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1 Kentucky Farm Business Management Program Annual Summary Data: Kentucky Grain Farms Agricultural Economics Extension No June 2012 By: Amanda R. Jenkins Michael C. Forsythe University of Kentucky Department of Agricultural Economics 400 Charles E. Barnhart Building Lexington, Kentucky Phone: Fax: Agriculture and Natural Resources Family and Consumer Sciences 4-H Youth Development Community and Economic Development Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.

2 Contents Acknowledgements... iv Source of Data...v Uses for this Report... vi Definitions of Terms and Accounting Methods... vii Sampling Technique Type of Farm Accrual Accounting Expense/Cost Items Revenue Items Financial Efficiency Ratios Other Terms Used in This Report Management Returns and Net Farm Income (NFI)...1 Farm Size and Ownership...1 Production...2 Crop Returns...3 Farm Costs...4 Management Return Sorts...5 Income by Area...6 Description of Figures & Tables Figure 1. Kentucky Grain Farms Net Farm Income and Management Returns...1 Figure 2. Percentage of Ownership by Area...2 Figure 3. Kentucky Grain Crop Yields...2 Figure 4. Gross Farm Returns by Area...3 Figure 5. Gross Farm Returns per Acre by Size...4 Figure 6. Percentage of Non-Feed Costs Kentucky Grain Farms...5 Figure 7. Percentage Non-Feed Costs by Size...5 Figure 8. Management Returns...6 Figure 9. Kentucky Grain Farms Hi 1/3 vs. Low 1/3: Gross Returns, Cost Differences, and Management Reutnrns...6 Figure Net Farm Income and Management Returns...7 Table 1. Kentucky Grain Farms Net Income...8 Table 2. Kentucky Grain Farms Management Returns...8 Table 3. Summary of Kentucky Grain Farms by Area...9 Table 3A. Summary of Kentucky Grain Farms by Area...10 ii

3 Table 3B. Summary of Kentucky Grain Farms by Area...11 Table 4. Historic Crop Yield All Kentucky Farms...12 Table Crop Yields All Farms by Area...12 Table 5. Summary of Kentucky Grain Farms by Size & Management...13 Table 5A. Summary of Kentucky Grain Farms by Size & Management...14 Table 5B. Summary of Kentucky Grain Farms by Size & Management Table 6. Summary of Kentucky Grain Farms by Returns to Non-Feed Costs Table 6A. Summary of Kentucky Grain Farms by Returns to Non-Feed Costs Table 6B. Summary of Kentucky Grain Farms by Returns to Non-Feed Costs iii

4 Acknowledgements Special credit should be given to the Farm Business Management Specialists who supplied data used in this report. Their attention to details and accuracy of records are what make these results so valuable to farmers and to those working with farmers throughout the state. Specialists who served in 2011 and provided summary data are: Jonathan D. Shepherd Lincoln Trail Farm Analysis Group, Inc. (270) Amanda Jenkins Lincoln Trail Farm Analysis Group, Inc. (270) Lauren Omer Ohio Valley Farm Analysis Group, Inc. (270) Suzy L. Martin Ohio Valley Farm Analysis Group, Inc. (270) D. Bart Peters Pennyroyal Farm Analysis Group, Inc. (270) Evan M. Conrad Pennyroyal Farm Analysis Group, Inc. (270) Rush H. Midkiff Pennyroyal Farm Analysis Group, Inc. (270) Michael C. Forsythe Pennyroyal Farm Analysis Group, Inc. (270) Jennifer L. Rogers Purchase Farm Analysis Group, Inc. (270) Jerry S. Pierce KFBM State Coordinator (270) KFBM Website A Special Note to Our Readers The data for this study are drawn from the detailed financial and production records of producers cooperating with the Kentucky Farm Business Management Program. The data are not drawn from a random sample of farms in the state. However, these data are the most accurate and detailed farm financial data which are available to researchers and educators. Every attempt has been made to select a set of farms for these research studies which are typical operations and have complete financial information available for analysis. These data are carefully cross-checked by our farm management specialists before inclusion in this analysis. It should be noted that farms included in this study are representative of commercial farms producing major commodities and livestock, but not of all farms in Kentucky. iv

5 Source of Data This report presents the summarized 2011 performance data (financial and physical) on 253 Kentucky farm businesses. Some data are presented for previous years so that trends and changes can be studied. This is the 45 th annual summary of records obtained from farmers participating in the Kentucky Farm Business Management Program. The program is a cooperative effort between the Department of Agricultural Economics of the University of Kentucky and four incorporated Farm Analysis Groups. This program was initiated to improve Kentucky farm management in general and specifically to: Provide farmers with an individual farm analysis and comparative analysis of farm business records emphasizing information necessary for sound decision making and wise financial planning; Provide farmers with objective counseling in developing priorities and alternative plans; Provide the public with basic information about business conditions as well as costs and returns on Kentucky farms under current conditions. Provide Kentucky farmers, teachers, researchers and lending agencies actual on-farm information about Kentucky farm businesses. In 2011, 310 farmers were members of the Farm Business Management Program keeping records under the direction of 8 Farm Business Management Specialists. The program serves farmers in 54 counties. v

