The average net farm income was $116,688 for the 45 farms included in the 2005 annual report of the Southeastern Minnesota Farm Business Management Association. This was an increase of 3% from 2004. In constant dollars, 2005 was slightly less profitable than 2004, but was still the second most profitable year for association members in the past twenty years. Higher crop yields, strong profits for dairy operations, and increased government payments were among factors that combined to make 2005 a very profitable year for the average association farm. As in previous years, the income levels experienced by individual farms vary greatly from the overall average. When the net farm incomes for the 45 farms in the report are ranked from lowest to highest, the resulting graph shows how much the incomes do vary. As Figure 2 indicates, a number of very profitable farms had a major impact on the average for all farms. Fourty-two percent (42%) earned net farm incomes over $100,000; 11% of the farms experienced negative net farm incomes. The median or middle income was $82,798, considerably lower than the association average. The high 20% of these farms had an average net farm income of $342,442; farms in the low 20% averaged $-14,437. Average gross cash farm income in 2005 was $516,282 for these 45 farms. This was a 1% increase from 2004. Milk sales were 41% of gross income, unchanged from 2004. Corn and soybean sales accounted for another 32% of income. Total crop sales accounted for 33% while livestock sales accounted for 52% of total cash receipts. Government payments (of all types) averaged $55,750 in 2005, a 67% increase from the previous year. Government payments increased primarily due to the receipt of LDP payments as corn prices decreased at harvest. Government payments were $33,294 in 2004, $31,195 in 2003, $19,375 in 2002, and $40,227 in 2001. As a percent of gross income, they were 11% in 2005 compared to 7% in 2004, 7% in 2003, 5% in 2002, and 11% in 2001. Average total cash expenses were $395,564 in 2005. This was an increase of 3% from the 2004 average. As a percentage of total expenses, seed, fertilizer, and crop chemicals, feed, depreciation and land rent were the largest expense items. Fuel and oil expense accounted for 4% of total expenses, up from 3% in 2004. Average rate of return on assets (ROA) was 8% in 2005 with assets valued at adjusted cost basis, unchanged 2004. Rate of return on equity (ROE) averaged 9%, also unchanged from the previous year. The fact that ROE exceeded ROA indicates that debt capital earned more than its interest cost. Average total equity (of the 31 sole proprietors) was $947,270 at the end of 2005, an increase of $77,069 during the year for these farms (assets valued at adjusted cost basis). Except for a slight decline in 1993, average equity has improved steadily since 1986. The average debt to asset ratio decreased slightly, from 33% to 32%. The average corn yield was 179 bushels per acre, surpassing the previous year's record yield of 169 bushels for association farms. Soybeans averaged 53 bushels per acre, up from 43 bushels in 2004. Results by Type of Farm The 45 farms in the report were classified as a certain type (e.g., dairy) on the basis of having 70 percent or more of their gross sales from that category. Using this criteria, there were 18 crop farms and 12 dairy farms. There were 6 farms which did not have a single source (or pair of sources) of income over 70%. The results for other types of farm are not reported because the required minimum of 5 farms in a reported group was not met. Dairy farms earned strong profits in 2005 with average net farm income of $176,112, up from $158,170 in 2004. Specialized crop farms earned profits averaging $105,432, down from $139,016 in 2004. Dairy farms average rate of return on assets (ROA) was unchanged from the previous year at 11%. Crop farms averaged 8%, down from 10%. (Assets are valued at adjusted cost basis for ROA calculations.) Dairy farms had an average debt-to-asset ratio of 22% at the end of 2005 (assets valued at market); crop farms averaged 34% in debt. The full 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 year, county, type of farm, farm size, and age of operator.