Kentucky Farm Business Management Program. Annual Summary Data

Kentucky Farm Business Management Program Annual Summary Data 2010 Agricultural Economics - Extension No. 2011-14 June 2011 By: KFBM Specialists See page 7 University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Building Lexington, Kentucky 40546-0276 Phone: 859-257-5762 Fax: 859-323-1913 http://www.uky.edu/ag/agecon/ AGRICULTURE & NATURAL RESOURCES C FAMILY & CONSUMER SCIENCES 4 - H / YOUTH DEVELOPMENT C COMMUNITY & ECONOMIC DEVELOPMENT

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-2010...18 Table 1.5B Economic Management Analysis per Operator Acre by Area-2010...19 Table 1.6A Economic Management Analysis per Operator Acre by Type-2010...20 Table 1.6B Economic Management Analysis per Operator Acre by Type-2010...21 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, 2005-2010...30 Table 2.3A Summary of Kentucky Grain Farms, 2005-2010...31 Table 2.3B Summary of Kentucky Grain Farms, 2005-2010...32 Table 2.4 2010 Crop Yields All Farms by Area...33 Table 2.5 Crop Yield History All Kentucky Farms...33 Table 2.6 2010 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... 36 2

Table 2.7 Summary of Kentucky Grain Farms by Size & Management... 37 Table 2.7A Summary of Kentucky Grain Farms by Size & Management-2010... 38 Table 2.7B Summary of Kentucky Grain Farms by Size & Management... 39 Table 2.8 Summary of Kentucky Grain Farms by Area... 40 Table 2.8A Summary of Kentucky Grain Farms by Area-2010... 41 Table 2.8B Summary of Kentucky Grain Farms by Area... 42 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, 2010...47 Table 3.2 Dairy Cow Herds: Production, Returns and Feed Costs, 2010...48 Table 3.3 Economic Management Analysis: Kentucky Dairy Farms by Size, 2010...49 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, 2010...55 Table 4.4 Average Beef Prices & Weights, 2006-2010...56 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

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-2010...86 Table 8.5 Summary of Pennyroyal Grain Farms by Size and Management-2010...87 Table 8.6 Summary of All Farms by Type-2010...88 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)...100 Table 9.4 Purchase Area Crop Yield Data...100 Table 9.5 Purchase Area Crop Price History...101 4

Appendix Table A Summary of All Farms by Farm Management Association...102 Table B Summary of All Farms by Type...103 Table C Summary of Kentucky Grain Farms by Size and Management...104 Table D Summary of Kentucky Grain Farms by Size...105 Table E Summary of Kentucky Grain Farms by Area...106 Table F Summary of Kentucky Grain Farms by Size, 0% Feed Fed...107 Table G Summary of Kentucky Grain Farms by Returns to Non-Feed Costs...108 Table H Summary of Kentucky Beef Farms...109 Table I Summary of Kentucky Dairy Farms by Size...110 Table J Summary of Pennyroyal Grain Farms by Size and Management...111 Table K Summary of Pennyroyal Grain Farms by Size...112 Table L Summary of Ohio Valley Grain Farms by Size and Management...113 Table M Summary of Purchase and Central Kentucky Grain Farms by Size...114 Table N Historical Data: Operator-Only Management Returns by Area...115 Table O Historical Data: Net Farm Income by Area...116 Table P Crop Yield Data...117 Table Q Crop Price Data...118 Table R Average Livestock Price and Weights, 2006-2010...119 Table S Beef Cow Herds: Production, Returns and Feed Costs-2010...120 Table T Dairy Cow Herds: Production, Returns, and Feed Costs-2010...121 Table U.1 Economic Management Analysis per Operator Acre by Area-2010...122 Table U.2 Economic Management Analysis per Operator Acre by Area-2010 continued...123 Table V.1 Economic Management Analysis: All Farms by Type-2010...124 Table V.2 Economic Management Analysis: All Farms by Type-2010 continued...125 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...127 Table X.1 Economic Management Analysis: Kentucky Grain Farms by Size-2010...128 Table X.2 Economic Management Analysis: Kentucky Grain Farms by Size-2010 continued... 129 Table Y.1 Economic Management Analysis: Kentucky Grain Farms by Area-2010...130 Table Y.2 Economic Management Analysis: Kentucky Grain Farms by Area-2010 continued...131 Table Z.1 Economic Management Analysis: Kentucky Grain Farms by Returns to Table Z.2 Non-Feed Costs-2010...132 Economic Management Analysis: Kentucky Grain Farms by Returns to Non-Feed Costs-2010 continued...133 Table AA.1 Economic Management Analysis: Kentucky Beef Farms-2010...134 Table AA.2 Economic Management Analysis: Kentucky Beef Farms-2010 continued...135 Table BB.1 Economic Management Analysis: Kentucky Dairy Farms by Size-2010...136 Table BB.2 Economic Management Analysis: Kentucky Dairy Farms by Size-2010 continued...137 Table CC.1 Table CC.2 Table DD.1 Table DD.2 Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010...138 Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010 continued...139 Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010...140 Economic Management Analysis: Kentucky Pennyroyal Grain Farms by Size and Management 2010 continued...141 5