6 Uses for This Report Managing a farm business is almost impossible without a complete set of farm records. Records such as those underlying this Farm Business Management Program provide the essential information needed by one's lender and tax preparer, and also provide farmers with a means to fully analyze their businesses. Analyzing this complete record gives farmers an accurate evaluation of how profitable and efficient their business is, indicates the business' weak points and strong points, and provides reliable data (particularly physical production data) for use in planning. The farm business summaries in this report are used by individual farmers to analyze their business operations and to develop future plans for their farming operations. This report summarizes information so that specialists in agricultural extension, teaching, and research can use the data to enhance their programs. The definition of terms and income and expense measures below will be of assistance in using the data. With the increased emphasis on financial management, farmers must be able to evaluate changes in their financial position. Looking only at a hurriedly constructed balance sheet or a cash flow projection, farmers may draw erroneous conclusions. To evaluate financial progress, one must look at the interrelationships of the cash flow, income statement and balance sheet. For "real" progress to be made, the business must generate an increase in net worth as measured by a reconciled set of financial statements. While farmers can look at a few net income measures in their record summaries and see whether their business was profitable during the year, they must do much more than that to realize the full potential value of their records. To thoroughly evaluate performance to learn how their business is progressing they need a record summary that includes considerable detail (i.e., production per person, yields per acre or head, feed conversion rates, etc.), and they must make a trend and comparative analysis. Farmers should first compare in detail this year's record summary with their own summaries from previous years. Doing so lets them study trends and changes in their business over time, and thereby detect improvements and deteriorations in various parts of the business. Then they must compare in detail their business performance with performance of other similar size farms having similar enterprises. Comparative analysis is an important part of the work that Farm Business Management Specialists do with farmers in the program. The data presented here, however, can be useful to any farmer in Kentucky, if that farmer keeps accurate farm business records vi

7 Sampling Technique Definition of Terms and Accounting Methods Data from all farm business records certified to be usable for comparative analysis by field staff were aggregated by size (i.e., tillable acres, number of animal production units, etc.), type of farm, and area. Illinois Farm Business Farm Management Association's Farm Business Farm Management Software was used to compile and summarize the data. Type of Farm Farm type is based on the percent feed fed. To determine percent feed fed, the total value of feed fed to all livestock enterprises is divided by the value of crop returns. However, tobacco revenue is excluded from crop returns for this calculation. Values for percent feed fed can range from zero to infinity. Large values are possible if a farm has limited grain production and thus purchases much of its feed. Grain farms are defined as farms on which the value of feed fed was less than 40 percent of the crop returns and the value of feed fed to dairy was less than one-sixth of the crop returns. Beef farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the beef enterprise utilized more than one-half of the value of feed fed. Hog farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the hog enterprise utilized more than one-half of the value of feed fed. Dairy farms are defined as farms on which the value of feed fed was more than 40 percent of the crop returns and the dairy enterprise utilized more than one-third of the value of feed fed. Accrual Accounting Accrual accounting matches the year s cost and returns to the farm s physical production. It differs from cash accounting, which records payments as made and income as received. For KFBM purposes, cash records are adjusted to approximate accrual accounting. Changes in inventories of commodities and livestock, accounts receivable, prepaid expenses, and accounts payable are added to or subtracted from cash income and expense records for the calendar or fiscal year. Accrual accounting provides a more realistic reflection of net farm income for the period as well as more accurate income statements and balance sheets in accordance with Farm Financial Standards Council recommendations. vii

8 Expense/Cost Items Total operating expenses include cash operating expenses plus depreciation plus the net effect on expenses when accounting for the accrual change in accounts payable and prepaid expenses. Cash operating expenses include cash outlays for the following non-depreciable items: Fertilizer Pesticides Seed (including homegrown seed) Machinery repairs Machinery hire and leases Fuel and oil (lubricants) Farm share of utilities and light vehicle expenses viii Building repairs Drying and storage Hired labor Livestock expense Taxes Insurance Miscellaneous expenses Purchased feed, grain and livestock are not included because they are deducted from Gross Revenue to calculate the Value of Farm Production. Depreciation used here is Economic Depreciation. It is calculated on each item using the Alternative Depreciation System (ADS) under the Modified Accelerated Cost Recovery System of the Internal Revenue Code of ADS imposes straight line depreciation over a longer cost recovery period than the General Depreciation System and other expense deductions allowed for income tax purposes. Total interest expense includes cash interest paid on operating and term debt plus the net change in accrued interest on farm business debt. Interest on equity capital is a charge of 3.5 percent on the current value of land and 5.4 percent on non-land items less total interest expense. It is the opportunity cost of investing in the farm business. The non-land charge is calculated by multiplying 5.4 percent times: 1) the average of the beginning and ending of year value of livestock, economic book value of machinery, and building investment; 2) one-half of the average of the beginning and ending of year balance of inventory items; and 3) one-half of the total year's cash operating expense. Land Charge Total is the sum of land equity charge, real estate taxes, cash rent, and lease cost. Lease cost is the cost calculated to be paid by the landlord for the operator(s) share of acres paid less costs paid by the operator(s) for the landlord on share crop acres. Unpaid family and operator labor is the opportunity cost of using the operator's own and unpaid family labor in the farm business. A charge of $2,700 per month for unpaid operator and family labor is made for each farm. This labor charge is per labor month and is based on unpaid labor of 2,500 hours per year. Part-time family labor is therefore prorated. (Like any other resource, unpaid labor must be accounted for when studying profitability of a farm business). Revenue Items Crop returns is the sum of the feed and grain sold, value of all feed fed (except milk), government crop subsidy program payments, and the change in value of feed and grain

