Kansas Farm Income Showed Steep Gains in '07

KFMA Data Are Basis for K-State Report.

It doesn't happen all that often, but last year many Kansas crop producers experienced their own version of a perfect storm – the good kind.

"You put good yields with good prices and that equals good gross income," says Kansas Farm Management Association administrator Kevin Herbel as he unveiled the data for 2007.

KFMA's figures come from 1,453 member farms and ranches across Kansas. They showed that average net farm income for those members last year was $115,035.

KFMA's annual report is a barometer of Kansas agriculture statewide, Herbel says. It also provides for comparisons between years and between various types of farming operations.

For example, the 2007 figure was more than double the KFMA members' average farm income of $46,593 in 2006 and $56,982 in 2005. Ten years ago, their average net farm income was $59,352.

Today's higher commodity prices and increasing input costs are raising the stakes for each decision a farm manager must face, Herbel says.

Last year's figures look encouraging for producers, and they should. But not everyone did as well as the income average suggests, says K-State Research and Extension agricultural economist Michael Langemeier. In fact, 15% of the KFMA member operations had a negative net farm income.

KFMA reports net income figures on an accrual basis – they're adjusted for any inventory changes between the beginning and the end of the year. They represent the return on the farmer's labor, management and investment in the operation.

"Livestock operations, particularly cattle backgrounding and cowherd operations, just didn't do that well," Langemeier says.

Livestock producers were hit not only with high fuel costs but also by high feed costs. The member operations that KFMA classifies as cash crop-backgrounding farms showed an average net income per operator of $74,803. Those in the cowherd category came in at $34,948.

Those figures stood in contrast to farms devoted to crops. The net income per operator for dryland crop farms averaged $120,594. Producers with irrigated crops averaged $280,585.

At first blush, these figures may appear to be quite the windfall for crop producers, Herbel says. Up to recently, however, those same farmers endured numerous years of relatively low net income, when returns sometimes only covered basic living expenses – or less.

"Some of last year's income is going toward reducing debts, updating machinery and equipment, and covering this year's input costs," says Herbel, noting that each year's returns also must cover state and federal income taxes, as well as self-employment taxes.

Input costs alone have risen significantly. Compared with their previous five-year averages, 2007 fertilizer costs were 60% higher and fuel costs were 40% higher, he added. And, those costs have continued to climb in 2008.

"It's important to keep in mind that some of these member farms are also supporting multiple families," Herbel says.

Following trends helps put things in perspective, Langemeier says. In 2007, dryland farms' gross crop value – which includes crop income, government payments and crop insurance – was $295.81 per acre. That was up 61% from a 2002-06 average of $183.25 per acre.

At the same time, however, fertilizer and lime costs jumped 59 percent in 2007. They were $33.08 per acre, up from their previous five-year average of $20.75, he says. Gas, fuel and oil costs averaged $16.41 per acre – up 37% from a five-year average $11.98 per acre.

Beyond that, a regional disparity was evident in the data, Langemeier noted. Net farm income for KFMA crop and livestock producers in northwest Kansas last year averaged $233,000, compared to north central Kansas members' $81,288. Between those extremes, net income in the other areas averaged $114,118 in northeast Kansas, $108,397 in southwest Kansas, $88,849 in the south central part of the state, and $114,423 in the southeast.

The lower figures for the central part of the state reflected a late freeze that hit the wheat crop in that area, Langemeier says. Last year's widespread flooding weighed on net income in some places, too, primarily the southeast part of the state.

The Executive Summary of the 2007 ProfitLink Analysis is available on the K-State Research and Extension agricultural economics Web site (www.agmanager.info) and on the K-MAR-105 Web site (www.kmar105.com/kfma).

"It is extremely important [for producers] to base decisions on good information," Herbel says. "A starting point for that is having a sound record-keeping and analysis system in place. Farmers shouldn't make decisions based on the averages, though. They need to make decisions based on where they're at – based on their own figures."

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