Average net farm income was $98,362 in 2004 for the 125 farms included in this annual report of the Southwestern Minnesota Farm Business Management Association. This is a 2% increase over the average income of $96,404 in 2003. In constant dollars, 2004 was the third most profitable year for association members in the past 20. Higher crop prices, outstanding corn yields, and high profits for hog operations were factors that combined to make 2004 a very profitable year for the average association farm. 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 125 farms in the report are ranked from lowest to highest, the resulting graph shows how much the incomes do vary. Ten percent of the farms experienced negative net farm incomes in 2004; 30% had incomes over $100,000. The median or middle income was $62,262. The high 20% of the farms had an average net farm income of $294,683, which is a 17% increase from 2003. The low 20% of the farms had an average loss of $-2,068 in 2004. Average gross cash farm income was $496,771, a 1% decrease from 2003. Three sources of sales dominated: corn, soybeans, and hogs. Beef finishing was less of a contributor than in previous years. Total crop sales accounted for 39% while livestock sales and contracting income accounted for 46% of total cash receipts. Government payments of all types averaged $27,798 in 2004, a 7.5% increase from the previous year. The average farm received $8,966 in LDP payments in 2004 due to low crop prices at harvest. No LDP payments were included in 2003 income. This increase offset a $5,523 decrease in direct government payments. Government payments for the average farm were $25,855 in 2003, $15,927 in 2002, $48,208 in 2001, and $50,567 in 2000. As a percentage of total income, government payments were 6% in 2004 compared to 5% in 2003, 4% in 2002, 11% in 2001, and 12% in 2000. Cash expenses increased 1% to an average of $404,743 in 2004. 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. Average rate of return on assets (ROA) was 11% in 2004 with assets valued at cost basis, unchanged from the previous year (Figure 7). Rate of return on equity (ROE) averaged 16%, also unchanged. The fact that ROE exceeded ROA indicates that debt capital earned more than its cost. Using a market value basis, average total equity (of the 109 sole proprietors) was $731,813 at the end of 2004. This was an increase of $74,038 during the year for these farms. Average net worth was slightly lower than 2003, likely due to a change in the size and composition of the farms in this year's summary (Figure 8). The average debt-asset ratio decreased from 44% at the beginning of the year to 43% at the end of 2004. The average corn yield was 171 bushels per acre, the highest average yield on record for association farms. Soybeans averaged 41 bushels per acre, slightly higher than 2003 yields. Results by Type of Farm The 125 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 criteria, there were 61 crop farms, 10 hog farms, 13 crop and hog farms, and 8 crop and beef farms. (There were 24 farms which did not have a single source (or pair of sources) of income over 70%.) Hog farms were most profitable in 2004. Hog farms were also much larger in terms of gross sales than any other farm type. Crop/hog farms also averaged incomes higher than the Association average. No type of farm experienced a loss, on average, in 2004. Hog farms also had the highest rate of return on assets (ROA) at 21%. Crop/hog, with a 13% ROA, also earned improved rates of return over the previous year. (Assets are valued at cost-basis for ROA calculations.) Using assets valued on a market basis, the average crop farm had a debt-to-asset ratio of 42% at the end of 2004. Only crop/beef 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, type of farm, debt-to-asset ratio, and age of operator.