9 inventories less the value of crops and feed purchased. Tobacco revenue is excluded from crop returns for this calculation. Livestock returns above feed is the sum of the sale of livestock and livestock products, value of livestock products consumed, and value of the livestock on hand at the end of the year minus livestock purchases and the value of the livestock on hand at the beginning of the year minus the cost of all feed fed, whether purchased or raised. Value of farm production is the sum of cash and accrued value of sales of farm products and services, government payments, and other farm-related revenue less the cost of purchased feed and livestock, plus the change in inventory value for grain and livestock, plus the value of farm products used. Farm products used are products used by the farm business and not sold. Net Farm Income is the value of farm production less total operating expenses, less total interest expense plus net gain or loss on machinery and buildings sold. Net Farm Income includes returns to the farm for unpaid family and operator labor, the interest on invested capital, and management. It is the net total earnings to the farm operator(s). Operator(s) labor and management income is Net Farm Income less the interest charge on equity capital, less the opportunity cost of unpaid family labor. It represents the operators' return to their labor and management. Management return is the residual after a charge for unpaid operator labor is deducted from operator(s) labor and management income. Operator-only refers to the revenue, costs, production, and returns that accrue to the farmer(s) involved in the farm s management and NOT that of landlords. Financial Efficiency Ratios Expense Ratios are measures of how economically farm businesses operate. Each ratio compares some aspect of expense or Net Farm Income to gross farm returns. Other Terms Used in this Report Inventory value of crops and livestock is based on average year-end prices reported for the four KFBM areas in the Kentucky Department of Agriculture Market Reports and the USDA Agriculture Marketing Service reports. Old Crop is any crop that was produced in a prior year, but inventoried and held for sell in the current year. New Crop is any crop that was produced in the current year. Hi 1/3 and Lo 1/3 refer to groupings by management returns. Thirds are the net of Gross Farm Returns less Total Non-Feed Cost. vi

10 Operator Acres is owned and cash rented acres plus the operator s share of tillable acres under crop share leases. Pasture Days is the number of days the operator(s) reported that livestock derived a significant portion of nutrition from pasture. The charge to livestock for pasture days is the number of days multiplied times the number of animal units involved at a calculated cost of $0.31/day for producing grass in pasture. Total Acres Planted Selected Crops is the total number of acres planted to a particular crop divided by the number of farms that planted that crop for all farms in a particular comparative sort. vii

11 Comparisons between one year and the next are based on the farms included in the average for each year. Farms in the averages may vary from year to year with the addition of new farms on the program or the loss of some to retirement or some other reason. Management Returns and Net Farm Income In 2011, 204 grain farms were included in the Kentucky average for the Kentucky Farm Business Management (KFBM) annual summary. Average Net Farm Income (NFI) on those 204 grain farms was $521,947, which was 66% higher than the average in 2010 and higher than both the 5 and 10 year averages. Average management returns followed suit with an increase of 135% from 2010 at $345,124 for the average Kentucky grain farm. Management returns are calculated by subtracting a capital investment charge for the operator s equity ($126,723) and a charge for operator s labor ($47,267). Along with NFI, management returns in 2011 were higher than both the 5 and 10 year averages. Average NFI and management returns in 2011 were the highest recorded for KFBM farms. (Tables 1 and 2) $600,000 Figure 1. Kentucky Grain Farms Net Farm Income and Management Returns $500,000 $400,000 $300,000 $200,000 $100,000 $0 -$100, Net Farm Income Management Returns Farm Size and Ownership Kentucky grain farms averaged 2,313 tillable acres in 2011, slightly below the average in 2010 of 2,350. The number of tillable acres increased in the Ohio Valley area, 152 acres, and the Central KY area, 58 acres, from 2010 to Farms in the Pennyroyal area and the Purchase area decreased in tillable acres in 2011, 171 and 201 acres, respectively. The average Kentucky grain farm cash rented 43%, crop shared 29%, and owned 28%. Each area has its own unique land usage percentages. For instance, the Ohio Valley area has a larger percentage of crop shared acres, while the other areas have a majority of acres cash rented. (Table 3) 1

12 Figure 2. Percentage of Ownership by Area 100% 80% 60% 40% 20% 0% 27.5% 43.2% 47.4% 45.5% 61.3% 28.6% 48.0% 23.2% 18.4% 13.1% 28.2% 24.6% 29.4% 36.0% 25.6% Kentucky Ohio Valley Pennyroyal Purchase Central Ky Land Owned Land Crop Share Land Cash Rent Production Yields for all grain crops increased from 2010 to 2011 for the average Kentucky grain farm. Corn and wheat yield increased 12% to 145 and 77 bushels, respectively. Double crop soybeans had a larger increase than full season soybeans. Yield for both full season and double crop soybeans were 41 bu/acre, a rise of 11% and 46%, respectively. Wheat and double crop soybeans were above the 5 and 10 year averages, while corn and full season soybeans varied slightly from the 5 and 10 year averages. (Table 4) Figure 3. Kentucky Grain Crop Yields bu/ac Yellow Corn White Corn Full Season Soybeans Double Crop Soybeans Wheat Year Average 10 Year Average 2

