In the Southeastern Association the average net farm income in 1997 was $73,311 for the 64 farms included in this report. This was an increase of 8.5% from 1996. The increase is due to replenishment of inventories which had been depleted in 1996. Total cash farm expenses increased 7%. The 1997 net farm income is the highest on record. When adjusted by the Consumer Price Index (to provide a constant dollar or buying power comparison), the average 1997 profit is exceeded only in 1990 and 1995. (This accrual net farm income measure is calculated by subtracting cash farm expenses and depreciation from total cash farm income and adjusting the difference for changes in other capital and inventory items.) After subtracting an opportunity cost for equity capital, labor and management earnings follow a similar but lower pattern. As in previous years, the actual profit levels experienced by individual farms vary greatly from the overall average. The high 20% of these farms had an average net farm income of $224,511 in 1997; the low 20%, -$9,061. The is an increase for the high group; a decrease for the low group. Average gross cash farm income in 1997 was $294,687 for all 64 farms. This was a 1% increase from 1996. Three sources of sales made up 72% of total income in 1997: milk, corn and soybeans. Compared to 1996, soybean sales increased by $14,760; beef finishing sales, by $3,202. Milk sales decreased by $10,939; corn sales, by $8,561; hog sales by $7,912. Government payments (of all types) doubled from an average of $6,412 in 1996 to $12,907 in 1997. Government payments were 4% of total income in 1997. Average total cash expenses were $225,501 in 1997. This is an increase of 1% from the 1996 average. As a percentage of both cash expenses and depreciation, feed expenses were 17% in 1996, down from 19% in 1996. Seed, fertilizer, and crop chemicals were steady at 19% of the total. Interest expense was 8% of the total. Both the rate of return on assets (ROA) and the rate of return to equity (ROE) increased from 1996. ROE was slightly higher than ROA indicating that debt capital was earning more than it was costing. Average total equity (of the sole proprietors) was $422,379 at the end of 1997, an increase of $34,933 during the year. (Assets were valued on a cost basis.) After a decline during 1993, average equity has improved steadily since 1986. At the end of 1997, the average debt-asset ratio was up slightly to 37%. The report provides additional information on profitability, liquidity, and solvency as well as other whole-farm information and detailed information on crop and livestock enterprises. Also reported are whole- farm financial condition and performance by county, sales size class, and type of farm.