Table EE.1 Table EE.2 Table FF.1 Table FF.2 Economic Management Analysis: Kentucky Ohio Valley Grain Farms by Size and Management 2010...142 Economic Management Analysis: Kentucky Ohio Valley Grain Farms by Size and Management 2010 continued...143 Economic Management Analysis: Kentucky Purchase and Central Kentucky Grain Farms by Size 2010...144 Economic Management Analysis: Kentucky Purchase and Central Kentucky Grain Farms by Size 2010 continued...145 6

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) 737-4799 JDSHEPHERD@uky.edu Lauren E. Omer Ohio Valley Farm Analysis Group, Inc. (270) 827-1395 lauren.omer@uky.edu Suzy L. Martin Ohio Valley Farm Analysis Group, Inc. (270) 685-8480 slmartin@uky.edu D. Bart Peters Pennyroyal Farm Analysis Group, Inc. (270) 886-5281 BartPeters@uky.edu Evan M. Conrad Pennyroyal Farm Analysis Group, Inc. (270) 886-5281 Evan.Conrad@uky.edu Rush H. Midkiff Pennyroyal Farm Analysis Group, Inc. (270) 842-5823 rmidkiff@uky.edu Michael C. Forsythe Pennyroyal Farm Analysis Group, Inc. (270) 886-5281 Michael.Forsythe@uky.edu Jennifer L. Rogers Purchase Farm Analysis Group, Inc. (270) 562-2022 Jennifer.Rogers@uky.edu Jerry S. Pierce KFBM State Coordinator (270) 737-4799 Jerry.Pierce@uky.edu KFBM Website http://www.uky.edu/ag/kfbm/ 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

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

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

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

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 2010. 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 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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

NFI By Area $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 -$50,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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 2009. 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 -$50,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 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

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 2010 2009 2008 2007 2006 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 2010. 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

Table 1.1 - Historical Data: Operator-Only Net Farm Income by Area Year Kentucky Purchase Pennyroyal Ohio Valley Lincoln Trail Bluegrass 1989 70,507 61,785 81,857 68,171 31,462 1990 69,560 39,506 56,040 45,326 41,414 1991 33,741 41,083 30,233 42,045 9,216 1992 124,200 107,823 113,440 72,416 44,738 1993 89,019 68,956 88,646 87,214 36,024 1994 102,586 97,986 71,877 31,140 16,691 1995 175,257 119,564 75,938 69,696 6,037 1996 163,808 190,374 94,838 75,439 27,377 1997 104,994 99,765 53,151 30,991 34,505 1998 104,084 30,312 13,862 (6,378) (4,389) 10,107 1999 112,623 69,502 73,046 51,715 58,896 29,779 2000 127,357 170,678 117,582 144,804 128,724 66,056 2001 112,832 88,324 147,171 90,393 65,451 48,131 2002 48,653 89,201 75,547 8,034 26,149 (1,319) 2003 152,018 237,939 183,897 129,540 74,343 98,385 2004 144,669 151,237 179,456 132,884 58,130 73,987 2005 132,867 232,674 152,417 138,544 59,565 41,611 2006 193,375 203,740 255,685 143,262 99,419 126,672 2007 232,824 266,712 159,966 292,405 87,231 99,792 2008 311,469 362,214 400,184 322,255 89,463 144,708 2009 307,633 492,110 316,750 412,464 130,299 195,540 2010 282,523 320,122 292,370 269,875 290,739 301,459 5 Year Average 265,565 328,980 284,991 288,052 139,430 173,634 10 Year Average 191,886 244,427 216,344 193,966 98,079 112,896 14