13 Crop Returns In 2011, gross farm returns reached a high of $1,907,666, an increase of 43% from Kentucky grain farms had an average per acre gross farm return of $876, an increase from 2010 s $721 per acre. Gross farm returns includes any miscellaneous income, tobacco returns, patronage dividends, etc. Price increases continue to be a major factor in increasing gross farm returns. (Figure 4) $2,500,000 Figure 4. Gross Farm Returns by Area $950 Gross Farm Returns $2,000,000 $1,500,000 $1,000,000 $500,000 $900 $850 $800 $750 $700 Gross Returns per Acre $- Ohio Valley Pennyroyal Purchase Central KY Kentucky $650 Gross Farm Returns Gross Returns per acre Kentucky grain farms were split into 3 size groups: farms with less than 1,000 acres, farms between 1,000 and 2,000 acres, and farms with more than 2,000 acres. Crop returns per acre were highest for the group with more than 2,000 acres and lowest for the middle group with between 1,000 and 2,000 acres. Although crop returns per acre were higher for those farms with more than 2,000 acres, gross farm returns per acre varied $1 between them and those farms with less than 1,000 acres. Livestock returns above feed, custom work, and tobacco returns closed the gap between the difference in gross farm returns between the two groups. (Table 5) 3

14 Figure 5. Gross Farm Returns per Acre by Size Kentucky Kentucky Kentucky Grain Farms Grain Farms Grain Farms $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns Farm Costs Along with grain prices increasing, input costs continue to rise for grain producers. In 2011, gross farm returns per acre increased 22% compared to an increase of 9% for total non-feed costs per acre. Depreciation costs increased 7% from 2010 to $161,636. For expense purposes, depreciation is calculated on an economic basis, not an accelerated tax basis. Total expenses were $1,396,835 in 2011, which included $1,235,200 in operating expenses and $161,636 in depreciation expense. (Table 6) Six categories are analyzed when reviewing farm costs. These six categories include: crop expense, power and equipment, building, labor, other expenses, and land charges. An accrual adjustment was made to each of the costs, both cash and non-cash. Accrual adjustments are used to account for changes in prepaid expenses and accrued interest and expenses. Non-cash costs include depreciation, unpaid labor, non-land interest, and interest on owned land. Land costs include charges for land equity, cash rent, lease cost, property taxes, and non-cash interest on owned tillable acres. Average non-feed costs remained stable from 2009 to 2010; however, costs per acre increased in 2011 to $717 per acre. Of the $717, 31% was spent on crop input expenses, the largest expense for grain farmers. Overall, the percentage of each cost category remained consistent with (Table 6A) Comparing non-feed costs for the different size farms, farms with less than 1,000 acres had higher power and equipment and labor costs and lower crop expenses and land charges than the other two groups. Farms between 1,000 and 2,000 acres had the most crop expenses out of the three size groups. Labor (paid and unpaid) costs were the lowest for the farms that were over 2,000 acres. Higher labor costs for farms with less than 1,000 acres can, at least partially, be 4

15 attributed to a higher land use percentage for tobacco (1.8%) compared to the 1,000-2,000 and 2,000 + groups, 1% and 0.6% respectively. (Tables 5 & 5A) Figure 6. Percentage of Non- Feed Costs Kentucky Grain Farms Labor 10% Land Charge 20% Other Costs 14% Building 4% Crop 31% Power & Equip. 21% 100% 80% 60% 40% 20% 0% Figure 7. Percentage Non- Feed Costs by Size Grain Farms Grain Farms Grain Farms Kentucky Kentucky Kentucky Crop Power & Equip. Building Labor Other Costs Land Charge Management Return Sorts Management returns is the residual after a charge for unpaid operator labor is deducted from operator(s) labor and management income. Sorts were created for Kentucky grain farms according to management returns by thirds. Hi 1/3, Average, Low 1/3 can be compared and used as a gauge of performance. Management returns for all Kentucky grain farms were positive in 2011, with the High 1/3 having management returns of $287 per acre and the Low 1/3 had management returns of $13. Crop returns played the largest part in the difference between the High 1/3 and Low 1/3 group with about $224 per acre difference. However, non-feed costs differed by about $50 per acre. The High 1/3 group received higher yields and prices for most grain crops over the Low 1/3 group. (Table 6A) Along with comparing to the state average, evaluating farms in similar size may show a clearer picture. Management returns for all sizes were positive except for those farms with less than 1,000 acres in the Low 1/3 group. The High 1/3 groups for farms with more than 2,000 acres and farms with between 1,000 and 2,000 acres had the highest management returns for all the groups with $292 per acre. These results show that some small producers are as efficient and profitable as large producers on a per acre basis. They also reveal that not all large producers are very efficient. It is important to evaluate a producer s performance over several years to determine success because a farmer may be in a Hi group one year, but not in the next year. (Table 5A) 5

16 300 Figure 8. MANAGEMENT RETURNS $/acre (50) MANAGEMENT RETURNS (100) All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/ Figure 9. Kentucky Grain Farms Hi 1/3 vs. Low 1/3 Gross Returns, Cost Differences, and Management Returns 1, $/acre Lo 1/3 All Hi 1/3 Income by Area KFBM farms are divided into 4 main geographic areas: Ohio Valley, Pennyroyal, Purchase, and Central KY. In 2011, Ohio Valley, Pennyroyal and Purchase area grain farms all reported their highest net farm income s (NFI), $436,820, $624,354, and $561,418 respectively. Management Returns for these three areas were also the highest reported for these areas. In 2011, Central KY 6

17 grain farms witnessed a decrease from 2009 and 2010, but they still reported the 3 rd highest NFI and were 37% higher than the 10 year average and only 5% lower than the 5 year average. Management returns in 2011 for the Central KY area was also lower than 2009 and 2010, but like NFI, was still the 3 rd highest (Table 3). Figure Net Farm Income and Management Returns $624,354 $561,418 $436,820 $280,817 $424,096 $375,027 $227,320 $114,999 Net Farm Income Management Returns Ohio Valley Pennyroyal Purchase Central Ky 7

