Average net farm income was $8,616 in 1998 for the 210 farms included in this annual report of the Southwestern Minnesota Farm Business Management Association. This is a decrease of 79% from 1997. During the last 20 years, net farm income has been lower than the 1998 level only in 1981 and 1985. Since costs changed very little, almost all of the decrease can be attributed to decreases in hog sales, especially, to decreases in corn and soybean sales and substantial decreases in the value of inventories. (Net farm income is an accrual measure calculated by subtracting total cash farm expense and depreciation from gross cash farm income and adjusting for changes in inventory items.) 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 $92,684 which is a decrease from 1997. The low 20% of the farms had an average loss of -$85,560 in 1997, which is a decrease of more than $60,000 compared to 1997. Average gross cash farm income in 1998 was $369,573. This was a 3% increase from 1997. Four sources of sales made up 70% of total income in 1998: corn, beef finishing, hogs, and soybeans. In 1997, these four sources had contributed over 80%. Hog sales decreased 19% between 1997 and 1998. Soybean sales decreased by 6%; corn sales by 6%, and beef finishing by 3%. Government payments (of all types) increased to $30,021 in 1998--an increase from $12,257 in 1997. As a percentage of total income, government payments increased from 3% in 1997 to 8% in 1998. The average total government payments in 1998 include $11,971 from FAIR transition payments for the 1998 year; $2,095 for FAIR transition payments for the 1999 year but received in 1998; $5,187 for (emergency) market loss payments; $10,247 for loan deficiency payments (LDPs) for all crops; $340 for the conservation reserve program (CRP); and $180 for other payments. Cash expenses increased slightly to an average of $305,344 in 1998. This was an increase of less than 1% from 1997. As a percentage of both cash expenses and depreciation in 1998, 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 1998 compared to 1997. In 1998 ROA averaged 2% and ROE was -6% using assets valued on a cost basis. Using a market value basis, average total equity (of the 183 sole proprietors) was $543,571 at the end of 1998. This was an increase of $11,859 during the year. The average debt-asset ratio increased slightly to 49% at the end of 1998. Crop yields were at record levels in 1998 for the Association. The average corn yield was 161 bushels per acre; soybeans were at 49 bushels per acre. Results by Type of Farm The 210 farms in the report are 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. As one might expect from the price news in 1998, farms with either hogs or beef suffered large negative net farm incomes. Crop farms had positive incomes, but they were down from recent years. A similar story can be seen in the rate of return to assets (ROA) except that the average hog farm has a more negative ROA than the average beef farm. (Assets are valued on a cost-basis for ROA). Using assets valued on a market basis, the average crop farm has a debt-to-asset ratio of 42%. Farms with either hogs or beef average 50% or higher. 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 and corn and soybean returns by county.