Average net farm income was $96,404 in 2003 for the 175 farms included in this annual report of the Southwestern Minnesota Farm Business Management Association. This is a 38% increase over the average income of $70,007 in 2002. In constant dollars, 2003 was the most profitable year for association members in the past 16 years. As in previous years, the actual profit levels experienced by individual farms vary greatly from the overall average profit. When the net farm incomes for the 175 farms in the report are ranked from lowest to highest, the resulting graph shows how much the incomes do vary. Seven percent of the farms experienced negative net farm income in 2003; 39% had incomes over $100,000. The median or middle income was $77,187. The high 20% of the farms had an average net farm income of $252,978, which is a 39% increase from 2002. The low 20% of the farms had an average loss of $-6,804 in 2003. Average gross cash farm income was $504,022, an 18% increase from 2002. Four sources of sales again dominated: corn, soybeans, beef finishing and hogs. Corn and soybean sales accounted for over $200,000 (or 41%) of sales. Total crop sales accounted for 42% while livestock sales and contracting income accounted for 43% of total cash receipts. Every major category of income increased over 2002 sales levels. Corn and soybean income increased by 11% and 19%, respectively, while hog income was up 21% and beef finishing income increased 15%. Government payments of all types averaged $25,855 in 2003, a 62% increase from the previous year. Government payments increased primarily due to the timing of receipts and not because of increased program benefits. Many members also accepted a counter-cyclical payment (CCP) for corn for the 2003 crop. In all likelihood, however, that CCP payment will have to be repaid in 2004 because of price rallies in the corn market since the fall of 2003. Government payments for the average farm were $15,927 in 2002, $48,208 in 2001, $50,567 in 2000, $44,674 in 1999, $30,021 in 1998, and $12,257 in 1997. As a percentage of total income, government payments were 5% in 2003, compared to 4% in 2002, 11% in 2001, 12% in 2000, 11% in 1999, 8% in 1998, and 3% in 1997. Cash expenses increased 14% to an average of $400,605 in 2003. As a percentage of total expenses, feeder livestock purchases, feed, seed, fertilizer, and crop chemicals, and land rent continue to be the largest expense items. Both the average rate of return on assets (ROA) and the rate of return to equity (ROE) increased in 2003 for the second consecutive year. In 2003 ROA averaged 11% and ROE was 16% using assets valued on a cost basis. The fact that ROE exceeded ROA indicates that debt capital was earning more than its cost. Using a market value basis, average total equity (of the 149 sole proprietors) was $788,640 at the end of 2003. This was an increase of $99,883 during the year for these farms. Average equity has continued to improve since 1986. The average debt-asset ratio decreased from 46% at the beginning of the year to 44 % at the end of 2003. The average corn yield was 157 bushels per acre; soybeans averaged 39 bushels per acre. Corn yields were higher but soybean yields lower than 2002 yields. Results by Type of Farm The 175 farms in the report were classified as a certain type of farm (e.g., hog) on the basis of having 70 percent or more of their gross sales from that category. Using this 70 percent rule in 2003, there were 96 crop farms, 10 hog farms, 15 crop and hog farms, 9 beef farms, and 5 crop and beef farms. (There were 33 farms which did not have a single source (or pair of sources) of income over 70%.) For the second straight year, the beef farms were the most profitable in 2003, after experiencing very low returns in 2001. Crop/beef farms also averaged incomes higher than the Association average. No type of farm experienced a loss, on average, in 2003. Beef farms, along with crop/beef farms, also had the highest rate of return on assets. (Assets are valued on a cost-basis for ROA calculations). Using assets valued on a market basis, the average crop farm has a debt-to-asset ratio of 41% at the end of 2003. Only specialized beef farms and hog farms had an average debt-to-asset ratio higher than 50%. 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.