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Extension > Agriculture > Agricultural Business Management > Farm financial management > What does it take to earn a living on the farm?

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What does it take to earn a living on the farm?

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Gary A. Hachfeld

Introduction

Agriculture is an integral part of Minnesota’s economy. Collectively, the production, processing, marketing, and distribution of agricultural products accounts for billions of dollars of state revenue. Minnesota ranks 5th in the U.S. for total agricultural receipts. Minnesota ranks 5th in crops sold and 8th in livestock products sold in the U.S. Minnesota ranks 4th in farm exports from the U.S. Agricultural and employment in Minnesota is second only to that of manufacturing. Over 57,000 jobs are directly or indirectly associated with agriculture in Minnesota.

The agricultural industry has changed drastically in the past several years, including the farms where raw agricultural products are produced. Land values have increased. Land rent and costs of production inputs have also increased. Swings in crop and livestock commodity prices create challenges for Minnesota farmers. This annual shift in income coupled with increasing family living expenses also causes challenges. In addition, in 2014, a new USDA Farm Bill took effect.

As input costs increase and commodity prices farmers receive fluctuate, profit margins change over time. As these changes occur, farmers have had to change their businesses. Some farmers have gone out of business and are renting their land to someone else to operate. Some are farming part-time and work off the farm to supplement their income. Others have gone to alternative farming methods in order to remain in farming. Yet, others still farm full-time and they have increased the size of their farms or looked to alternative enterprises in order to remain profitable. Whether we agree or disagree with these changes, the changes are a function of an ever adapting agricultural industry.

The following data is presented not to justify or support the changes occurring in agriculture. Rather, it is put forth as one approach to quantify and explain what is happening. The numbers presented are real numbers from several thousand real farm families throughout the southern one-third of Minnesota. These families have kept records of their farm business as well as their household and personal expenses. As you study the data, it becomes clear that agriculture is changing. Appearing in the data are negative returns for enterprises reflecting very slim or negative profits over the five year period reflected in the data. A five year period is used to compensate for large annual fluctuations in costs and prices.

Data sources

The data used in the comparisons originates from the data recorded by farm families who are members of the University of Minnesota Extension Southwestern Minnesota Farm Business Management Association (SWMFBMA) and the Minnesota State College and University (MnSCU) Farm Business Management Program. These are real numbers from real farm families operating their farm businesses.

The introduction for each set of regional data gives an explanation of data size, average household and personal expense, family size, what the family living expenditures cover, which counties are involved in the comparison, and a short description of what the enterprise data calculation includes. The data includes the average numbers for the 2012-16 production years. All data is presented on a per acre or per head of livestock basis.

Note: The data listed is an average of all the farm families reporting. Keep in mind that there are farm families performing below as well as above the numbers shown here.

Southwestern Minnesota Farm Business Management Assocation

In 2016, a total of 44 of the 103 farm families submitting farm records for the University of Minnesota SWMFBMA kept household and personal expense records. Their average household and personal expense for the year was $125,223 with an average family size of 3.0 persons. This family living expense includes: food, medical care, charitable donations, supplies, furnishings, clothing, educational costs, recreation expenses, gifts, utilities, child care, house rent and upkeep of the house. Also included are expenses for the purchase of non-farm vehicles, investments, savings, life insurance premiums, income/social security taxes, and non-farm capital purchases.

The Southwestern Minnesota Farm Business Management Association includes farm families from Brown, Cottonwood, Faribault, Jackson, Lincoln, Lyon, Martin, Murray, Nicollet, Nobles, Pipestone, Redwood, Renville, Rock, Watonwan, and Yellow Medicine counties. The following calculations include actual numbers reported by farm families from these counties who kept household and personal expense records.

Table 1 illustrates how many acres of crop or number of livestock units are needed to earn the 2016 average family living amount of $125,223. The calculations are based upon five year average net return values for the crop and livestock enterprises listed. The net return values are dollars remaining after all farm expenses are paid, excluding a charge for labor and management. The numbers are an average of all farm records included in the Southwestern Farm Business Management Association for the 2012-16 years.

There are three assumptions related to the calculations.

