the third most successful group with 87%, 73%, and 62% respectively for the top, middle, and
bottom performance groups.
With a quantitative measure of future success, the relative importance of various current
factors can be easily measured. Table 3 shows the average value for various financial factors for
operations of different production types and performance levels. Most of the factors follow
traditional logic. The most successful operations have the highest net cash farm income and the
lowest expense-to-receipts ratio. These should be expected given that efficiency and
profitability drive one of the variables, return on assets, in the determination of success.
Table 3. Average Financial Factors by Farm Groups
|
______________________________Factor_______________ |
__________All |
Ranked by Success Index |
_____Crops1 |
Livestock2 |
Diversified3 | ||
|
_______Top |
Middle |
Bottom | |||||
|
Number of Farms |
375 |
125 |
125 |
125 |
278 |
~ |
5o |
|
2002 NCFI / Acre |
$58 |
$114 |
$44 |
$16 |
$72 |
$6 |
$27 |
|
2002 NCFI Standard Deviation |
$73 |
$104 |
$58 |
$59 |
$82 |
$47 |
$51 |
|
2002 Crop Receipts / Acre |
$205 |
$296 |
$169 |
$149 |
$250 |
$23 |
$105 |
|
2002 Expense / Receipts |
0.73 |
0.66 |
0.72 |
0.82 |
0.71 |
0.82 |
0.77 |
|
2002 Interest Exp / Receipts |
0.08 |
0.06 |
0.07 |
0.11 |
0.07 |
0.08 |
0.09 |
|
2002 Depreciation / Receipts |
0.08 |
0.07 |
0.09 |
0.08 |
0.08 |
0.10 |
0.09 |
|
2002 Real Estate Investment / Acre |
$312 |
$229 |
$390 |
$316 |
$297 |
$275 |
$434 |
|
2002 Equipment Investment / Acre |
$192 |
$214 |
$196 |
$166 |
$226 |
$42 |
$140 |
|
2002 Long Term Debt / Acre |
$67 |
$81 |
$75 |
$47 |
$71 |
$36 |
$76 |
|
2002 Intermediate Term Debt / Acre |
$46 |
$66 |
$40 |
$32 |
$53 |
$17 |
$36 |
|
2002 Debt / Assets |
30.9% |
30.4% |
25.7% |
36.4% |
30.0% |
29.8% |
37.0% |
|
2002 Family Living Expense |
$32,640 |
$30,998 |
$34,158 |
$32,693 |
$34,610 |
$29,020 |
$22,644 |
|
2002 Off-Farm Income |
$10,388 |
$7,993 |
$12,728 |
$10,443 |
$10,067 |
$10,293 |
$12,262 |
|
10yr Projected Avg Probability of Refinancing |
27.8% |
8.6% |
12.4% |
62.2% |
23.6% |
47.2% |
32.8% |
|
10yr Projected Avg ROA |
7.2% |
13.9% |
6.3% |
1.5% |
8.3% |
2.0% |
6.0% |
|
10yr Projected Avg % Change in RNW |
4.0% |
12.1% |
4.6% |
-4.7% |
5.1% |
-2.6% |
3.8% |
|
_______________Success Index*______________________ |
_________4.3 |
_________23.8 |
________7.8 |
-18.8 |
___________7.6 |
-12.4 |
___________1.6 |
* Success Index = AvgROA + Avg%ChangeRNW - 0.25(Probability of Ref.)
1 Crop sales account for more than 75% of all farm receipts
2 Livestock sales account for more than 75% of all farm receipts
3 Farm can not be classified as primarily crop or livestock
However, several interesting factors are revealed. The top performing producers have the
highest risk as measured by the projected standard deviation of net cash farm income. At the
same time this group carries adequate liquidity such that they have the lowest risk, 8.6%, as
measured by the probability of incurring a cash deficit. The middle performance group has the
lowest debt level with a 25.7% debt-to-asset ratio. The top third achieves the higher level of
success with a 30% debt level, while the bottom third carries a 36% debt load. The most
5