 continued

6 Table EE.1 Table EE.2 Table FF.1 Table FF.2 Economic Management Analysis: Kentucky Ohio Valley Grain Farms by Size and Management Economic Management Analysis: Kentucky Ohio Valley Grain Farms by Size and Management 2010 continued Economic Management Analysis: Kentucky Purchase and Central Kentucky Grain Farms by Size Economic Management Analysis: Kentucky Purchase and Central Kentucky Grain Farms by Size 2010 continued

7 Acknowledgements Special credit should be given to the farm business management specialists who supplied data used in this report. Their attention to details and accuracy of records are what make these results so valuable to farmers and to those working with farmers throughout the state. Specialists who served in 2010 and provided summary data are: Jonathan D. Shepherd Lincoln Trail Farm Analysis Group, Inc. (270) Lauren E. Omer Ohio Valley Farm Analysis Group, Inc. (270) Suzy L. Martin Ohio Valley Farm Analysis Group, Inc. (270) D. Bart Peters Pennyroyal Farm Analysis Group, Inc. (270) Evan M. Conrad Pennyroyal Farm Analysis Group, Inc. (270) Rush H. Midkiff Pennyroyal Farm Analysis Group, Inc. (270) Michael C. Forsythe Pennyroyal Farm Analysis Group, Inc. (270) Jennifer L. Rogers Purchase Farm Analysis Group, Inc. (270) Jerry S. Pierce KFBM State Coordinator (270) KFBM Website A Special Note to Our Readers The data for this study are drawn from the detailed financial and production records of producers cooperating with the Kentucky Farm Business Management Program. The data are not drawn from a random sample of farms in the state. However, these data are the most accurate and detailed farm financial data which are available to researchers and educators. Every attempt has been made to select a set of farms for these research studies which are typical operations and have complete financial information available for analysis. These data are carefully cross-checked by our farm management specialists before inclusion in this analysis. It should be noted that farms included in this study are representative of commercial farms producing major commodities and livestock, but not of all farms in Kentucky. 7

8 Kentucky Farm Business Management Groups 2010 Summary The 2010 KFBM Annual Summary Data has a new format. The narrative section of previous Annual Summaries has been replaced by separate chapters. Each chapter contains narrative analysis as well as supporting charts and graphs. Most chapters are written as standalone publications targeted to individual Associations and commodities. These chapters/publications serve to provide a more in-depth analysis and interpretation to individual segments of Kentucky s agricultural community. All of the tables with current-year data found in previous Annual Summaries are included in the Appendix. Source of Data This report presents the summarized 2010 performance data (financial and physical) on 255 Kentucky farm businesses. Some data are presented for previous years so that trends and changes can be studied. This is the 44 th annual summary of records obtained from farmers participating in the Kentucky Farm Business Management Program. The program is a cooperative effort between the Department of Agricultural Economics of the University of Kentucky and four incorporated Farm Analysis Groups. This program was initiated to improve Kentucky farm management in general and specifically to: Provide farmers with an individual farm analysis and comparative analysis of farm business records emphasizing information necessary for sound decision making and wise financial planning; Provide farmers with objective counseling in developing priorities and alternative plans; Provide the public with basic information about business conditions as well as costs and returns on Kentucky farms under current conditions. Provide Kentucky farmers, teachers, researchers and lending agencies actual on-farm information about Kentucky farm businesses. In 2010, 311 farming operations were members of the Farm Business Management Program keeping records under the direction of 8 Farm Business Management Specialists. The program serves farmers in 57 counties. 8

9 Definition of Terms and Accounting Methods Sampling Technique Data from all farm business records certified to be usable for comparative analysis by field staff was aggregated by size (i.e., tillable acres, number of animal production units, etc.), type of farm, and area. Illinois Farm Business Farm Management Association's Farm Business Farm Management Software was used to compile and summarize the data. Type of Farm Farm type is based on the percent feed fed. To determine percent feed fed, the total value of feed fed to all livestock enterprises is divided by the value of crop returns. However, tobacco revenue is excluded from crop returns for this calculation. Values for percent feed fed can range from zero to infinity. Large values are possible if a farm has limited grain production and thus purchases much of its feed. Grain farms are defined as farms on which the value of feed fed was less than 40 percent of the crop returns and the value of feed fed to dairy was less than one-sixth of the crop returns. Beef farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the beef enterprise utilized more than one-half of the value of feed fed. Hog farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the hog enterprise utilized more than one-half of the value of feed fed. Dairy farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the dairy enterprise utilized more than one-third of the value of feed fed. Expense/Cost Items Total operating expenses include cash operating expenses plus depreciation plus the net effect on expenses when accounting for the accrual change in accounts payable and prepaid expenses. Cash operating expenses include cash outlays for the following non-depreciable items: Fertilizer Pesticides Seed (including homegrown seed) Machinery repairs Machinery hire and leases Fuel and oil (lubricants) Farm share of utilities and light vehicle expenses Building repairs Drying and storage Hired labor Livestock expense Taxes Insurance Miscellaneous expenses Purchased feed, grain and livestock are not included because they are deducted from Gross Revenue to calculate the Value of Farm Production. 9

