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Elizabeth Yeager, Graduate Research Assistant Michael Langemeier, Professor.

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Presentation on theme: "Elizabeth Yeager, Graduate Research Assistant Michael Langemeier, Professor."— Presentation transcript:

1 Elizabeth Yeager, Graduate Research Assistant Michael Langemeier, Professor

2  Benchmarking can aid farms in becoming more competitive  This study had two objectives: ◦ Provide a recommendation in terms of number of years worth of data needed to benchmark ◦ Determine if it is beneficial to benchmark using data from similar farms

3  Financial ratios were calculated for each farm in the data set using one-year average data through five-year average data  Farms were examined at the state level, regional level (east, central and west), and by percent of labor devoted to crop and livestock production  Farms were broken down into thirds, quartiles, and deciles within each group

4  If a financial ratio has stabilized, additional years of data are not needed to create the benchmark  T-tests were used to determine if the ratios were stabilizing ◦ Compare one set of years to the ratio of the same years plus an additional year (i.e., two-year average compared to three-year average)

5  Operating Profit Margin Ratio ◦ Measures relative profitability ◦ OPMR = (net farm income + interest expense – unpaid operator and family labor) ÷ (value of farm production)  Asset Turnover Ratio ◦ Measures effectiveness of asset utilization ◦ ATR = (value of farm production) ÷ (average total farm assets)

6  801 farms included in this study ◦ Kansas Farm Management Association members ◦ Continuous data available from 2003 to 2007  726 predominantly crop farms ◦ 342 in the eastern region of Kansas ◦ 300 in the central region of Kansas ◦ 84 in the western region of Kansas  75 predominantly livestock farms

7 year average year average year average year average Net Farm Income $119,976$88,957$80,471$80,804$77,196 Interest Expense $22,468$21,078$19,721$18,582$18,140 Unpaid Operator and Family Labor $52,388$50,617$49,991$48,730$47,381

8 year average year average year average year average Value of Farm Production $424,200$377,083$358,820$346,595$332,938 Total Farm Assets $1,343,619$1,265,146$1,204,591$1,142,336$1,088,970

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10  Relevant to divide farms by type for comparisons ◦ Not necessary to break predominantly crop farms down further by regions ◦ Predominantly livestock farms could not be broken down into regions due to limited sample size  Five years of data should be used to benchmark ◦ 58.3% of the comparisons were not significantly different for the 4 to 5 year average ratio comparisons

11  Five-year benchmarks based on this data set  Weighted averages for the top quartile OPMRATR Crop Farms Livestock Farms

12  Five-year benchmarks based on this data set  Minimum values to be in the top quartile OPMRATR Crop Farms Livestock Farms

13  Five-year benchmarks based on this data set  Weighted average ATR for farms in the top quartile based on OPMR ATR Crop Farms0.308 Livestock Farms 0.287

14  Essential to use five-year averages when benchmarking  Important to make comparisons based on the primary type of operation (i.e., crop or livestock)  Sufficient to benchmark using quartiles


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