Table 1.2 - 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) 1990 11,124 (6,466) (4,555) (6,448) 690 1991 (23,051) (8,677) (29,191) (22,221) (32,716) 1992 64,983 53,578 48,882 15,198 3,744 1993 24,740 10,520 21,120 28,466 (4,850) 1994 40,215 28,933 (5,702) (31,001) (27,200) 1995 89,365 45,806 (1,874) 2,514 (37,856) 1996 74,021 103,653 19,809 7,033 (27,885) 1997 20,061 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) 2000 35,675 88,988 19,919 51,857 54,060 13,225 2001 15,557 25,727 34,407 (1,686) (9,117) 2,561 2002 (48,294) (10,424) (31,247) (85,662) (40,152) (77,121) 2003 49,032 78,959 70,808 31,803 992 23,054 2004 41,968 19,394 64,754 37,096 (12,616) (1,704) 2005 17,728 69,476 19,707 27,119 6,871 (72,631) 2006 55,984 40,423 100,390 13,730 12,433 8,276 2007 35,153 87,280 12,519 135,824 (7,068) (19,295) 2008 168,343 213,986 241,418 166,095 300 19,971 2009 152,237 303,716 145,665 248,294 34,682 81,919 2010 127,940 145,034 116,979 134,872 178,611 191,922 5 Year Average 107,931 158,088 123,394 139,763 43,792 56,559 10 Year Average 61,565 97,357 77,540 70,749 16,494 15,695 15

Table 1.3 - 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 255 17 140 54 37 11 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 47.07 19.94 55.67 44.11 36.18 47.05 Months of Unpaid Labor 17.34 18.35 17.60 19.15 14.11 15.03 Total Months Labor 64.41 38.29 73.28 63.25 50.29 62.08 FARM RETURNS Total Cash Operating 1,587,250 1,365,738 1,892,757 1,466,346 956,732 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 0 0 0 0 0 0 Less Purchased Feed & Grain 130,710 58,911 115,535 231,509 92,713 113,956 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 1,229,766 945,052 945,470 FARM COSTS Total Cash Operating 1,074,323 912,703 1,341,293 870,245 602,857 579,484 Farm Products Used 0 0 0 0 0 0 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 1,040,334 851,456 1,300,752 846,810 584,629 547,788 INCOME BEFORE DEPRECIATION 406,039 437,773 439,927 382,956 360,424 397,682 Less Depreciation 131,773 126,054 155,367 122,613 78,990 98,400 FARM OPERATING INCOME 274,266 311,719 284,560 260,343 281,434 299,282 Capital Account Adjustment 8,257 8,403 7,810 9,532 9,305 2,176 NET FARM INCOME (NFI) 282,523 320,122 292,370 269,875 290,739 301,459 Less Unpaid Family Labor 2,108 3,565 3,119 0 1,087 751 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 280,415 316,556 289,251 269,875 289,651 300,707 Less Unpaid Operator Labor 45,661 46,997 45,379 52,753 37,773 40,649 RETURNS TO EQUITY CAPITAL & MANAGEMENT 234,755 269,559 243,872 217,122 251,878 260,058 Less Equity Capital Charge 106,815 124,525 126,893 82,250 73,267 68,136 MANAGEMENT RETURNS 127,940 145,034 116,979 134,872 178,611 191,922 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

