KFMA currently tracks 2,500 farms, of which about 1,500 have records useable for analysis. What did they find? Spoiler alert: They found a flat trend, indicating farm size was not a determining factor in profitability. Both small and large farms showed profitability, and both sizes showed less profitability.
The researchers included one caveat in the analysis, in that only about 10 percent of the crop farms in the study were less than 500 acres in size (central and eastern Kansas). In the western part of the state, less than 10 percent of the farms were less than 1,000 acres: “Thus, most of the farms in the KFMA program may already be at an efficient size.”
In a previous research project analysis, Ibendahl and Griffin looked at factors that do factor into the profitability equation. In this research, a 10-year data set of 398 non-irrigated grain farms was used for analysis. Farms were analyzed by net income per acre, using the mean of yearly farm rankings to mitigate any “good or bad years” that might skew the results.
Another data set in the analysis looked at the debt-to-asset ratio. This ratio is one of the solvency ratios used by the Farm Financial Standards Council and measures the percent of a producer’s farm assets owned by outside lenders. Many economists consider a strong debt-to-asset ratio to be 30 percent or less.
Not surprisingly, Ibendahl and Griffin found debt-to-asset ratio affects a farm’s profitability. Hence, getting larger doesn’t necessarily solve a farm’s financial problems, especially if getting larger involves adding more debt. As the research was conducted over a period of time that had historically low interest rates, the researchers concluded the effects of debt may be understated in the data and future data assessments over a different 10-year period may vary.
Further delineation of factors affecting profitability will be released by Ibendahl and Griffin in a series of papers. Watch for the updates here. 
-
Lynn Jaynes
- Managing Editor
- Progressive Forage
- Email Lynn Jaynes
