Net Farm Income Estimated To Drop Precipitously In 1998

Farm income in Southwestern Minnesota is estimated to drop to extremely low and possibly negative levels in 1998 due to the very low prices now in the market place. Expected high yields on some farms will soften but not overcome the blow of the low prices; those farms with crop losses face a worse situation. Based on the average 1997 farm income statement in the Southwestern Minnesota Farm Business Management Association and the price and yield conditions for 1998, average gross cash income in 1998 is estimated to drop 17% from 1997. Before depreciation is subtracted, net cash farm income in 1998 is predicted to be below 10% of 1997 levels: $5,367 compared to $56,469 in 1997. After accounting for depreciation and inventory changes, accrual net farm income is estimated to drop from $40,598 in 1997 to -$42,647 in 1998 -- a drop of over 200% (Table 1). This would be the first negative average accrual net farm income in the 59 year history of the Southwestern Minnesota Farm Business Management Association. When these losses are factored into the balance sheet, the debt/asset ratio is estimated to rise from 48% at the end of 1997 to 53% at the end of 1998 with assets valued on a market basis. The rate of return on assets (ROA) is estimated to drop from 6.3% to -6.7%, and the rate of return on equity (ROE) is estimated to drop from 5.1% to -13.8% (Table 2). Both ROA and ROE are estimated using assets valued on a market basis.