The average net farm income was $113,462 for the 46 farms included in the 2004 annual report of the Southeastern Minnesota Farm Business Management Association. This was an increase of 32% from 2003. In constant dollars, 2004 was the most profitable year for association members in over twenty years of the association records. Higher crop prices, higher corn yields, and high profits for dairy operations were among factors that combined to make 2004 a very profitable year for the average association farm. As in previous years, the income levels experienced by individual farms vary greatly from the overall average. When the net farm incomes for the 46 farms in the report were ranked from lowest to highest, the resulting graph shows how much the incomes do vary. A number of very profitable farms had a major impact on the average for all farms. Thirty-nine percent (39%) earned net farm incomes over $100,000; 15% of the farms experienced negative net farm incomes. The median or middle income was $88,307, considerably lower than the association average. The high 20% of these farms had an average net farm income of $327,847; farms in the low 20% averaged $-20,547. Average gross cash farm income in 2004 was $509,817 for these 46 farms. This was an 8% increase from 2003. Milk sales were 41% of gross income, up 28% from 2003. Corn and soybean sales accounted for another 36% of income. Total crop sales accounted for 38% while livestock sales accounted for 49% of total cash receipts. Government payments (of all types) averaged $33,294 in 2004, a 4% increase from the previous year. Government payments increased primarily due to the receipt of LDP payments in the fall of 2004 as prices decreased at harvest and not because of increased direct payments. Government payments were $31,195 in 2003, $19,375 in 2002, $40,227 in 2001, and $50,496 in 2000. As a percent of gross income, they were 7% in 2004, compared to 7% in 2003, 5% in 2002, 11% in 2001, and 14% in 2000. Average total cash expenses were $383,908 in 2004. This was an increase of 5% from the 2003 average. Feed expense was 15% of the total, an increase of 14% from 2003. Seed, fertilizer, and crop chemicals were 17% of the total, up 12% from 2003 levels. Land rent was 9% of the total, while labor and repairs each accounted for 7%. Average rate of return on assets (ROA) was 8% in 2004 with assets valued at cost basis, up from 7% in 2003. Rate of return on equity (ROE) averaged 9%, also an increase from 7% in 2003. The fact that ROE exceeded ROA indicates that debt capital earned more than its interest cost. Average total equity (of the 33 sole proprietors) was $836,502 at the end of 2004, an increase of $87,659 during the year for these farms (assets valued at cost basis). Except for a decline during 1993, average equity has improved steadily since 1986. The average debt to asset ratio decreased slightly, from 34% to 33%. Average corn and soybean yields were substantially higher than 2003 levels. The average corn yield was 169 bushels per acre, up from 158 in 2003; the soybean yield was 43 bushels per acre, up from 37 in 2003. Results by Type of Farm The 46 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 criteria, there were 13 crop farms, 13 dairy farms, and 6 crop/dairy farms. There were 8 farms which did not have a single source (or pair of sources) of income over 70%. Dairy farms were most profitable in 2004 with average net farm income of $158,170. Specialized crop farms and crop/dairy farms also had net farm incomes higher than the Association average. Farms which did not meet the 70% criteria of specialization averaged a net farm income of $41,104, much below the Association average. Dairy farms also had the highest rate of return on assets (ROA) at 11%. Crop farms averaged 10% while crop/dairy farms averaged only 6% return on assets. (Assets are valued at cost-basis for ROA calculations.) Dairy farms had an average debt-asset ratio of 24% at the end of 2004 (assets valued at market); crop farms averaged 31% in debt. The full 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, farm size, and age of operator.