18 Table 1 - Kentucky Grain Farms Net Farm Income YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY 2001 $108,637 $92,863 $161,685 $3,068 $4, $61,336 $5,753 $94,443 $87,718 $18, $197,037 $131,733 $239,454 $249,018 $162, $170,471 $119,207 $218,835 $173,042 $85, $152,752 $148,194 $170,965 $261,965 $56, $233,969 $133,641 $314,921 $246,760 $142, $232,933 $321,385 $198,216 $328,581 $132, $417,300 $335,096 $528,491 $416,261 $204, $410,073 $412,464 $422,866 $557,707 $284, $314,375 $193,071 $357,704 $364,988 $347, $521,947 $436,820 $624,354 $561,418 $227,320 5 Year Average $379,326 $339,767 $426,326 $445,791 $239, Year Average $271,219 $223,736 $317,025 $324,746 $166,111 Table 2 - Kentucky Grain Farms Management Returns YEAR Kentucky Ohio Valley Pennyroyal Purchase Central KY 2001 $22,318 $554 $46,021 $25,727 ($158) 2002 ($44,832) ($88,122) ($18,358) ($10,424) ($71,922) 2003 $82,090 $24,485 $114,644 $84,665 $64, $52,732 $24,263 $87,486 $16,787 $3, $24,099 $35,416 $28,312 $78,969 ($35,527) 2006 $79,913 $6,896 $142,852 $57,598 $40, $65,630 $154,915 $19,443 $115,657 $13, $254,653 $182,207 $343,136 $255,516 $101, $235,659 $248,294 $229,231 $357,317 $175, $146,777 $58,356 $161,043 $172,079 $238, $345,124 $280,817 $424,096 $375,027 $114,999 5 Year Average $209,569 $184,918 $235,390 $255,119 $128, Year Average $124,185 $92,753 $153,189 $150,319 $64,484 8

19 Table 3 - Summary of Kentucky Grain Farms by Area Ohio Valley Pennyroyal Purchase Central Ky Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Total Acres in Farm 2,196 2,820 2,469 1,744 Tillable Acres in Farm 2,086 2,590 2,337 1,570 Operator Tillable Acres 1,744 2,428 2,158 1,399 Percent Land Owned 24.6% 29.4% 36.0% 25.6% Percent Land Crop Share 48.0% 23.2% 18.4% 13.1% Percent Land Cash Rent 27.5% 47.4% 45.5% 61.3% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 1,315,552 2,121,768 1,619,382 1,145,231 Inventory Change 224, , ,024 11,714 Accounts Receivable Change 2,277 (8,499) 41,874 27,980 Farm Products Used Less Purchased Feed & Grain 58,607 80,322 65,122 50,844 Less Purchased Livestock 3,057 5,797 2,734 62,987 GROSS FARM RETURNS $1,480,208 $2,333,988 $1,789,424 $1,071,093 FARM COSTS Total Cash Operating 920,339 1,561,413 1,021, ,382 Farm Products Used Prepaid Expense Change (19,543) (44,111) 46,995 32,769 Accounts Payable Change 8,138 13,882 22,622 2,316 TOTAL OPERATING EXPENSE $908,933 $1,531,184 $1,090,894 $773,467 INCOME BEFORE DEPRECIATION 571, , , ,627 Less Depreciation 140, , ,569 85,140 FARM OPERATING INCOME $430,902 $612,594 $541,962 $212,486 Capital Account Adjustment 5,918 11,761 19,457 14,834 NET FARM INCOME (NFI) $436,820 $624,354 $561,418 $227,320 Less Unpaid Family Labor 0 4,618 1,429 2,583 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 436, , , ,738 Less Unpaid Operator Labor 53,313 46,884 47,806 33,668 RETURNS TO EQUITY CAPITAL & MANAGEMENT 383, , , ,070 Less Equity Capital Charge 102, , ,156 76,071 MANAGEMENT RETURNS $280,817 $424,096 $375,027 $114,999 FINANCIAL EFFICIENCY RATIOS Operating Expense Ratio (%) 57.89% 62.29% 57.31% 69.93% Depreciation Expense Ratio (%) 9.48% 8.15% 8.75% 7.95% Interest Expense Ratio (%) 3.51% 3.31% 3.65% 2.28% NFI from Operations Ratio (%) 29.11% 26.25% 30.29% 19.84% 9

20 Table 3A - Economic Management Analysis per Operator Acre: All Kentucky Grain Farms by Area Ohio Valley Pennyroyal Purchase Central Ky Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Total Acres in Farm 2,196 2,820 2,469 1,744 Tillable Acres in Farm 2,086 2,590 2,337 1,570 Operator Tillable Acres 1,744 2,428 2,158 1,399 Percent Land Owned 24.6% 29.4% 36.0% 25.6% Percent Land Crop Share 48.0% 23.2% 18.4% 13.1% Percent Land Cash Rent 27.5% 47.4% 45.5% 61.3% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns GROSS FARM RETURNS $ $ $ $ FARM COSTS Soil Fertility Pesticides Seed Crop Total $ $ $ $ Utilities Machine Repairs Machine Hire & Lease Fuel & Oil Light Vehicle Machine Depreciation Power & Equip. Total $ $ $ $ Drying Storage Building Repair & Rent Building Depreciation Building Total $24.57 $30.79 $22.29 $22.44 Labor, Unpaid Labor, Paid Labor Total $57.18 $78.81 $53.43 $85.61 Vet, Med, Livestock Supply Insurance Miscellaneous Interest Charge - Nonland Other Costs Total $90.15 $ $90.96 $ Land Charge Total TOTAL NON-FEED COSTS $ $ $ $ Gain/loss Capital Sales MANAGEMENT RETURNS $ $ $ $