Table 1.4 - 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 255 198 14 34 Total Acres in Farm 2,142 2,528 1,031 595 Tillable Acres in Farm 1,942 2,350 592 420 Operator Tillable Acres 1,780 2,146 568 415 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 47.07 47.42 25.54 38.01 Months of Unpaid Labor 17.34 18.11 12.14 16.61 Total Months Labor 64.41 65.52 37.68 54.62 FARM RETURNS Total Cash Operating 1,587,250 1,740,001 548,383 800,699 Inventory Change (12,611) (33,721) (19,196) 50,583 Accounts Receivable Change 19,702 25,131 (714) 884 Farm Products Used 0 0 0 0 Less Purchased Feed & Grain 130,710 59,601 119,403 231,913 Less Purchased Livestock 17,258 10,930 91,611 24,177 GROSS FARM RETURNS 1,446,373 1,660,881 317,458 596,077 FARM COSTS Total Cash Operating 1,074,323 1,245,827 285,329 429,893 Farm Products Used 0 0 0 0 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 1,205,692 271,737 422,455 INCOME BEFORE DEPRECIATION 406,039 455,188 45,721 173,621 Less Depreciation 131,773 151,129 39,214 50,961 FARM OPERATING INCOME 274,266 304,059 6,508 122,660 Capital Account Adjustment 8,257 10,316 (126) 716 NET FARM INCOME (NFI) 282,523 314,375 6,382 123,376 Less Unpaid Family Labor 2,108 1,871 1,181 3,614 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 280,415 312,504 5,201 119,762 Less Unpaid Operator Labor 45,661 48,008 32,273 42,135 RETURNS TO EQUITY CAPITAL & MANAGEMENT 234,755 264,496 (27,072) 77,627 Less Equity Capital Charge 106,815 117,719 73,359 58,316 MANAGEMENT RETURNS 127,940 146,777 (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

Table 1.5A - Economic Management Analysis per Operator Acre by Area - 2010 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 255 17 140 54 37 11 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 47.07 19.94 55.67 44.11 36.18 47.05 Months of Unpaid Labor 17.34 18.35 17.60 19.15 14.11 15.03 Total Months Labor 64.41 38.29 73.28 63.25 50.29 62.08 FARM RETURNS Crop Returns 610.59 565.28 619.61 590.15 638.49 619.25 Livestock Return Above Feed 69.76 35.75 49.12 146.28 87.78 59.40 Custom Work 7.21 6.25 7.84 5.10 7.88 5.20 Other Farm Receipts 28.73 11.16 36.05 7.52 32.00 23.39 Tobacco Returns 45.93 0.00 55.24 35.17 35.11 68.86 GROSS FARM RETURNS 762.22 618.44 767.86 784.23 801.26 776.10 FARM COSTS Soil Fertility 96.09 70.20 99.85 102.02 83.22 48.69 Pesticides 39.49 32.61 41.30 41.09 31.28 22.23 Seed 62.49 65.83 61.79 66.48 58.57 49.78 Crop Total 198.06 168.64 202.94 209.59 173.06 120.70 Utilities 11.00 12.28 10.75 11.09 11.08 12.35 Machine Repairs 34.82 24.39 35.54 34.20 38.08 44.25 Machine Hire & Lease 19.68 28.47 20.47 12.20 21.62 13.56 Fuel & Oil 27.67 19.38 30.18 22.69 26.87 24.21 Light Vehicle 0.17 0.01 0.07 0.40 0.22 0.95 Machine Depreciation 53.74 48.86 55.97 49.10 52.51 65.22 Power & Equip. Total 147.07 133.39 152.97 129.67 150.37 160.54 Drying 3.01 1.73 3.58 2.00 2.22 1.57 Storage 1.46 0.96 1.67 1.29 0.86 0.70 Building Repair & Rent 12.85 3.61 9.83 27.87 11.27 14.10 Building Depreciation 15.66 8.43 15.98 19.97 10.84 8.91 Building Total 32.98 14.73 31.05 51.14 25.19 25.28 Labor, Unpaid 24.34 23.15 22.05 27.25 30.97 32.08 Labor, Paid 59.38 30.31 65.87 46.82 59.45 81.79 Labor Total 83.72 53.46 87.93 74.06 90.42 113.86 Vet, Med, Livestock Supply 8.31 4.33 8.11 9.05 10.71 14.59 Insurance 23.01 18.54 23.68 21.40 25.09 25.25 Miscellaneous 9.10 7.62 9.49 7.37 10.96 7.66 Interest Charge - Nonland 54.46 44.92 55.10 59.94 47.80 38.17 Other Costs Total 94.89 75.41 96.38 97.76 94.56 85.67 Land Charge Total 137.81 106.22 143.20 140.39 124.17 114.36 TOTAL NON-FEED COSTS 694.54 551.85 714.47 702.62 657.78 620.41 Gain/loss Capital Sales 4.64 4.10 3.78 6.21 7.87 1.79 MANAGEMENT RETURNS 72.32 70.69 57.16 87.81 151.35 157.48 18

