Average net farm income was $154,698 in 2006 for the 110 farms included in this annual report of the Southwestern Minnesota Farm Business Management Association. This is a 5% increase over the average income of $147,862 in 2005. In constant dollars, 2006 was slightly more profitable than the previous year and was again one of the most profitable years in the last 20 for association members (Figure 1). Outstanding crop prices coupled with above average crop yields more than compensated for reduced profitability of hog and beef enterprises. 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 110 farms in the report are ranked from lowest to highest, the resulting graph (Figure 2) shows how much the incomes vary. Four percent of the farms experienced negative net farm incomes in 2006; 61% had incomes over $100,000. The median or middle income was $127,109. The high 20% of the farms had an average net farm income of $380,314, just slightly higher than in 2005. The low 20% of the farms had an average net farm income of $21,658 in 2006, a 29% decrease from 2005. Average gross cash farm income was $609,886, a 5% increase from 2005. Three sources of sales dominated: hogs, corn, and soybeans (Figures 3 and 4). Total crop sales accounted for 39% while livestock sales and contracting income accounted for 46% of total cash receipts. Entire report is available at: http://www.cffm.umn.edu/Publications/Pubs/FBMA/SW_MN_FBMA_2006.pdfGovernment payments of all types averaged $32,446 in 2006, a 43% decrease from the previous year. LDP payments dropped dramatically from $26,519 in 2005 down to $3,145 in 2006 as crop prices recovered from 2005 harvest lows and rallied into 2006 harvest. Total government payments averaged $56,461 in 2005, $27,798 in 2004, $25,855 in 2003, and $15,927 in 2002. As a percentage of total income, government payments were 5% in 2006 compared to 10% in 2005, 6% in 2004, 5% in 2003, and 4% in 2002. Cash expenses increased 3% to an average of $494,409 in 2006. As a percentage of total expenses, feeder livestock purchases, seed, fertilizer, and crop chemicals, feed, and land rent continue to be the largest expense items (Figures 5 and 6). Fuel and oil expense accounted for 4% of total expenses, unchanged from 2005. Average rate of return on assets (ROA) was 13% in 2006 with assets valued at adjusted cost basis, down slightly from 14% the previous year (Figure 7). Rate of return on equity (ROE) averaged 19%, down from 21 percent. The fact that ROE exceeded ROA indicates that debt capital earned more than its cost. Using the market value of assets, average total equity (of the 93 sole proprietors) was $996,189 at the end of 2006 (Figure 8). This was an increase of $157,247 during the year for these farms. The average debt-to-asset ratio improved slightly to 41%. The average corn yield was 169 bushels per acre, down from the record association yield of 191 bushels in 2005. Soybeans averaged 51 bushels per acre, down from 55 bushels in 2005 (Figure 9). Results by Type of Farm The 110 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 58 crop farms, 6 hog farms, 11 crop and hog farms, and 8 crop and beef farms. (There were 22 farms which did not have a single source (or pair of sources) of income over 70%.) Based on Net Farm Income, all farm types except “crop and hog” farms were more profitable than in 2005. Specialized hog farms were again the most profitable (Figure 10). The hog farms were also much larger in terms of gross sales than any other farm type. Crop/beef farms also averaged incomes higher than the Association average. Hog farms also had the highest rate of return on assets (ROA) at 17% (Figure 11). While all farm types were profitable based on ROA levels, only crop/beef farms had higher average ROAs than the previous year. (Assets are valued at adjusted cost basis for ROA calculations.) Using assets valued on a market basis, the average farm had a debt-to-asset ratio of 41% at the end of 2006. Crop and beef farms, at 54%, carried much more debt as a percentage of assets than any other farm type (Figure 12). 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.