Friday, November 26, 2010

Thoughts on the Return from Farming

This is an excerpt from a farmgate post on the economics of corn in Illinois:

With the crop contributing $321 from a 151 bushel per acre yield on continuous corn and $386 from a 161 bushel yield on rotated corn, a producer has to further estimate a return to labor, management, and land. The Purdue economists estimate $20 for USDA Direct Payments.
From that income, the economists deduct about $80 for machinery replacement, about $15 for drying and handling, and about $55 for family and hired labor. Their cash rent estimate is $167 per acre, which leaves a $13 per acre earning for continuous corn and a $93 per acre earning for rotated corn. Those numbers could quickly turn negative with higher cash rent, higher fertilizer prices, seed prices, a lower marketing price, or any combination of those.
 Some random thoughts:  
  • Jane Smiley wrote a book called "A Thousand Acres"; the center of which was a thousand acre farm.  That's a nice round number, and Washington bureaucrats like me prefer to deal with nice round numbers.  So assume a 1,000 acre family farm.  According to this analysis, their return is $167,000 for the land,$55,000 for labor, and maybe $15,000 profit, giving a $235,000 total cash income before taxes, of which $20,000, or 10 percent, is farm program payments.  What strikes me is this is a reaffirmation of my mother's saying of long ago: farmers would do better to sell out and put the money in the bank.  1,000 acres at $8,000 an acre is $8 million, earning 3 percent is $240,000 annual cash income before taxes.
  • note the farm program payments aren't that significant in the scheme of things.  They do make the difference between whether the enterprise shows a profit or not, but farming isn't really about making "profits", as defined by accounting professors.  Farming, at least for farmers who own the land they farm, is about cash flow, the return to land and labor.

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