Good or bad, in today's ag world the Midwestern 1,000-acre corn and soybean farm is a part-time job. That farm, which unfortunately many policymakers and the media see as the model full-time family farm, is about 15 years out of date. It's a picture that doesn't represent reality.
I thought Fred Yoder, National Corn Growers Association (NCGA) president, hit it on the head in a September ‘02 Soybean Digest article titled, “Small Farmer, Big Stick.” In that article, Yoder says:
“One of the most difficult factors for many 1,100-acre or less farmers to accept is that, unless they have livestock, they're probably underemployed. Thirty years ago, 1,000 acres was enough to support Dad, me and three hired men.
“But with new technology, equipment and products like Roundup Ready soybeans, I can farm 1,100 acres, run an independent seed dealership and still have time to be active in commodity groups like NCGA.
“Farmers have to understand that there's not much chance to make a living on a 1,000-acre farm without supplemental income or non-commodity crops. You can count on one hand the number of farms in our area that don't have an outside job or enterprise to go along with their farms.”
I think it's important to recognize that there are two forces addressed in his statement.
First is the income issue. For the average farmer, increasing farm size and/or off-farm employment are often driven by the need to just earn enough to live on. In today's ag economy, 1,000 acres of corn and soybeans can't provide a full-time income for most farmers.
Second is that improvements in management and technology — such as Roundup Ready crops, reduced tillage practices and larger-capacity machinery — have significantly increased the amount of land one person can farm. We now have equipment that can plant 500 acres in a normal day. And it isn't difficult to find producers who farm 1,000 acres and still have a full-time, salaried job.
The combined effect means people who want to farm full time aren't going to stop at 1,000 acres, even if they could earn an adequate income from that sized farm. It isn't human nature to sit around doing nothing if you have the time, talent and resources to do more.
I know few successful farmers who only work 40 hours per week. Understand, there is nothing wrong with farming 1,000 acres or less. The problem is expecting to make a full-time living on what I believe is a part-time job.
The new “hobby farm,” as some people call it, might be 1,000 acres operated by a husband and wife who have one or two off-farm jobs. While that idea doesn't sit well with many, it's a realistic picture.
The only way to slow farm growth would be to limit farm size by law, restrict the development and adoption of new technology and/or adopt a farm bill that penalizes larger farms and subsidizes smaller ones. Of course, you can find people on both sides of the issue who argue that's already being done.
Such actions would also require the creation of import barriers to restrict foreign competition from areas of the world that have lower costs and that would continue to become more efficient if they wouldn't restrict technology adoption, too. In some ways, that's the model Europe is following. It's quite the opposite case in South America.
But in a perfectly competitive market, economic forces continue to encourage growth in farm size. For any generic commodity, such as corn and soybeans, the return to the average producer is always driven to breakeven by supply response and competition for resources, particularly land.
Farmers are not equal. At the lowest breakeven point, some would lose money and exit the industry. Others would make money and pursue expansion. One Midwestern farmer, in the early '80s, argued that corn should be $6/bu. Why? That was his cost of production.
Improvements in technology simply accelerate the pace among farmers who adapt to their advantage and those who don't. I think it's unfortunate that most of what we read and hear about farm returns is limited to either averages or producers at each end of the profit spectrum. We don't seem to recognize that in farming, as in any other business, there are incredible differences in management and performance across farms. Here are a few examples.
Let's begin with a couple of different time periods, because this isn't just a current phenomenon. As Paul Harvey says, “In times like these, it's good to remember there have always been times like these.”
During the farm financial crisis of the mid-'80s, I worked in the Farm Credit System. One of the things that struck me was that, even during that period, some farmers were very profitable. When I returned to the university, I was curious about some of the differences between those who had done well and those who had struggled.
Using 1982-1987 data, I found the top 25% of producers in my sample performed about 5% better than the overall group average. That's in terms of yield, cost per unit of production, return per dollar invested in machinery and equipment, and average net prices received for the commodities they produced. The bottom 25%, on the other hand, were about 5% worse than the overall group on these same performance measures.
Strangely, the debt/asset ratio for the top and bottom groups was about the same. However, those in the upper quartile tended to be leveraged by design. For example, they borrowed only to the extent they could manage the increased risk and earn more on the borrowed money than it cost them.
The lower quartile tended to be heavily in debt more by default — they'd paid too much for land, bought machinery for tax avoidance reasons, had large amounts of carryover debt and frequently borrowed for things that wouldn't pay for themselves.
While the differences may seem small, the annual change in earned net worth averaged a $50,000 increase for the top group and a $25,000 decrease for the bottom group. That meant over the six-year period, the top group's earned net worth increased by $300,000 while the bottom group's net worth declined by $150,000, a difference of nearly $500,000.
In reality, the differences were probably greater because the absolute lower end went broke and wasn't around through the entire period. So those farmers weren't included in the population sampled.
A 1988-1992 study of Illinois Farm Business Farm Management Association participants found the most profitable one-third of central Illinois crop farms netted an average of $97 more per acre than the least profitable one-third. That's even though they were on similar soil types and were raising the same crops.
In a Kansas State University study in 2000, covering 10 crops, researchers found almost identical results. The study showed slightly more than half (53%) of the difference in return to management was due to income (yields and prices) with the other 47% being the result of cost differences.
Erline Weness, a University of Minnesota extension specialist, conducted a study using 2001 Southwest Minnesota Farm Business Management Association data to analyze how many acres it took to support an average family under different levels of management.
The average family living expense for association members was $60,426 for the average family consisting of 3.5 persons.
Using the overall group's five-year average net return of $7.75/acre for corn (including government payments), Weness found it would take 7,797 acres of corn to support the family. However, using the five-year average net return per acre for the top 20% of $57.57, it would have taken only 1,050 acres. Using the same approach for soybeans, he found it would take the producer with average management 4,082 acres to support his family, while the top managers could have accomplished it on 977 acres.
It's ironic that those producers who have become efficient enough to make a living off the fewest acres are also the ones most likely to want to farm the most. They've found a way to farm profitably and want to expand their business just as any other business owner would.
Colonel Sanders didn't build one chicken restaurant and call it quits. It amazes me when I hear people talk about “large” farms and then refer to farms with sales of more than $250,000. In the Midwest, that volume can be achieved with less than 1,000 acres of corn and soybeans, or with 100 dairy cows. Yet, in most cases, a farm that size wouldn't provide full employment for one family in terms of either the labor required or the ability to earn a living.
So, what's the point? No one, and for sure not me, knows exactly what the future of farming will look like. But my hope is that those planning a career in agriculture, those shaping public opinion and those developing policies that affect the future are at least basing their opinions on what actually exists.
In reality, the 1,000-acre operation that supported a farm family more than a decade ago simply can't in today's ag world. And the forces of economics and technology will continue to accelerate that trend.
As one industry sage puts it, “It's not the 1,000-acre farmer that needs to worry. They can still support themselves with off-farm income. The guy who needs to worry is the 3,000- to 5,000-acre farmer who knows he needs to reach 10,000 acres if he wants to stay in business.”