21 Table 3B - Economic Management Analysis per Operator Acre: All Kentucky Grain Farms by Area (continued) 11 Ohio Valley Pennyroyal Purchase Central Ky Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) All All All All Management Returns All All All All Number of Farms Crop Yields (bu/acre) Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans White Corn Barley Total Acres Planted Per Farm Yellow Corn 907 1, Full Season Soybeans Wheat Double Crop Soybeans White Corn 277 1, Barley Forages Land Use % Yellow Corn 45.4% 43.2% 45.4% 42.2% Full Season Soybeans 44.2% 15.3% 28.7% 43.6% Wheat 7.1% 30.9% 22.7% 8.4% Double Crop Soybeans 6.7% 31.9% 23.0% 6.6% White Corn 1.2% 3.9% 1.2% Barley 1.2% 0.3% Tobacco 0.5% 1.0% 1.2% Forages 1.3% 4.5% 2.9% 3.3% Crop Value Per Acre Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans White Corn 1, ,148 Barley Price Received - Old Crop Yellow Corn Soybeans Wheat White Corn Barley 3.30 Price Received - New Crop Yellow Corn Soybeans Wheat White Corn Barley 4.72

22 Table 4. Historic Crop Yield - All Kentucky Farms (bu/ac) YEAR Yellow Corn White Corn Soybeans Wheat Barley Full Season Double Crop Year Average Year Average Table Crop Yields - All Farms by Area (bu/ac) Kentucky Purchase Pennyroyal Ohio Valley Central KY Yellow Corn White Corn Full Season Soybeans Double Crop Soybeans Wheat Milo Barley

23 Table 5 - Summary of Kentucky Grain Farms by Size & Management Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) Management Returns All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 Number of Farms Total Acres in Farm ,626 1,663 1,688 4,331 4,174 4,533 Tillable Acres in Farm ,474 1,523 1,517 4,075 3,850 4,291 Operator Tillable Acres ,311 1,370 1,306 3,705 3,511 3,886 Percent Land Owned 36.5% 44.1% 33.3% 22.3% 29.8% 20.9% 26.2% 24.2% 33.1% Percent Land Crop Share 21.1% 12.4% 25.3% 34.3% 32.4% 42.2% 30.1% 27.8% 31.9% Percent Land Cash Rent 42.4% 43.4% 41.4% 43.3% 37.7% 36.8% 43.7% 48.0% 34.9% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 501, , , , ,261 1,052,750 3,161,849 3,000,527 3,393,580 Inventory Change 54,980 4, , ,302 71, , , , ,680 Accounts Receivable Change 1,851 4,166 1, ,227 (3,386) 5,014 (538) 6,360 Farm Products Used Less Purchased Feed & Grain 9,022 5,633 15,257 32,941 43,728 28, , , ,326 Less Purchased Livestock 2,788 4, ,048 3,862 2,479 22,175 12,428 52,256 GROSS FARM RETURNS $546,335 $405,161 $695,566 $1,068,911 $1,010,449 $1,298,087 $3,456,948 $2,954,132 $3,921,038 FARM COSTS Total Cash Operating 359, , , , , ,773 2,246,001 2,212,326 2,225,245 Farm Products Used Prepaid Expense Change (8,702) 5,570 (15,372) (2,666) 903 5,614 (42,304) (5,728) (70,339) Accounts Payable Change 3,527 3,031 3,922 (428) 6,856 (2,984) 25,844 31,216 3,887 TOTAL OPERATING EXPENSE $354,278 $334,261 $373,230 $704,462 $791,565 $675,402 $2,229,541 $2,237,814 $2,158,793 INCOME BEFORE DEPRECIATION 192,057 70, , , , ,684 1,227, ,318 1,762,245 Less Depreciation 46,316 44,650 42,955 89,365 95, , , , ,323 FARM OPERATING INCOME $145,741 $26,250 $279,381 $275,084 $123,705 $517,397 $933,699 $415,958 $1,486,922 Capital Account Adjustment 3,569 4,243 2,067 13,646 28, ,806 15,274 15,173 NET FARM INCOME (NFI) $149,310 $30,493 $281,448 $288,729 $152,391 $518,195 $948,504 $431,232 $1,502,094 Less Unpaid Family Labor 2,434 2,970 1,620 1,955 2,274 1,705 3,716 3,086 5,689 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 146,875 27, , , , , , ,146 1,496,405 Less Unpaid Operator Labor 34,047 31,010 34,358 41,990 46,042 44,763 60,356 67,606 59,496 RETURNS TO EQUITY CAPITAL & MANAGEMENT 112,829 (3,487) 245, , , , , ,540 1,436,909 Less Equity Capital Charge 42,611 35,240 51,032 70,310 80,999 90, , , ,553 MANAGEMENT RETURNS $70,218 ($38,726) $194,439 $174,475 $23,077 $381,650 $658,852 $189,860 $1,136,356 FINANCIAL EFFICIENCY RATIOS Operating Expense Ratio (%) 60.86% 76.85% 50.68% 62.41% 74.02% 49.80% 61.29% 71.75% 52.10% Depreciation Expense Ratio (%) 8.48% 11.02% 6.18% 8.36% 9.42% 8.11% 8.50% 10.17% 7.02% Interest Expense Ratio (%) 3.99% 5.65% 2.98% 3.50% 4.32% 2.23% 3.20% 4.01% 2.96% NFI from Operations Ratio (%) 26.68% 6.48% 40.17% 25.73% 12.24% 39.86% 27.01% 14.08% 37.92% 13

