Operators' net farm income, another measure of farm earnings, did not meet family living requirements in many cases, which likely resulted in a decline in net worth for many farm families.
“Higher grain prices and slightly lower costs in 2002 did not offset lower corn yields and less government payments," explains Dale Lattz, U of I extension farm management specialist who conducted the study along with Charles Cagely, state coordinator of the Illinois Farm Business Farm Management Association (FBFM). "Lower livestock returns also contributed to lower incomes on farms producing livestock. Changes in government farm programs and higher grain prices sharply reduced the amount of government farm program payments producers received in 2002."
The study was based on records from farms participating in the FBFM record keeping and business analysis program.
"Average farm operator returns for labor and management on 3,165 Illinois farms varied considerably between geographic areas and decreased slightly in 2002 compared to returns experienced by producers in 2001," says Lattz.
"Farm earnings were highest in the west central and central areas of the state. Earnings were lowest in southern and northeastern Illinois where dry weather reduced corn and soybean yields. Producers in far southern Illinois experienced large losses due to very low yields caused by drought conditions last summer,” Lattz says.
The average return for a farmer's labor and management, a figure that might be thought of as a "wage," was $20,000 to $25,000 in central Illinois, negative-$10,000 to $15,000 in southern Illinois and negative-$60,000 to $70,000 in far southeastern Illinois. Northeastern Illinois also experienced negative earnings. Labor and management returns averaged $15,000 to $20,000 in northwestern Illinois.
Lattz explains that the net farm income figure results from combining the labor-management return with a reasonable charge for the operator's debt-free capital invested in machinery, equipment, land and inventories. The latter figure averaged $14,228 for the state as a whole and when added to the labor-management return gives a net farm income figure of $27,204, a decline from 2001's $33,396.
"This figure, plus any non-farm income, is what the operator has available for family living expenses, income and Social Security taxes and to repay long-term debt," Lattz explains. "Family living studies indicate that on average it takes about $50,000 to $55,000 to meet family living expenses and to pay income and Social Security taxes. The average net farm income for 2002 is below the average family living requirements, resulting in a decline in net worth for the farm enterprise."
Nonfarm income can cushion this decline or even result in an increase in net worth, depending on the level of nonfarm income.
Returns for a farmer's labor and management were highest on grain farms, followed by dairy, beef and hog farms. The average figure was $15,677 on grain farms, $12,760 on dairy farms, negative-$11,509 on beef farms, and a negative-$15,839 on hog farms.
A detailed study of the results can be found at the U of I's farmdoc website at: http://www.farmdoc.uiuc.edu/manage/newsletters/fefo03_07.html .