10 Total interest expense includes cash interest paid on operating and term debt plus the net change in accrued interest on farm business debt. Interest on equity capital is a charge of 3.75 percent on the current value of land and 5.4 percent on non-land items less total interest expense. It is the opportunity cost of investing in the farm business. The non-land charge was calculated by multiplying 5.4 percent times: 1) the average of the beginning and ending of year value of livestock, machinery and building investment; 2) one-half of the average of the beginning and ending of year balance of inventory items; and 3) one-half of the total year's cash operating expense. Unpaid family and operator labor is the opportunity cost of using the operator's own and unpaid family labor in the farm business. A charge of $2,755 per month for unpaid operator and family labor is made for each farm. This labor charge is per labor month and is based on unpaid labor of 2,500 hours per year. Part-time family labor is therefore prorated. (Like any other resource, unpaid labor must be accounted for when studying profitability of a farm business) Revenue Items Value of farm production is the summation of cash and accrued value of sales of farm products and services, government payments and other farm-related revenue less the cost of purchased feed and livestock, plus the change in inventory value for grain and livestock, plus the value of farm products used. Farm products used are products used by the farm business and not sold. Net Farm Income is the value of farm production less total operating expenses, less total interest expense plus gain or loss on machinery and buildings sold. Net Farm Income includes the return to the farm for unpaid family and operator labor, the interest on invested capital, and the returns to management. It is the net total earnings to the farm family for resources they own. Operator(s) labor and management income is Net Farm Income less the interest charge on equity capital, less the opportunity cost of unpaid family labor. It represents the operators' return to their labor and management. Management return is the residual after a charge for unpaid operator labor is deducted from operator(s) labor and management income. Other Terms Used in this Report Crop return is the sum of the feed and grain sold, value of all feed fed (except milk), government crop subsidy program payments, and the change in value of feed and grain inventories less the value of crops and feed purchased. Livestock returns above feed is the sum of the sale of livestock and livestock products, value of livestock products consumed, and value of the livestock on hand at the end of the year minus livestock purchases and the value of the livestock on hand at the beginning of the year minus the cost of all feed fed, whether purchased or raised. 10

11 Kentucky Net Farm Income and Management Returns Kentucky Net Farm Income Although not as outstanding as the prior two years, Kentucky had a very profitable year in Net Farm Income (NFI) was positive across all areas of the state (Table 1.1). In fact, all areas were well above their respective ten-year average. Lincoln Trail and Bluegrass were also above their five-year average, while the more grain producing areas were slightly below the five-year average. This was due to a hard hitting drought in 2010 in the grain producing areas. Kentucky NFI for 2010 was $282,272. The five-year average for the state was $265,565 while the ten-year average was $191,886. That is a 38% increase over a five year period. Although 2010 was a very good year, it cannot compete with the combination of outstanding yields and favorable prices from the prior two years. The NFI in 2008 was $311,469 and the NFI in 2009 was $307,633. $350,000 Average NFI for Kentucky $300,000 $250,000 $200,000 $150,000 $100,000 5 Year Average 10 Year Average $50,000 $ Generally there is an expected amount of variation in NFI between the different areas. The type of farming operations from one end of the KFBM service area to the other varies. The eastern portion is more livestock oriented, diversified and smaller acreage. Whereas, the western part of the state is more grain focused with a mix of tobacco and livestock and the average acreage is greater. Furthermore, weather varies greatly from one end of the state to the other. As shown in the next graph, over the past ten years the three more traditionally grain producing areas (Purchase, Pennyroyal and Ohio Valley) have usually had a higher NFI than Lincoln Trail and Bluegrass. Yet in 2010 there was little difference in NFI between all of the areas. The Purchase area was the highest with $320,122 while Ohio Valley area was the lowest at $269,875. This was only a $50,247 variance. 11

