The average net farm income is $65,739 for the 60 farms included in the 1998 annual report of the Southeastern Minnesota Farm Business Management Association. This is a decrease of 12% from 1997. Even though gross cash farm income increased, cash expenses also increased and inventory values changed little (instead of increasing as in 1997). Thus, 1998 net farm income is lower. However, income is still at a high level compared to the early 1990s and the 1980s. (Net farm income is an accrual measure calculated by subtracting cash farm expenses and depreciation from total cash farm income and adjusting the difference for changes in other capital and inventory items.) Income levels experienced by individual farms vary greatly from the overall average. The high 20% of these farms had an average net farm income of $216,266 in 1998; farms in the low 20%, - $20,101. This is an increase for the high group, and a decrease for the low group. Average gross cash farm income in 1998 was $320,356 for these 60 farms. This is a 9% increase from 1997. High milk prices pushed milk sales to 42% of gross income in 1998. Corn and soybean sales were almost a third of gross income in 1998. Compared to 1997, milk sales increased by 33%; corn sales, by 6%. Hog sales decreased by 38% compared to 1997. Soybean sales decreased by 14%, and beef finishing sales, by 30.2%. Government payments (of all types) almost doubled from an average of $12,907 in 1997 to $23,322 in 1998. Government payments were 7.3% of gross income in 1998, compared to 4.4% in 1997. In 1998, the total government payment came from several sources: $11,284 from FAIR transition payments for the 1998 year; $792 for FAIR transition payments for the 1999 year but received in 1998; $5,529 for (emergency) market loss payments; $5,107 for loan deficiency payments (LDPs); $425 for the conservation reserve program (CRP); and $185 for other government payments. Average total cash expenses were $239,611 in 1998. This is an increase of 6.3% from the 1997 average. As a percentage of both cash expenses and depreciation, feed expenses were 17% in 1998, down slightly from 1997. Seed, fertilizer, and crop chemicals were 21% of the total, up from 1997. Interest expense was 7.5% of the total, almost unchanged. Real estate taxes amounted to 2.2% in 1998; they were 2.1% in 1997. Both the rate of return on assets (ROA) and the rate of return to equity (ROE) decreased from 1997. Average total equity (of the 45 sole proprietors) was $474,219 at the end of 1998, an increase of $44,697 during the year. (Assets were valued on a cost basis.) At the end of 1998, the average debt- asset ratio was down slightly to 35%. Crop yields were at record levels in 1998 for the Association. The average corn yield was 167 bushels per acre; soybeans were at 50 bushels per acre. Results by Type of Farm The 60 farms in the report are classified as a certain type (e.g., dairy) on the basis of having 70 percent or more of their gross sales from that category. As it has in the past 5 years, the average crop and dairy farm had the highest average net farm income ($125, 540) in 1998. The average dairy farm had the second highest net farm income. Dairy farms have the highest ROA (11%) in 1998. None of the different types have an average debt-asset ratio greater than 40%. 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.