The Impact of Revenues and Costs on the Relative Returns of Illinois Grain Farms

Factors and characteristics associated with farm profitability are of considerable interest to farm operators, farm managers, and researchers. This paper uses farm financial records from the Illinois Farm Business Management Association from 1995 to 2011 to classify grain farms into performance groups based on management returns. Performance groups are defined both on an annual basis and over two different five-year periods. The relative contributions of revenues and various cost categories to the differences in returns earned by the performance groups are quantified. Results show that farms in the high performance group tend to have both higher revenues and lower costs across all categories. Significant portions of the differences in revenues are attributed to variation in revenues and power, labor, and land costs. Power and labor costs are particularly important in determining performance, both in individual years and over time. This analysis provides an update to the literature on factors affecting farm profitability, and allows for comparison of the relative importance of these factors over 17 years with extended periods of both high and low farm incomes and returns.