12 NFI By Area $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 -$50, Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass Kentucky Management Returns Similar to NFI, the management returns across the state were positive. Another similarity is the Purchase, Pennyroyal and Ohio Valley areas were not quite as good as 2008 and Lincoln Trail and Bluegrass had outstanding management returns, particularly when compared to prior years (Tables 1.2 and 1.3). However, when management returns are evaluated on type of farming enterprise (Table 1.4) the data shows that grain farms had an excellent year with average management returns of $146,777. Dairy farms also had positive returns to management at $19,311. However, cattle farms had negative returns to management at ($100,430). $200,000 Kentucky Management Returns $150,000 $100,000 $50,000 $0 -$50, It is interesting to note that the financial efficiency ratios have not changed very much over the past five years despite the variability in gross farm returns and expenses. There are four financial efficiency ratios measured as a percent of gross returns. They include operating 12

13 expense, depreciation expense, interest expense, and NFI from operations. The total of these four ratios is 100%. So basically, the four ratios evaluate how the business uses the money generated. Take for example 2010 figures: for every dollar the farm generated $.68 went to operating expense, $.09 went to depreciation expense, and $.04 went to interest expense, which left $.19 for taxes, principal payments and family living. Below is a table that lists the five-year history of financial efficiency for Kentucky farms. Summary Financial Efficieny Ratios (%) for Kentucky Farms Operating Expense Ratio 67.68% 66.10% 62.87% 66.20% 64.47% Depreciation Expense Ratio 9.11% 8.10% 7.17% 8.10% 8.60% Interest Expense Ratio 4.25% 3.87% 4.17% 5.18% 5.46% NFI from Operations Ratio 18.96% 21.93% 25.78% 20.52% 21.47% Farms in the KFBM program, overall, had a good year. Despite the challenging weather conditions, the management returns were positive across all areas, due in large part to price increases in the fall of Furthermore, grain producers and dairy producers had positive returns with beef being the bleak spot in the data. More detailed information about individual areas and enterprises follows. 13

14 Table Historical Data: Operator-Only Net Farm Income by Area Year Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass ,507 61,785 81,857 68,171 31, ,560 39,506 56,040 45,326 41, ,741 41,083 30,233 42,045 9, , , ,440 72,416 44, ,019 68,956 88,646 87,214 36, ,586 97,986 71,877 31,140 16, , ,564 75,938 69,696 6, , ,374 94,838 75,439 27, ,994 99,765 53,151 30,991 34, ,084 30,312 13,862 (6,378) (4,389) 10, ,623 69,502 73,046 51,715 58,896 29, , , , , ,724 66, ,832 88, ,171 90,393 65,451 48, ,653 89,201 75,547 8,034 26,149 (1,319) , , , ,540 74,343 98, , , , ,884 58,130 73, , , , ,544 59,565 41, , , , ,262 99, , , , , ,405 87,231 99, , , , ,255 89, , , , , , , , , , , , , ,459 5 Year Average 265, , , , , , Year Average 191, , , ,966 98, ,896 14

15 Table Historical Data: Operator-Only Management Returns by Area Year Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass 1989 (24,750) (15,053) (30,776) (12,359) (5,399) ,124 (6,466) (4,555) (6,448) (23,051) (8,677) (29,191) (22,221) (32,716) ,983 53,578 48,882 15,198 3, ,740 10,520 21,120 28,466 (4,850) ,215 28,933 (5,702) (31,001) (27,200) ,365 45,806 (1,874) 2,514 (37,856) , ,653 19,809 7,033 (27,885) ,061 4,747 (32,097) (51,260) (16,704) 1998 (59,878) (87,570) (96,657) (85,114) (41,706) 1999 (80,987) (16,279) (18,916) (36,098) (21,196) (23,534) ,675 88,988 19,919 51,857 54,060 13, ,557 25,727 34,407 (1,686) (9,117) 2, (48,294) (10,424) (31,247) (85,662) (40,152) (77,121) ,032 78,959 70,808 31, , ,968 19,394 64,754 37,096 (12,616) (1,704) ,728 69,476 19,707 27,119 6,871 (72,631) ,984 40, ,390 13,730 12,433 8, ,153 87,280 12, ,824 (7,068) (19,295) , , , , , , , , ,294 34,682 81, , , , , , ,922 5 Year Average 107, , , ,763 43,792 56, Year Average 61,565 97,357 77,540 70,749 16,494 15,695 15