  1. The first assumption is that all income to earn the family living amount would come from one enterprise. For example, to earn $125,223 from raising corn only, the farm family would have to have 1,520 acres of corn. To earn all family living expenses from contract finishing hogs only, the family would have to market 37,832 contract fed hogs annually.
  2. The second assumption is that all family living income would come from the farm and there is no off-farm income included in the calculation.
  3. The third assumption is that the net return values for corn, soybeans, and alfalfa hay are for cash rented land (most producers rent more land than they own) and the crop values include government payments where applicable but do not include a charge for labor and management.
Table 1. Amount of acres of crop or number of livestock units needed to earn the 2016 average family living amount of $125,223
Enterprise 5 year avg. net return ($) Units required to earn living
*Corn/acre (including gov't pmts) 82.34 1,520 acres
*Soybeans/acre (including gov't pmts) 73.36 1,707 acres
Alfalfa hay/acre 239.52 523 acres
Hogs, weaning to finish/head 7.65 16,369 head
Contract wean to finish/head 3.31 37,832 head
Beef finish calves/head -12.51 XX head
Beef cow/calf/cow 95.78 1,307 cows

*If a farmer plants a strict 50/50 corn and soybean rotation, a farmer would have to have approximately 805 acres of corn and 805 acres of soybean, or a total of 1,610 acres to earn the family living amount.

Source: University of Minnesota Extension Southwestern Minnesota Farm Business Management Association

MnSCU South Central/Minnesota West/Riverland and Adult Farm Business Management Program

In 2016, a total of 338 of the 1,380 farm families submitting farm records for the southern Minnesota MnSCU Farm Business Management Program kept household and personal expense records. Their average household and personal expense for the year was $86,584 with an average family size of 2.8 persons. This family living expense includes: food, medical care, charitable donations, supplies, furnishings, clothing, educational costs, recreation expenses, gifts, utilities, child care, house rent and upkeep of the house. Also included are expenses for the purchase of non-farm vehicles, investments, savings, life insurance premiums, income/social security taxes, and non-farm capital purchases.

Table 2 illustrates how many acres of crop or number of livestock units needed to earn the 2016 average family living amount of $86,584. The calculations are based upon five year average net return values for the crop and livestock enterprises listed. The net return values are dollars remaining after all farm expenses are paid, excluding a charge for labor and management. The numbers are an average of all farm records included in the MnSCU South Central/Minnesota West Adult Farm Business Management Program for the 2012-16 years.

There are three assumptions related to the calculations.

  1. The first assumption is that all income to earn the family living amount would come from one enterprise. For example, to earn $86,584 from raising corn only, the farm family would have to have 1,503 acres of corn. To earn all family living expenses from contract finishing pigs only, the family would have to market 26,398 contract fed hogs annually.
  2. The second assumption is that all family living income would come from the farm and there is no off-farm income included in the calculation.
  3. The third assumption is that the net return values for corn, soybeans, and alfalfa hay are for cash rented land (most producers rent more land than they own) and the crop values include government payments where applicable but do not include a charge for labor and management.
Table 2. Amount of acres of crop or number of livestock units needed to earn the 2016 average family living amount of $86,584
Enterprise 5 year avg. net return ($) Units required to earn living
*Corn/acre (including gov't pmts) 57.60 1,503 acres
*Soybeans/acre (including gov't pmts) 97.49 888 acres
Alfalfa hay/acre 324.39 319 acres
Hogs, weaning to finish/head 0.27 320,681 head
Finish feeder pigs/head 2.28 37,975 head
Contract wean to finish hogs/head 3.28 26,398 head
Beef finish calves/head 63.35 1,367 head
Dairy steer finishing 119.49 725 head
Beef cow-calf/cow 121.89 710 cows
Dairy cows/cow 445.28 194 cows

*If a farmer plants a strict 50/50 corn and soybean rotation, a farmer would have to have approximately 558 acres of corn and 558 acres of soybean, or a total of 1,116 acres to earn the family living amount.

Source: MnSCU South Central/Minnesota West/Riverland College, Farm Business Management Program

2017

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