24 Table 5A - Economic Management Analysis per Operator Acre: Kentucky Grain Farms by Size & Management Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) Management Returns All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 Number of Farms Total Acres in Farm ,626 1,663 1,688 4,331 4,174 4,533 Tillable Acres in Farm ,474 1,523 1,517 4,075 3,850 4,291 Operator Tillable Acres ,311 1,370 1,306 3,705 3,511 3,886 Percent Land Owned 36.5% 44.1% 33.3% 22.3% 29.8% 20.9% 26.2% 24.2% 33.1% Percent Land Crop Share 21.1% 12.4% 25.3% 34.3% 32.4% 42.2% 30.1% 27.8% 31.9% Percent Land Cash Rent 42.4% 43.4% 41.4% 43.3% 37.7% 36.8% 43.7% 48.0% 34.9% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns GROSS FARM RETURNS $ $ $ $ $ $ $ $ $ FARM COSTS Soil Fertility Pesticides Seed Crop Total $ $ $ $ $ $ $ $ $ Utilities Machine Repairs Machine Hire & Lease Fuel & Oil Light Vehicle Machine Depreciation Power & Equip. Total $ $ $ $ $ $ $ $ $ Drying Storage Building Repair & Rent Building Depreciation Building Total $27.77 $24.91 $18.14 $22.88 $27.20 $26.71 $29.25 $31.92 $31.44 Labor, Unpaid Labor, Paid Labor Total $ $ $93.82 $78.60 $87.56 $75.98 $66.32 $70.37 $61.23 Vet, Med, Livestock Supply Insurance Miscellaneous Interest Charge - Nonland Other Costs Total $ $ $87.65 $91.78 $89.97 $ $99.75 $ $93.94 Land Charge Total TOTAL NON-FEED COSTS $ $ $ $ $ $ $ $ $ Gain/loss Capital Sales MANAGEMENT RETURNS $ ($73.91) $ $ $16.84 $ $ $54.08 $

25 Table 5B - Economic Management Analysis per Operator Acre: Kentucky Grain Farms by Size & Management (continued) Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Grain Farms Range in Size (Acres) Management Returns All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 All Lo 1/3 Hi 1/3 Number of Farms Crop Yields (bu/acre) Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans White Corn Barley Total Acres Planted Per Farm Yellow Corn ,791 1,624 1,959 Full Season Soybeans , Wheat ,156 1,023 1,334 Double Crop Soybeans ,200 1,158 1,339 White Corn , ,184 Barley Forages Land Use % Yellow Corn 40.0% 36.1% 44.2% 40.1% 45.1% 38.2% 45.3% 44.1% 45.0% Full Season Soybeans 31.0% 33.5% 21.2% 30.5% 31.8% 24.5% 24.0% 26.9% 20.6% Wheat 17.3% 15.9% 25.5% 17.8% 16.3% 27.1% 24.3% 21.8% 27.1% Double Crop Soybeans 17.3% 14.5% 26.8% 17.8% 16.6% 26.9% 24.8% 23.6% 27.2% White Corn 3.1% 3.6% 2.7% 2.1% 1.1% 4.5% 2.8% 1.6% 4.2% Barley 0.6% 1.6% 0.3% 0.9% 0.8% 1.3% 0.4% Tobacco 1.8% 3.0% 1.1% 1.0% 1.1% 1.1% 0.6% 0.6% 0.7% Forages 6.3% 8.0% 3.8% 8.2% 3.8% 4.6% 2.0% 3.5% 1.7% Crop Value Per Acre Yellow Corn $867 $715 $947 $871 $794 $975 $870 $810 $918 Full Season Soybeans $445 $318 $538 $470 $399 $578 $475 $422 $544 Wheat $492 $386 $551 $470 $416 $511 $565 $529 $580 Double Crop Soybeans $488 $377 $521 $469 $393 $516 $490 $442 $549 White Corn $986 $886 $897 $1,011 $1,197 $970 $974 $874 $941 Barley $452 $452 $396 $396 $433 $444 $418 Price Received - Old Crop Yellow Corn $5.59 $5.96 $5.46 $5.15 $5.08 $5.38 $5.03 $5.02 $5.11 Soybeans $11.96 $12.17 $11.50 $11.43 $11.33 $11.72 $11.35 $11.22 $11.22 Wheat $6.25 $6.76 $6.21 $5.85 $5.79 $5.95 $6.70 $6.21 $6.75 White Corn $6.34 $5.19 $5.40 $5.52 $6.84 $5.16 $5.08 $4.99 $5.12 Barley $3.30 $3.30 Price Received - New Crop Yellow Corn $5.80 $5.81 $5.78 $5.56 $5.75 $5.62 $5.62 $5.49 $5.57 Soybeans $12.05 $11.94 $12.33 $12.01 $11.54 $12.38 $11.31 $11.38 $11.85 Wheat $6.66 $6.47 $6.79 $6.51 $6.45 $6.49 $6.89 $6.81 $6.99 White Corn $6.58 $6.57 $4.49 $7.05 $8.01 $6.94 $7.00 $6.17 $6.80 Barley $4.70 $4.70 $4.67 $4.67 $4.73 $4.80 $

