Net farm income is a number that every farmer and rancher needs to calculate annually because it is the only way to determine the true profitability of your farm or ranch business. Let's calculate net farm income for my example farm. Comparing your farm's financial performance to the average of a set of benchmark farms is the single most powerful farm and ranch management tool available, bar none. With this strategy, you use a comparative analysis to identify your farm's business strengthsareas where your farm's numbers beat the benchmark farms' averages. You also can use a comparative analysis to identify your farm's business weaknessesareas where the benchmark averages are higher than your farm's numbers.
Many states have statewide farm business management associations that publish benchmark data.
North Dakota, for example, summarizes accounting data from about 600 farmer and rancher members of farm management associations in an annual farm business management summary. This non-Red River Valley record summary makes an excellent set of North Dakota benchmark farms and ranches. Minnesota, Kansas, Missouri, Iowa, Nebraska, Illinois, Indiana, Colorado, Kentucky, Tennessee, Oregon and Michigan are other states that publish farm business management association summaries that can serve as benchmark farms and ranches. I encourage you to contact your county extension agent to see what is available in your state. While net cash income is a strength of this farm business, some farmers this year did even better.