Table 1.5B - Economic Management Analysis per Operator Acre by Area - 2010 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 255 17 140 54 37 11 Crop Yields Yellow Corn 130 133 126 135 148 153 Full Season Soybeans 37 33 32 40 46 45 Wheat 69 68 69 66 74 64 Double Crop Soybeans 28 31 27 33 40 21 Milo 80 87 59 88 White Corn 117 118 108 126 Barley 65 65 43 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 1,153 969 567 677 Full Season Soybeans 708 1,013 566 973 665 1,097 Wheat 699 419 887 160 136 38 Double Crop Soybeans 697 396 877 161 143 55 Milo 249 113 206 361 White Corn 764 1,076 283 524 Barley 173 183 42 Tobacco - Burley 37 35 39 44 74 Tobacco - Dark Air Cured 14 17 6 Tobacco - Dark Fire Cured 36 36 Forages 482 467 571 142 309 215 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 637 691 596 674 800 820 Full Season Soybeans 417 400 361 443 545 494 Wheat 435 375 440 323 420 328 Double Crop Soybeans 302 352 294 419 495 249 Milo 348 410 283 368 White Corn 578 585 479 739 Barley 178 179 124 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 3.82 3.80 3.78 3.90 3.91 3.90 Soybeans 9.91 9.75 9.95 9.97 9.85 9.89 Wheat 5.79 4.79 5.85 5.05 4.99 5.00 Milo 3.72 3.72 White Corn 4.22 4.27 4.10 3.91 Barley 3.22 3.22 Tobacco - Burley 1.82 1.85 1.87 1.71 1.69 Tobacco - Dark Air Cured 2.15 2.15 2.12 Tobacco - Dark Fire Cured 2.43 2.43 19

Table 1.6A - Economic Management Analysis per Operator Acre by Type - 2010 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 255 198 14 34 Total Acres in Farm 2,142 2,528 1,031 595 Tillable Acres in Farm 1,942 2,350 592 420 Operator Tillable Acres 1,780 2,146 568 415 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 47.07 47.42 25.54 38.01 Months of Unpaid Labor 17.34 18.11 12.14 16.61 Total Months Labor 64.41 65.52 37.68 54.62 FARM RETURNS Crop Returns 610.59 621.90 258.18 552.34 Livestock Return Above Feed 69.76 15.02 220.61 832.13 Custom Work 7.21 7.41 5.75 5.14 Other Farm Receipts 28.73 29.08 14.55 21.32 Tobacco Returns 45.93 47.50 55.24 15.86 GROSS FARM RETURNS 762.22 720.91 554.32 1,426.78 FARM COSTS Soil Fertility 96.09 98.07 56.32 73.78 Pesticides 39.49 40.59 11.16 21.19 Seed 62.49 64.18 21.59 39.95 Crop Total 198.06 202.84 89.07 134.91 Utilities 11.00 8.05 21.21 63.48 Machine Repairs 34.82 32.05 44.36 98.52 Machine Hire & Lease 19.68 16.00 22.13 120.93 Fuel & Oil 27.67 26.33 33.08 60.29 Light Vehicle 0.17 0.13 1.01 0.73 Machine Depreciation 53.74 52.73 46.22 80.16 Power & Equip. Total 147.07 135.29 168.01 424.12 Drying 3.01 3.19 0.40 0.29 Storage 1.46 1.36 3.09 4.07 Building Repair & Rent 12.85 8.57 27.52 25.36 Building Depreciation 15.66 12.88 21.16 42.09 Building Total 32.98 26.00 52.18 71.82 Labor, Unpaid 24.34 20.74 55.91 109.19 Labor, Paid 59.38 51.77 99.45 189.47 Labor Total 83.72 72.51 155.35 298.66 Vet, Med, Livestock Supply 8.31 1.68 39.91 138.17 Insurance 23.01 23.04 17.87 22.23 Miscellaneous 9.10 8.40 7.38 21.80 Interest Charge - Nonland 54.46 49.34 72.22 134.10 Other Costs Total 94.89 82.47 137.38 316.31 Land Charge Total 137.81 137.94 129.02 130.55 TOTAL NON-FEED COSTS 694.54 657.05 731.00 1,376.37 Gain/loss Capital Sales 4.64 4.81-0.22 1.73 MANAGEMENT RETURNS 72.32 68.67 (176.90) 52.14 20