16 Table Summary of All Farms by Farm Management Association Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass Range in Size (Acres) All All All All All All Management Returns All All All All All All Number of Farms Total Acres in Farm 2,142 2,285 2,431 1,973 1,537 1,567 Tillable Acres in Farm 1,942 2,217 2,194 1,865 1,267 1,404 Operator Tillable Acres 1,780 2,052 2,068 1,536 1,183 1,219 Percent Land Owned 36.2% 34.6% 39.5% 26.7% 36.1% 43.9% Percent Land Crop Share 23.5% 16.5% 18.5% 49.3% 9.9% 17.5% Percent Land Cash Rent 40.3% 48.9% 42.0% 24.0% 54.0% 38.6% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 1,587,250 1,365,738 1,892,757 1,466, ,732 1,014,118 Inventory Change (12,611) (10,011) (51,541) (28) 110,653 75,206 Accounts Receivable Change 19,702 (6,289) 35,172 (2,540) 8,599 40,143 Farm Products Used Less Purchased Feed & Grain 130,710 58, , ,509 92, ,956 Less Purchased Livestock 17,258 1,298 20,175 2,504 38,218 70,042 GROSS FARM RETURNS 1,446,373 1,289,229 1,740,679 1,229, , ,470 FARM COSTS Total Cash Operating 1,074, ,703 1,341, , , ,484 Farm Products Used Prepaid Expense Change (46,956) (67,469) (61,982) (28,018) (17,026) (29,933) Accounts Payable Change 12,966 6,222 21,441 4,583 (1,203) (1,763) TOTAL OPERATING EXPENSE 1,040, ,456 1,300, , , ,788 INCOME BEFORE DEPRECIATION 406, , , , , ,682 Less Depreciation 131, , , ,613 78,990 98,400 FARM OPERATING INCOME 274, , , , , ,282 Capital Account Adjustment 8,257 8,403 7,810 9,532 9,305 2,176 NET FARM INCOME (NFI) 282, , , , , ,459 Less Unpaid Family Labor 2,108 3,565 3, , RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 280, , , , , ,707 Less Unpaid Operator Labor 45,661 46,997 45,379 52,753 37,773 40,649 RETURNS TO EQUITY CAPITAL & MANAGEMENT 234, , , , , ,058 Less Equity Capital Charge 106, , ,893 82,250 73,267 68,136 MANAGEMENT RETURNS 127, , , , , ,922 FINANCIAL EFFICIENCY RATIOS Operating Expense Ratio (%) 67.68% 61.83% 70.42% 63.89% 59.28% 56.54% Depreciation Expense Ratio (%) 9.11% 9.78% 8.93% 9.97% 8.36% 10.41% Interest Expense Ratio (%) 4.25% 4.21% 4.31% 4.97% 2.58% 1.40% NFI from Operations Ratio (%) 18.96% 24.18% 16.35% 21.17% 29.78% 31.65% 16

17 Table Summary of All Farms by Type All Farms Grain Farms Beef Farms Dairy Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Total Acres in Farm 2,142 2,528 1, Tillable Acres in Farm 1,942 2, Operator Tillable Acres 1,780 2, Percent Land Owned 36.2% 28.4% 64.1% 65.6% Percent Land Crop Share 23.5% 28.2% 9.3% 3.0% Percent Land Cash Rent 40.3% 43.5% 26.6% 31.4% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 1,587,250 1,740, , ,699 Inventory Change (12,611) (33,721) (19,196) 50,583 Accounts Receivable Change 19,702 25,131 (714) 884 Farm Products Used Less Purchased Feed & Grain 130,710 59, , ,913 Less Purchased Livestock 17,258 10,930 91,611 24,177 GROSS FARM RETURNS 1,446,373 1,660, , ,077 FARM COSTS Total Cash Operating 1,074,323 1,245, , ,893 Farm Products Used Prepaid Expense Change (46,956) (56,923) (12,819) (9,340) Accounts Payable Change 12,966 16,787 (773) 1,902 TOTAL OPERATING EXPENSE 1,040,334 1,205, , ,455 INCOME BEFORE DEPRECIATION 406, ,188 45, ,621 Less Depreciation 131, ,129 39,214 50,961 FARM OPERATING INCOME 274, ,059 6, ,660 Capital Account Adjustment 8,257 10,316 (126) 716 NET FARM INCOME (NFI) 282, ,375 6, ,376 Less Unpaid Family Labor 2,108 1,871 1,181 3,614 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 280, ,504 5, ,762 Less Unpaid Operator Labor 45,661 48,008 32,273 42,135 RETURNS TO EQUITY CAPITAL & MANAGEMENT 234, ,496 (27,072) 77,627 Less Equity Capital Charge 106, ,719 73,359 58,316 MANAGEMENT RETURNS 127, ,777 (100,430) 19,311 FINANCIAL EFFICIENCY RATIOS Operating Expense Ratio (%) 67.68% 68.52% 78.25% 65.54% Depreciation Expense Ratio (%) 9.11% 9.10% 12.35% 8.55% Interest Expense Ratio (%) 4.25% 4.07% 7.35% 5.34% NFI from Operations Ratio (%) 18.96% 18.31% 2.05% 20.58% 17

