July 12, 2000 | By: Aimee D. Heald
LEXINGTON, KY.

Kentucky farmers have experienced several tough years of farming. The combination of low grain prices, drought, and tobacco quota cuts have helped to depress net farm income.

Extension specialists at the University of Kentucky's College of Agriculture know many producers are wondering how they can increase their income. UK Agricultural Economist Gregg Ibendahl said farmers have several choices to make.

"The least drastic options are to continue with the current farm operation," he said. "However, to improve profitability, a farmer must make a critical analysis of the farm business."

Producers should examine each enterprise to determine its contribution to net income. Ibendahl said this step is especially important, since one enterprise often supports another, even without the farmer realizing its impact. For example, homegrown feed should be counted as a cost to a beef operation, even though cash is not paid for this feed.

Once producers know their most profitable enterprises, they can consider expanding those while cutting back on their least profitable enterprises.

"During the enterprise evaluation, look for ways to improve profitability," Ibendahl added. "Are all the assets being used to their fullest ability? If not, consider reducing assets or doing custom work to better use the assets."

Some farmers may want to consider expansion to better use the available assets and labor. In addition, there may be some managerial practice that might work better. Rotational grazing, for example, has helped many producers increase use of their pastures.

Options that require more changes include adding an enterprise or reinventing the farm. These options are more risky, since they move a farm into uncharted waters. Farmers have less experience with these new enterprises and may have to invest in many new assets and inputs.

Ibendahl said that although new enterprises are risky, farmers can increase their payoff potential by developing an enterprise that has less competition from other farmers. Some of these areas may include raising catfish or freshwater shrimp, vegetable production, new animal enterprises, etc.

"Reinventing your farm goes a step further and replaces all the traditional enterprises with new enterprises," Ibendahl said. "Producers should not invest in any new enterprise lightly. Be sure to fully understand what is involved before making any investment. Keep in mind that extra marketing will be needed, as many of these enterprises lack traditional markets."

The most dramatic option is to exit farming. This is a difficult decision, but Ibendahl said it is better to consider it while producers still have a choice, rather than waiting to the point where a lender has to do it for them. A careful financial analysis can show a farmer how much debt they have and whether the farm is profitable. Exiting farming does not mean selling all the assets. Producers can lease their land instead of selling it, or a farmer could farm part-time instead of full-time.

All these decisions involve a thorough analysis of the farm business. Producers should carefully investigate their choices and then make the most informed and best decision.

Contact: 

Gregg Ibendahl 859-257-3616