Previously, we examined some of the trends observed among the 50,000 farms and ranches that participate in commercial and state farm record database systems. Now, let’s take a closer look at the numbers and what they may indicate.
When it comes to profit, farm record systems clearly distinguish economic cycles, as well as the producers that are performing and underperforming. During the commodity super cycle from 2006 to 2012, it was not unusual to observe positive rates of return on assets (ROA) across a wide range of producers. However, the top segment of producers demonstrated a 10 to 20 percent greater ROA, which is two to four times the long term rate of inflation. In fact, their rate of return rivaled the expectations of even venture capitalists. This strong rate was one of the catalysts behind major growth and expansion, and the upgrading of technology and innovation in the agriculture industry. The farm businesses in the average and below-average categories made easy profits look like they would stay forever.
Fast forwarding five years, those farms and ranches in the top percentages of profitability are still making money, but in the 7 to 8 percent range now. The lower segments (average and below-average) struggle as they face higher costs and tighter margins. In examining these numbers, one has to ask if ROA levels are going back to the time period from 1996 to 2006. At that time, while returns were different for each profitability segment, none were as stellar as those during the supercycle. Thus, the numbers in record databases for years 2006 to 2012 should likely be viewed as an economic aberration.
In today’s economic reset, farm database systems are a great resource for those looking to budget or benchmark. And in a few months, state and commercial databases will release their reports for the 2017 year. As always, I expect the data will be interesting and provide further numbers for review.
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