18 Table 1.5A - Economic Management Analysis per Operator Acre by Area Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass Range in Size (Acres) All All All All All All Management Returns All All All All All All Number of Farms Total Acres in Farm 2,142 2,285 2,431 1,973 1,537 1,567 Tillable Acres in Farm 1,942 2,217 2,194 1,865 1,267 1,404 Operator Tillable Acres 1,780 2,052 2,068 1,536 1,183 1,219 Percent Land Owned 36.2% 34.6% 39.5% 26.7% 36.1% 43.9% Percent Land Crop Share 23.5% 16.5% 18.5% 49.3% 9.9% 17.5% Percent Land Cash Rent 40.3% 48.9% 42.0% 24.0% 54.0% 38.6% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns GROSS FARM RETURNS FARM COSTS Soil Fertility Pesticides Seed Crop Total Utilities Machine Repairs Machine Hire & Lease Fuel & Oil Light Vehicle Machine Depreciation Power & Equip. Total Drying Storage Building Repair & Rent Building Depreciation Building Total Labor, Unpaid Labor, Paid Labor Total Vet, Med, Livestock Supply Insurance Miscellaneous Interest Charge - Nonland Other Costs Total Land Charge Total TOTAL NON-FEED COSTS Gain/loss Capital Sales MANAGEMENT RETURNS

19 Table 1.5B - Economic Management Analysis per Operator Acre by Area Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass Range in Size (Acres) All All All All All All Management Returns All All All All All All Number of Farms Crop Yields Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans Milo White Corn Barley Tobacco - Burley 2,223 2,138 2,486 2,094 1,852 Tobacco - Dark Air Cured 2,804 2,815 2,714 Tobacco - Dark Fire Cured 3,088 3,088 Total Acres Planted Per Farm Yellow Corn 997 1,054 1, Full Season Soybeans 708 1, ,097 Wheat Double Crop Soybeans Milo White Corn 764 1, Barley Tobacco - Burley Tobacco - Dark Air Cured Tobacco - Dark Fire Cured Forages Land Use % Yellow Corn 43.5% 43.5% 43.0% 46.6% 41.3% 33.0% Full Season Soybeans 29.5% 41.7% 19.4% 47.8% 45.4% 53.6% Wheat 15.9% 9.2% 23.5% 1.4% 3.4% 0.8% Double Crop Soybeans 16.5% 9.8% 24.4% 2.2% 2.3% 0.8% Milo 0.3% 0.3% 0.1% 0.7% White Corn 2.6% 3.5% 1.6% 1.2% Barley 0.5% 0.8% 0.1% Tobacco - Burley 0.5% 0.4% 0.6% 1.0% 2.1% Tobacco - Dark Air Cured 0.1% 0.2% 0.1% Tobacco - Dark Fire Cured 0.2% 0.4% Forages 7.0% 5.3% 8.8% 1.3% 7.6% 10.5% Crop Value Per Acre Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans Milo White Corn Barley Tobacco - Burley 3,815 3,694 4,363 3,472 3,052 Tobacco - Dark Air Cured 6,050 6,039 6,138 Tobacco - Dark Fire Cured 7,553 7,553 Price Received - Old Crop Yellow Corn Soybeans Wheat Milo White Corn Barley Tobacco - Burley Tobacco - Dark Air Cured Tobacco - Dark Fire Cured

20 Table 1.6A - Economic Management Analysis per Operator Acre by Type All Farms Grain Farms Beef Farms Dairy Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Total Acres in Farm 2,142 2,528 1, Tillable Acres in Farm 1,942 2, Operator Tillable Acres 1,780 2, Percent Land Owned 36.2% 28.4% 64.1% 65.6% Percent Land Crop Share 23.5% 28.2% 9.3% 3.0% Percent Land Cash Rent 40.3% 43.5% 26.6% 31.4% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns GROSS FARM RETURNS , FARM COSTS Soil Fertility Pesticides Seed Crop Total Utilities Machine Repairs Machine Hire & Lease Fuel & Oil Light Vehicle Machine Depreciation Power & Equip. Total Drying Storage Building Repair & Rent Building Depreciation Building Total Labor, Unpaid Labor, Paid Labor Total Vet, Med, Livestock Supply Insurance Miscellaneous Interest Charge - Nonland Other Costs Total Land Charge Total TOTAL NON-FEED COSTS , Gain/loss Capital Sales MANAGEMENT RETURNS (176.90)