Table 1.6B - Economic Management Analysis per Operator Acre by Type - 2010 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 255 198 14 34 Crop Yields Yellow Corn 130 130 89 116 Full Season Soybeans 37 37 30 34 Wheat 69 69 38 54 Double Crop Soybeans 28 28 19 35 Milo 80 80 White Corn 117 117 134 Barley 65 66 36 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 1,132 82 112 Full Season Soybeans 708 765 86 134 Wheat 699 743 245 44 Double Crop Soybeans 697 756 245 85 Milo 249 249 White Corn 764 805 100 Barley 173 195 37 Tobacco - Burley 37 40 23 11 Tobacco - Dark Air Cured 14 15 5 6 Tobacco - Dark Fire Cured 36 38 10 Forages 482 309 930 447 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 637 632 524 654 Full Season Soybeans 417 417 329 407 Wheat 435 436 207 286 Double Crop Soybeans 302 301 219 520 Milo 348 348 White Corn 578 578 564 Barley 178 180 104 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 3.82 3.82 3.84 3.76 Soybeans 9.91 9.91 9.66 9.81 Wheat 5.79 5.80 3.92 4.75 Milo 3.72 3.72 White Corn 4.22 4.22 4.40 Barley 3.22 3.22 Tobacco - Burley 1.82 1.83 1.66 1.69 Tobacco - Dark Air Cured 2.15 2.14 2.19 2.34 Tobacco - Dark Fire Cured 2.43 2.44 2.22 21

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 2009. 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 400,000 300,000 200,000 100,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (100,000) Management Returns Net Income Farm Size and Ownership Kentucky grain farm operators averaged 2,350 tillable acres in 2010. 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 2010. 22

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 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Tillable Acres Production A late summer drought led to reduced corn and soybean yields in 2010. 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 160 140 120 100 80 60 40 20 0 Kentucky Grain Crop Yields Yellow Corn White Corn Wheat Full Season Soybeans Double Crop Soybeans 2010 5 Year Average 23

Crop Returns Yields were the primary reason 2010 NFI was down, although they were somewhat counterbalanced by higher prices and crop insurance. 2010 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 2005. This is an increase of 89%. This is despite the fact that 2005 had larger yields than 2010. 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 2009. 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 2005 2006 2007 2008 2009 2010 $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

compared with $660 in 2009. 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 2005. 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 $0 2005 2006 2007 2008 2009 2010 25

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 1000-1999 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 1000-1999 Acres Management Returns per Acre Average, HI 1/3, Low 1/3 Returns 250 200 150 100 50 0 Hi 1/3 Ave Low 1/3 (50) (100) 2005 2006 2007 2008 2009 2010 Year 26

900.00 Kentucky Grain Farms Hi 1/3 vs. Low 1/3 Gross Returns, Cost Differences, and Management Returns 800.00 700.00 600.00 500.00 400.00 300.00 Lo 1/3 All Hi 1/3 200.00 100.00 0.00-100.00 GROSS FARM RETURNS Crop Input Total Power & Equip. Total Building Total Labor Total Other Costs Total MANAGEMENT RETURNS -200.00 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 2009. 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 2010. 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

