For the Southwestern Association, average net farm income was $40,598 in 1997 for the 208 farms included in this report. This is a decrease of 35% from 1996 continuing the pattern of large swings in income. Since costs changed very little, almost all of the decrease can be attributed to a decrease in gross income, specifically to decreases in the sales of corn and finished beef. (Net farm income is calculated by subtracting total cash farm expense and depreciation from gross cash farm income and adjusting for changes in 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 profit. The high 20% of these farms had an average profit of $118,724 which is a decrease from 1996. The low 20% of the farms had an average loss of -$25,337 in 1997, which is a much larger loss than in 1996. In addition, some areas experienced very dry conditions while others did not, causing financial performance to vary across the Association. Average gross cash farm income in 1997 was $359,710. This was a 6% decrease from 1996. Four sources of sales made up 80% of total income in 1997: corn, beef finishing, hogs, and soybeans. Corn sales decreased 13% between 1996 and 1997. Beef finishing decreased by 39%. Soybean sales increased by 6%; hog sales by 5%. Government payments (of all types) increased to $12,257 in 1997 but continue to be lower than the early 1990s. As a percentage of total income, government payments increased slightly from 2% in 1996 to 3% in 1997. Cash expenses increased slightly to an average of $303,241 in 1997. This was an increase of 1% from 1996. As a percentage of both cash expenses and depreciation in 1997, feed expenses; feeder purchases; seed, fertilizer, and crop chemicals; land rent; and depreciation continue to dominate. Both the average rate of return on assets (ROA) and the rate of return to equity (ROE) decreased substantially in 1997 compared to 1996. ROA averaged 6% and ROE was 5% using assets valued on a cost basis. Since ROE was smaller than ROA, the cost of using debt capital was more than its benefit. Using a market value basis, average total equity (of the sole proprietors) was $526,168 at the end of 1997. This was an increase of $46,216 for these 180 farms during the year. Average equity has continued to improve since 1987 ; however, the average debt-asset ratio increased slightly to 48% at the end of 1997. 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.