21 Table 1.6B - Economic Management Analysis per Operator Acre by Type All Farms Grain Farms Beef Farms Dairy Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Crop Yields Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans Milo White Corn Barley Tobacco - Burley 2,223 2,234 2,047 2,019 Tobacco - Dark Air Cured 2,804 2,814 2,243 2,700 Tobacco - Dark Fire Cured 3,088 3,092 2,802 Total Acres Planted Per Farm Yellow Corn 997 1, Full Season Soybeans Wheat Double Crop Soybeans Milo White Corn Barley Tobacco - Burley Tobacco - Dark Air Cured Tobacco - Dark Fire Cured Forages Land Use % Yellow Corn 43.5% 45.0% 3.8% 13.9% Full Season Soybeans 29.5% 30.7% 3.9% 7.9% Wheat 15.9% 16.7% 5.6% 1.1% Double Crop Soybeans 16.5% 17.3% 5.6% 3.9% Milo 0.3% 0.3% White Corn 2.6% 2.8% 1.2% Barley 0.5% 0.5% 0.5% Tobacco - Burley 0.5% 0.5% 1.1% 0.3% Tobacco - Dark Air Cured 0.1% 0.1% 0.1% 0.0% Tobacco - Dark Fire Cured 0.2% 0.3% 0.2% Forages 7.0% 3.1% 84.1% 76.3% Crop Value Per Acre Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans Milo White Corn Barley Tobacco - Burley 3,815 3,850 2,969 3,836 Tobacco - Dark Air Cured 6,050 6,074 4,857 5,643 Tobacco - Dark Fire Cured 7,553 7,572 6,431 Price Received - Old Crop Yellow Corn Soybeans Wheat Milo White Corn Barley Tobacco - Burley Tobacco - Dark Air Cured Tobacco - Dark Fire Cured

22 Management Returns and Net Farm Income Kentucky Grain Farms Average Net Farm Income (NFI) on 198 Kentucky grain farms was $314,375. This is 23% lower than Although net income was lower in 2010, it is the 3 rd highest income recorded by Kentucky grain farms, behind 2008 and 2009, and just below the five-year average. However, it is significantly higher than the 10 year average. Management Returns were also lower in 2010 with the average grain farm reporting $146,777. Management Returns are calculated by subtracting a capital investment charge for the operator s equity ($117,719) and a charge for operator s labor ($48,008). Again, the 2010 Management Return is lower than 2009, but still the 3 rd highest recorded by Kentucky farms (Tables 2.1 and 2.2). Dollars 500,000 Kentucky Grain Farms Net Farm Income and Management Returns 400, , , , (100,000) Management Returns Net Income Farm Size and Ownership Kentucky grain farm operators averaged 2,350 tillable acres in This is up from 1,722 tillable acres in 2001, a 36% increase in size. The Pennyroyal area has the largest average of 2,761 acres while the Central KY area has the smallest average of 1,512 acres. Ohio Valley farms average 1,934 tillable acres. Purchase area farms average 2,538 tillable acres. All four areas have seen a similar percentage size increase over the past decade. Land was split between 28% owned, 28% crop share, and 44% cash rent. Each area has a unique land ownership percentage but has seen similar growth in the amount that is cash rented. The percentage of cash rented land has risen from 34% in 2005 to 44% in

23 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 1,600 1,500 Kentucky Grain Farms Tillable Acres Tillable Acres Production A late summer drought led to reduced corn and soybean yields in Corn yield was 130 bu/acre, a 28% decline from the 2009 record of 180 bu/acre. Full season and double crop soybeans were 37 bu/acre and 28 bu/acre, a decline of 29% and 40%, respectively. Corn and soybean yields for 2010 were well below the five-year and ten-year average. Wheat yield was 69 bu/acre, a 4 bushel increase from 2009 and right at the ten year average (Table 2.5). Bu/Acre Kentucky Grain Crop Yields Yellow Corn White Corn Wheat Full Season Soybeans Double Crop Soybeans Year Average 23