26 Table 6 - Summary of Kentucky Grain Farms by Returns to Non-Feed Costs Range in Size (Acres) All All All Management Returns All Lo 1/3 Hi 1/3 Number of Farms Total Acres in Farm 2,495 1,955 2,899 Tillable Acres in Farm 2,313 1,730 2,705 Operator Tillable Acres 2,099 1,582 2,434 Percent Land Owned 28.2% 32.2% 29.5% Percent Land Crop Share 28.6% 22.8% 31.2% Percent Land Cash Rent 43.2% 45.0% 39.3% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Total Cash Operating 1,744,537 1,229,095 2,099,527 Inventory Change 241,196 40, ,637 Accounts Receivable Change 2,822 6,001 5,269 Farm Products Used Less Purchased Feed & Grain 69,665 62,899 88,467 Less Purchased Livestock 11,224 8,346 22,901 GROSS FARM RETURNS $1,907,666 $1,204,279 $2,446,065 FARM COSTS Total Cash Operating 1,244, ,551 1,375,664 Farm Products Used Prepaid Expense Change (20,987) (5,034) (33,803) Accounts Payable Change 11,701 15,091 9,124 TOTAL OPERATING EXPENSE $1,235,200 $939,608 $1,350,985 INCOME BEFORE DEPRECIATION 672, ,671 1,095,081 Less Depreciation 161, , ,687 FARM OPERATING INCOME $510,831 $146,496 $921,394 Capital Account Adjustment 11,116 16,441 10,181 NET FARM INCOME (NFI) $521,947 $162,936 $931,574 Less Unpaid Family Labor 2,832 2,821 3,506 RETURNS TO OPERATOR LABOR CAPITAL, & MANAGEMENT 519, , ,069 Less Unpaid Operator Labor 47,267 44,804 49,386 RETURNS TO EQUITY CAPITAL & MANAGEMENT 471, , ,683 Less Equity Capital Charge 126,723 94, ,503 MANAGEMENT RETURNS $345,124 $20,642 $698,180 FINANCIAL EFFICIENCY RATIOS Operating Expense Ratio (%) 61.43% 74.22% 52.48% Depreciation Expense Ratio (%) 8.47% 9.81% 7.10% Interest Expense Ratio (%) 3.32% 3.80% 2.75% NFI from Operations Ratio (%) 26.78% 12.16% 37.67% 16

27 Table 6A - Economic Management Ananalysis: Kentucky Grain Farms by Returns to Non-Feed Costs Range in Size (Acres) All All All Management Returns All Lo 1/3 Hi 1/3 Number of Farms Total Acres in Farm 2,495 1,955 2,899 Tillable Acres in Farm 2,313 1,730 2,705 Operator Tillable Acres 2,099 1,582 2,434 Percent Land Owned 28.2% 32.2% 29.5% Percent Land Crop Share 28.6% 22.8% 31.2% Percent Land Cash Rent 43.2% 45.0% 39.3% Months of Hired Labor Months of Unpaid Labor Total Months Labor FARM RETURNS Crop Returns Livestock Return Above Feed Custom Work Other Farm Receipts Tobacco Returns GROSS FARM RETURNS $ $ $ FARM COSTS Soil Fertility Pesticides Seed Crop Total $ $ $ Utilities Machine Repairs Machine Hire & Lease Fuel & Oil Light Vehicle Machine Depreciation Power & Equip. Total $ $ $ Drying Storage Building Repair & Rent Building Depreciation Building Total $27.99 $25.68 $28.09 Labor, Unpaid Labor, Paid Labor Total $72.12 $83.91 $64.05 Vet, Med, Livestock Supply Insurance Miscellaneous Interest Charge - Nonland Other Costs Total $98.55 $99.30 $94.56 Land Charge Total TOTAL NON-FEED COSTS $ $ $ Gain/loss Capital Sales MANAGEMENT RETURNS $ $12.77 $

28 Table 6B - Economic Management Analysis: Kentucky Grain Farms by Returns to Non-Feed Costs (continued) Range in Size (Acres) All All All Management Returns All Lo 1/3 Hi 1/3 Number of Farms Crop Yields (bu/acre) Yellow Corn Full Season Soybeans Wheat Double Crop Soybeans White Corn Barley Total Acres Planted Per Farm Yellow Corn ,187 Full Season Soybeans Wheat Double Crop Soybeans White Corn Barley Forages Land Use % Yellow Corn 43.9% 43.8% 44.5% Full Season Soybeans 25.8% 30.8% 20.5% Wheat 22.5% 17.7% 27.6% Double Crop Soybeans 22.9% 19.1% 27.8% White Corn 2.7% 1.0% 3.6% Barley 0.7% 1.3% 0.6% Tobacco 0.8% 1.1% 0.7% Forages 3.5% 4.4% 2.3% Crop Value Per Acre Yellow Corn $ $ $ Full Season Soybeans $ $ $ Wheat $ $ $ Double Crop Soybeans $ $ $ White Corn $ $1, $ Barley $ $ $ Price Received - Old Crop Yellow Corn $5.09 $5.14 $5.22 Soybeans $11.41 $11.45 $11.42 Wheat $6.64 $6.28 $6.72 White Corn $5.22 $6.77 $5.12 Barley $3.30 $3.30 Price Received - New Crop Yellow Corn $5.63 $5.23 $5.74 Soybeans $11.50 $11.43 $12.06 Wheat $6.81 $6.67 $6.92 White Corn $6.96 $6.92 $6.86 Barley $4.72 $4.84 $

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