Jul

19

Where does one learn about the economics of the farming business. I'm curious if there is a good place to read up on a sort of income statement on farming on a per acre basis (averaged across different crop types and soil grades). I'm curious to understand the economics of the business of farming.

Vince Fulco writes:

King Corn is a short and amusing documentary (found on netflix) which documents two college graduates who decide to return home to their grandparents' town in Iowa. They rent an acre of farmland and attempt to grow corn all the while profiling the inputs and costs. Needless to say with no economies of scale they make a pittance netted mostly from govt programs.

Big River was their second movie documenting the amount of pesticides which go into our food supply and the prevalence of odd cancers in farming families; striking more wives than husbands.

Scott Brooks writes: 

I wrote this post back in January of 2008…..so it is very dated, but I think it will give you a good primer on the subject of growing and the economics of corn from a ground level. List member, Mike Ott is a MUCH better resource on this subject, but I think this will give you, at least, a decent idea of what's involved in growing and raising corn.

Russ Sears writes: 

While not an expert on the subject, my in-law are crop farmers and my paternal Grandparents rental farmed until they passed.

Much of the individual farmer's income statement depends on the type of agreement from the land use. (Rental, share expenses and crops, debt on land, corporate owned, farming own land etc.)

But I believe Scott posted the basics with perhaps a few notes. Property taxes are a big expense for most farmers. Also profit/losses on the value of the land should be considered. Most farmers are asset rich and "cash poor". Often they take out short term loans on the seed and fertilizer. Plus they often have some leverage or debt on the land. They generally keep this to a minimum so they can withstand some shock and long term downturns. (lessons learned from 70's and 80's) Most farmers budget their living expenses They often put off purchasing equipment and new cars/pickup until a good if not great year. Darwinian nature of the business has left a pretty conservative bunch for the individuals who still farm.

They also sometimes leverage to diversify their holdings investing in stocks and bonds.

The average farm owner is generally above 65. But if not often they take second jobs or have the wife work for health benefits. As independent business health insurance can be very high. Social Security and Medicare are also part of the taxes or part of the income depending on age.
 


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2 Comments so far

  1. Steve C. M. on July 20, 2012 11:51 am

    When evaluating a farm's economics, you must separate the ownership of land from the actual business of farming the land.

    A person will pay much more for an acre of land to live on it than to farm it. So when doing rate of return analysis, use a leased acre as part of your input costs and not a purchased acre. Leased land is deductible and purchased land is not.

    Most businesses use leased buildings and equipment and do not purchase it. So you should look at a farm's inputs much the same way.

  2. Craig on July 22, 2012 6:44 am

    Ag Econ always preached marginal revenue vs marginal cost, so it’s not much different than regular economics. The guys at FarmFutures.com might be able to guide you on where to find more detailed information about soils.

    http://livingeconomics.org/article.asp?docId=320

    Peanut prices are already up to 2008 highs. My brother said they are the same as walnuts. Similar to corn being priced on top of wheat.

    http://www.indexmundi.com/commodities/?commodity=peanut-oil&months=360

    Jim Rogers mentions the average age of farmers being near retirement age. This video was maybe an attempt to draw some interest from the younger crowd.

    http://farmfutures.com/story.aspx/farming-video-hits-15-million-views-8-61063

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