24 Crop Returns Yields were the primary reason 2010 NFI was down, although they were somewhat counterbalanced by higher prices and crop insurance year-end inventory prices for unpriced corn, soybeans, and wheat were up 57%, 33%, and 67%, respectively. Although the year ending price was higher, many farmers had already priced portions of their crop earlier in the season. Average prices will vary greatly for the 2010 crop depending on when farmers priced their grain. In addition to higher prices, some farmers also benefited from government program payments such as ACRE and SURE. The primary beneficiaries of these payments were in the Pennyroyal area where farms have higher wheat acreage. Gross farm returns for 2010 were $1,660,881, compared to $879,071 in This is an increase of 89%. This is despite the fact that 2005 had larger yields than However, the Gross Farm Returns are down from a 2009 high of $1,723,368. Average per acre gross farm returns for all Kentucky grain farms was $721, down from $767 in The gross returns include any miscellaneous income, tobacco returns, patronage dividends, etc. Large acres and high crop prices have translated into record profits the past few years for Kentucky grain farmers. Price increases have played a significant role in the high net incomes over the past three years. Gross Farm Returns (000's) $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 Gross Returns and Gross Returns per Acre $800 $750 $700 $650 $600 $550 $500 $450 $400 $350 $300 Gross Retuns per Acre Gross Farm Returns Gross Returns per Acre Farm Costs Along with a higher gross income, grain producers have also experienced higher costs. Total operating expenses averaged $1,205,692 while depreciation averaged $151,129. For expense purposes, depreciation is calculated on an economic basis, not an accelerated tax basis. The 2010 total of $1,356,821 is slightly higher than the 2009 total of $1,319,039 and significantly higher than the 2005 total $728,779. Farm costs are analyzed using six categories: crop expense, power and equipment, building, labor, other expenses, and land charges. These costs included cash and non-cash costs and are all accrual adjusted. Non-cash costs include depreciation, unpaid labor, non-land interest, and interest on owned land. For 2010, average non-feed costs were $657. This is very stable 24

25 compared with $660 in Crop input costs are the largest item accounting for 31% of the total costs, followed by power and equipment and land, each at 21%. Percentage of Non Feed Costs Land 21% Crop 31% Other Costs 12% Labor 11% Building 4% Power & Equip 21% Expenses for grain farms have risen 44% since Farmers have experienced much higher prices in crop inputs (+55%), machinery costs (+47%), labor (+44%), building (+26%), other costs (+46%), and land (+32%). Although the profitability for grain farmers has been higher the last few years, the cash requirements are much higher and therefore producers face much higher risk to produce a crop. Lower interest rates and higher working capital have helped to keep operating interest low. $250 Ky Grain Farm Costs $200 $150 $100 $50 Crop Power & Equip Building Labor Other Costs Land $

26 Management Return Sorts Management Returns is, in essence, an operation s return to management after the operator has been charged for his labor and his capital. This measure is what allows comparison of farms that have different numbers of owners and different financial equity situations. This measure also varies greatly among Kentucky grain farms. Oftentimes Management Returns are affected by things farmers cannot control: rain and yield being the largest variable. But smaller things, such as crop pricing, input decisions, and operation procedures can have a large affect (in small increments) on the bottom line. Kentucky grain farms have been sorted according to Management Returns by thirds. Hi 1/3, Average, and Low 1/3 sorts can be compared and also used as a gauge of performance. The best results are often given by comparing similar size farms and farms in the same area. For 2010, the Hi 1/3 farms in the acre category had gross returns of $833 compared with only $660 for the Low 1/3 in the same category. This is a $173 difference and is a result of two things: yield and primarily marketing. In addition to a higher gross return, the Hi 1/3 group also had lower overall costs, $144 in this group. The Hi 1/3 group had Management Returns of $222/ac while the low group had a -$95/ac, for a total difference of $317/ac. These differences can be found in all geographic areas of the state as well as by different size groupings. Analysis of these numbers often shows marketing and small cost savings in all categories can significantly add up. These numbers also show that small producers can be as efficient and profitable on a per acre basis as large producers. They also illustrate some large producers are not very efficient. Being in a Hi group one year does not ensure continued Hi group performance. However, evaluating performance over multiple years and understanding what group the operation is in can help to ensure an operation s success (Table 2.6). $/A Kentucky Grain Farms Acres Management Returns per Acre Average, HI 1/3, Low 1/3 Returns Hi 1/3 Ave Low 1/3 (50) (100) Year 26

27 Kentucky Grain Farms Hi 1/3 vs. Low 1/3 Gross Returns, Cost Differences, and Management Returns Lo 1/3 All Hi 1/ GROSS FARM RETURNS Crop Input Total Power & Equip. Total Building Total Labor Total Other Costs Total MANAGEMENT RETURNS Income by Area KFBM farms are divided in four main geographic areas: Ohio Valley, Pennyroyal, Purchase, and Central KY. In 2010, Central KY grain farms NFI was 22% higher than in The $347,884 NFI is the highest reported in the Central KY area. Management Returns of $238,898 is also the highest amount recorded by this area. The other 3 areas all reported lower NFI and Management Returns for The Central KY area enjoyed better weather in 2010 and recorded much higher yields in corn, wheat, and soybeans than the other areas. The Ohio Valley, Pennyroyal, and Purchase areas all reported very positive incomes but were down 53%, 15% and 34%, respectively from 2009 (Table 2.8). 27

