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Benchmarking Recommendations Using a Sample of Kansas Farms

Benchmarking Recommendations Using a Sample of Kansas Farms. Elizabeth Yeager, Graduate Research Assistant Michael Langemeier , Professor. Introduction. Benchmarking can aid farms in becoming more competitive This study had two objectives:

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Benchmarking Recommendations Using a Sample of Kansas Farms

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  1. Benchmarking Recommendations Using a Sample of Kansas Farms Elizabeth Yeager, Graduate Research Assistant Michael Langemeier, Professor

  2. Introduction • Benchmarking can aid farms in becoming more competitive • This study had two objectives: • Provide a recommendation in terms of number of years worth of data needed to benchmark • Determine if it is beneficial to benchmark using data from similar farms

  3. Methodology • Financial ratios were calculated for each farm in the data set using one-year average data through five-year average data • Farms were examined at the state level, regional level (east, central and west), and by percent of labor devoted to crop and livestock production • Farms were broken down into thirds, quartiles, and deciles within each group

  4. Methodology • If a financial ratio has stabilized, additional years of data are not needed to create the benchmark • T-tests were used to determine if the ratios were stabilizing • Compare one set of years to the ratio of the same years plus an additional year (i.e., two-year average compared to three-year average)

  5. Financial Ratios • Operating Profit Margin Ratio • Measures relative profitability • OPMR = (net farm income + interest expense – unpaid operator and family labor) ÷ (value of farm production) • Asset Turnover Ratio • Measures effectiveness of asset utilization • ATR = (value of farm production) ÷ (average total farm assets)

  6. Data • 801 farms included in this study • Kansas Farm Management Association members • Continuous data available from 2003 to 2007 • 726 predominantly crop farms • 342 in the eastern region of Kansas • 300 in the central region of Kansas • 84 in the western region of Kansas • 75 predominantly livestock farms

  7. Net Farm Income, Interest Expense, and Unpaid Operator and Family Labor

  8. Value of Farm Production and Total Farm Assets

  9. Weighted Average OPMR and ATR

  10. Results • Relevant to divide farms by type for comparisons • Not necessary to break predominantly crop farms down further by regions • Predominantly livestock farms could not be broken down into regions due to limited sample size • Five years of data should be used to benchmark • 58.3% of the comparisons were not significantly different for the 4 to 5 year average ratio comparisons

  11. Sample Recommendations • Five-year benchmarks based on this data set • Weighted averages for the top quartile

  12. Sample Recommendations • Five-year benchmarks based on this data set • Minimum values to be in the top quartile

  13. Sample Recommendations • Five-year benchmarks based on this data set • Weighted average ATR for farms in the top quartile based on OPMR

  14. Conclusion • Essential to use five-year averages when benchmarking • Important to make comparisons based on the primary type of operation (i.e., crop or livestock) • Sufficient to benchmark using quartiles

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