The average net farm income was $64,666 for the 54 farms included in the 2002 annual report of the Southeastern Minnesota Farm Business Management Association. This was an increase of 6% from 2001. While gross cash farm income increased by 10%, total cash operating expenses increased substantially more, by 19%. This increase in expenses was offset by an increase in the value of inventories resulting primarily from higher crop yields and higher crop prices. As in previous years, the income levels experienced by individual farms vary greatly from the overall average. When the net farm incomes for the 54 farms in the report were ranked from lowest to highest, the resulting graph shows how much the incomes do vary. Several farms experienced negative incomes, and several experienced very high incomes. The median or middle income was $33,203, considerably lower than the average. The high 20% of these farms had an average net farm income of $211,263 in 2002; farms in the low 20% averaged -$23,373. This was a slight decrease for both groups. Average gross cash farm income in 2002 was $402,565 for these 54 farms. This was a 10% increase from 2001. Milk sales were 35% of the average gross cash farm income, down 8% from 2001. These decreases were more than offset by higher corn, soybean, and hog income. Together, milk, corn, and soybean sales amounted to 70% of gross income in 2002. Government payments (of all types) averaged $19,375 in 2002, a 50% reduction from the previous year. This occurred even with the addition of the new Dairy Market Loss payments. Payments were reduced because of lower direct crop payments and higher crop prices, resulting in virtually no LDP payments. Government payments were $40,227 in 2001, $50,496 in 2000, $50,700 in 1999, $23,322 in 1998, and $12,907 in 1997. As a percent of gross income, they were 5% in 2002, compared to 11% in 2001, 14% in 2000, 12% in 1999, 7% in 1998, and 4% in 1997. Average total cash expenses were $328,740 in 2002. This was an increase of 19% from the 2001 average. As a percentage of total expense including depreciation, feed expenses were 17% in 2002, up from 2001. Seed, fertilizer, and crop chemicals were 14% of the total, down slightly as a percent of the total, but up in actual dollars. Interest expense was 6% of the total and land rental was 9%, both unchanged from 2001. Rate of return on assets (ROA) and the rate of return to equity (ROE) were almost equal at 5% each , essentially unchanged from 2001 levels. Both were lower than historical averages for Association farms. The fact that they were at the same level indicates that debt capital was earning approximately the same as its cost. These low rates of return would be more of a concern if interest rates were not at historical lows. Average total equity (of the 45 sole proprietors) was $667,586 at the end of 2002, an increase of $32,019 during the year for these farms. (Assets were valued on a cost basis.) Except for a decline during 1993, average equity has improved steadily since 1986. Even with this increase in equity, the average debt to asset ratio increased slightly, from 34% to 36%. Average corn and soybean yields were significantly higher for the Association farms. The average corn yield was 163 bushels per acre; the soybean yield was almost 50 bushels per acre. Results by Type of Farm The 54 farms in the report were classified as a certain type (e.g., dairy) on the basis of having 70 percent or more of their gross sales from that category. Using this 70 percent rule, there were 15 crop farms, 14 dairy farms, 7 crop/dairy farms, and 5 crop/hog farms. There were 9 farms which did not have a single source (or pair of sources) of income over 70%. The average crop/dairy farm had the highest average net farm income ($128,925) in 2002. Crop farms and dairy farms also had net farm incomes higher than the Association average. In terms of the rate of return to assets (ROA), crop farms and crop/dairy farms had the highest ROA (7%) in 2002. (Assets are valued on a cost basis.) Dairy farms had an average debt-asset ratio of 28% in 2002; crop farms averaged 40%. 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 year, county, type of farm, sales size class, and age of operator.