28 3,000 Tillable Acres 2,500 2,000 1,500 1, Ohio Valley Pennyroyal Purchase Central Ky 400, Net Farm Income and Management Returns 350, , , ,000 NET FARM INCOME 150, ,000 MANAGEMENT RETURNS 50,000 0 Ohio Valley Pennyroyal Purchase Central Ky 28

29 Table Kentucky Grain Farms Net Farm Income YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY ,367 92, ,685 3,068 4, ,336 5,753 94,443 87,718 18, , , , , , , , , ,042 85, , , , ,965 56, , , , , , , , , , , , , , , , , , , , , , , , , ,884 5 Year Average 321, , , , , Year Average 229, , , , ,794 Table Kentucky Grain Farms Management Returns YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY , ,021 25,727 (158) 2002 (44,832) (88,122) (18,358) (10,424) (71,922) ,090 24, ,644 84,665 64, ,732 24,263 87,486 16,787 3, ,099 35,416 28,312 78,969 (35,527) ,913 6, ,852 57,598 40, , ,915 19, ,657 13, , , , , , , , , , , ,777 58, , , ,898 5 Year Average 156, , , , , Year Average 91,904 64, , ,389 52,968 29

30 Table Summary of Kentucky Grain Farms, Range in Size (Acres) All All All All All All Management Returns All All All All All All Number of Farms Total Acres in Farm 2,275 2,416 2,291 2,381 2,547 2,528 Tillable Acres in Farm 1,975 2,140 2,079 2,190 2,366 2,350 Operator Tillable Acres 1,758 1,918 1,863 1,977 2,155 2,146 Percent Land Owned 35.2% 33.6% 30.6% 29.8% 29.8% 28.4% Percent Land Crop Share 30.6% 30.7% 32.6% 29.9% 28.3% 28.2% Percent Land Cash Rent 34.2% 35.7% 36.7% 40.3% 41.9% 43.5% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 901, ,472 1,132,248 1,367,784 1,680,713 1,740,001 Inventory Change 17, ,474 (14,748) 243, ,757 (33,721) Accounts Receivable Change 4,364 (22,746) 49,527 (26,633) (52,800) 25,131 Farm Products Used Less Purchased Feed & Grain (32,027) (38,423) (44,196) (55,446) (59,136) (59,601) Less Purchased Livestock (12,832) (16,159) (15,782) (11,062) (12,166) (10,930) GROSS FARM RETURNS 879,071 1,043,618 1,107,049 1,518,203 1,723,368 1,660,881 FARM COSTS Total Cash Operating 657, , ,208 1,032,846 1,205,946 1,245,827 Farm Products Used Prepaid Expense Change (8,201) 7,040 (32,115) (37,880) (12,481) (56,923) Accounts Payable Change 2,048 3,571 7,473 5,692 (10,317) 16,787 TOTAL OPERATING EXPENSE 651, , ,566 1,000,658 1,183,148 1,205,692 INCOME BEFORE DEPRECIATION 227, , , , , ,188 Less Depreciation (77,166) (87,244) (89,189) (106,527) (135,891) (151,129) FARM OPERATING INCOME 150, , , , , ,059 Capital Account Adjustment 2,460 4,860 7,639 6,282 5,744 10,316 NET FARM INCOME (NFI) 152, , , , , ,375 Less Unpaid Family Labor 1,354 1, ,602 2,828 1,871 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 151, , , , , ,504 Less Unpaid Operator Labor (42,760) (44,914) (46,267) (47,898) (49,455) (48,008) RETURNS TO EQUITY CAPITAL & MANAGEMENT 108, , , , , ,496 Less Equity Capital Charge (84,539) (108,061) (120,089) (113,146) (122,130) (117,719) MANAGEMENT RETURNS 24,099 79,913 65, , , ,777 FINANCIAL EFFICIENCY RATIOS Operating Expense Ration (%) 69.32% 64.46% 66.48% 61.73% 64.94% 68.52% Depreciation Expense Ratio (%) 8.78% 8.36% 8.06% 7.02% 7.89% 9.10% Interest Expense Ratio (%) 4.80% 5.22% 5.12% 4.18% 3.71% 4.07% NFI from Operations Ratio (%) 17.10% 21.95% 20.35% 27.07% 23.46% 18.31% TOTAL (%) % % % % % % 30