3,000 Tillable Acres 2,500 2,000 1,500 1,000 500 0 Ohio Valley Pennyroyal Purchase Central Ky 400,000 2010 Net Farm Income and Management Returns 350,000 300,000 250,000 200,000 NET FARM INCOME 150,000 100,000 MANAGEMENT RETURNS 50,000 0 Ohio Valley Pennyroyal Purchase Central Ky 28

Table 2.1 - Kentucky Grain Farms Net Farm Income YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY 2001 108,367 92,863 161,685 3,068 4,154 2002 61,336 5,753 94,443 87,718 18,596 2003 197,037 131,733 239,454 249,018 162,149 2004 170,471 119,207 218,835 173,042 85,462 2005 152,752 148,194 170,965 261,965 56,122 2006 233,969 133,641 314,921 246,760 142,718 2007 232,933 321,385 198,216 328,581 132,238 2008 417,300 335,096 528,491 416,261 204,352 2009 410,073 412,464 422,866 557,707 284,266 2010 314,375 193,071 357,704 364,988 347,884 5 Year Average 321,730 279,131 364,440 382,859 222,292 10 Year Average 229,861 189,341 270,758 268,911 143,794 Table 2.2 - Kentucky Grain Farms Management Returns YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY 2001 22,318 554 46,021 25,727 (158) 2002 (44,832) (88,122) (18,358) (10,424) (71,922) 2003 82,090 24,485 114,644 84,665 64,181 2004 52,732 24,263 87,486 16,787 3,442 2005 24,099 35,416 28,312 78,969 (35,527) 2006 79,913 6,896 142,852 57,598 40,186 2007 65,630 154,915 19,443 115,657 13,278 2008 254,653 182,207 343,136 255,516 101,989 2009 235,659 248,294 229,231 357,317 175,312 2010 146,777 58,356 161,043 172,079 238,898 5 Year Average 156,526 130,134 179,141 191,633 113,933 10 Year Average 91,904 64,726 115,381 115,389 52,968 29

Table 2.3 - Summary of Kentucky Grain Farms, 2005-2010 2005 2006 2007 2008 2009 2010 Range in Size (Acres) All All All All All All Management Returns All All All All All All Number of Farms 174 178 164 184 180 198 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 30.40 31.20 35.30 39.10 42.30 47.42 Months of Unpaid Labor 17.10 17.70 17.60 18.00 19.00 18.11 Total Months Labor 47.50 48.90 53.00 57.00 61.30 65.52 FARM RETURNS Total Cash Operating 901,901 950,472 1,132,248 1,367,784 1,680,713 1,740,001 Inventory Change 17,666 170,474 (14,748) 243,560 166,757 (33,721) Accounts Receivable Change 4,364 (22,746) 49,527 (26,633) (52,800) 25,131 Farm Products Used 0 0 0 0 0 0 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 657,767 716,654 817,208 1,032,846 1,205,946 1,245,827 Farm Products Used 0 0 0 0 0 0 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 651,613 727,265 792,566 1,000,658 1,183,148 1,205,692 INCOME BEFORE DEPRECIATION 227,458 316,353 314,483 517,545 540,220 455,188 Less Depreciation (77,166) (87,244) (89,189) (106,527) (135,891) (151,129) FARM OPERATING INCOME 150,292 229,109 225,294 411,018 404,329 304,059 Capital Account Adjustment 2,460 4,860 7,639 6,282 5,744 10,316 NET FARM INCOME (NFI) 152,752 233,969 232,933 417,300 410,073 314,375 Less Unpaid Family Labor 1,354 1,081 946 1,602 2,828 1,871 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 151,398 232,888 231,987 415,698 407,244 312,504 Less Unpaid Operator Labor (42,760) (44,914) (46,267) (47,898) (49,455) (48,008) RETURNS TO EQUITY CAPITAL & MANAGEMENT 108,638 187,974 185,720 367,800 357,789 264,496 Less Equity Capital Charge (84,539) (108,061) (120,089) (113,146) (122,130) (117,719) MANAGEMENT RETURNS 24,099 79,913 65,630 254,653 235,659 146,777 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 (%) 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 30