Monday, February 25, 2008

Wow, Farming is Tough!

I have always been interested in farming news. When many of my other peers in middle school and high school were listening to the latest and greatest rock radio station I usually had good 'ol WHO 1040AM tuned in on my radio. And on weekdays from 11:30 AM until 1:00 PM I have always enjoyed listening to "The Big Show", which is all about farming in Iowa and around the world. Now that I have grown up and am taking my own steps towards farming, and farming unconventionally, I have begun listening with a different perspective. A slightly more analytical and discerning perspective.

This past Friday was a perfect example. At the end of the show farm broadcaster emeritus Lee Kline (who has a great radio voice) was telling a story of a recent farm land auction that he had attended in central Iowa. There was something like 240 acres (I don't remember exactly) up for auction that day, and quite a few people were in attendance. The story telling was great as always, but the price the land sold for was the most interesting for me. $6,000 per acre was the final winning price ... that is $1,440,000 if you are scoring at home!

That is pretty scary number for someone like me who would like to add land and grow the farm, but it became more interesting (and possibly scarier) after I went home and checked the mail. It just so happens that we received a bulletin from the boarding school where we used to work. In this issue there was a short article about farmers donating commodities (grains) as financial donations for the school. The idea is that there is a better tax break for the farmer when it is done like that. Good information and I hope that some people take advantage of it because the school is a worthy cause.

But, it is the example that really got me thinking. The example says:
In 2006, Bud Peterson, a grain farmer, donated 1,000 bushels of corn to the local Christian School. Bud's cost of production was $4,000, and the proceeds generated by the sale of the grain to the elevator by his favorite charity were $5,000.
Let me extrapolate a few numbers from that. Let's just say that the average yield for this farmer (he was from Illinois) was 175 bushels per acre. That means that his donation came from 5.71 acres of land. Taking the $4,000 in production cost and dividing by the number of acres we see that it cost him $700.53 per acre for inputs (probably includes land, equipment, seed, chemicals, etc.). Now we can divide the $5,000 that was made on the sale by the number of acres to find that he would have made $875.66 per acre of corn. That gives him a total profit (if he hadn't given it to charity) of $175.13 per acre.

It is going to take a lot of acres to make your living wages off of that ... plus we really need to know if land payments were factored into the $4,000 of production costs. If they were not ... well then there is a problem. Especially if the land cost $6,000 per acre!

I believe this is a perfect real life example of why we need to be looking at different methods and operations when it comes to farming. We need to make better use of our land and better use of our time!


Rich said...

What is even more worrying is that he is making $175 per acre when corn is near historic high prices. How much money do you think you would lose if corn plummeted in price to half the current levels (that's never happened has it)? Land costs wouldn't correct to the lower level, and the bank will probably end up owning the land.

Yeoman said...

Let's step back for a second and consider the news of the news, for a second, however.

Farming is tough (although, having been some other things in my 44 years, soldier, lawyer, etc., I'm not sure it's any tougher than any other occupation, and a lot less tough than some). But what we're looking at here is that farm economics is tough.

I agree with that, and I applaud your efforts to work around that.

But, farm economics reporting is not always too good either. In the decade I've been raising cattle, I've seen prices rise and fall, but the impact has never been as dramatic as the farm reporting of the period would have it. And in that time, there's always been some stockmen in desperate trouble, but then I've found that even in the best of times, some folks in any business are in desperate trouble.

Now, I'm not saying that farm economics are rosy. I'm only saying, that perhaps the average reporting, or even specific examples, are not always completely accurate.

As an illustration of that, I watched the national tv news last night (which I only rarely do), and a lead in story was on how inflation is ramping up nationally, and food prices are way up, but that farmers are doing well.

Are they?

The tv news claims farm incomes are at a record high. I doubt that. But are grain farmers doing better now days?

Steven said...

I see farmers around here doing very well! But, they aren't your "family farm" of the past. They usually consist of one guy in the area that decided to stick to it. After every other person retired and their kids moved to town, this guy started renting their small farms. Now, the guy that farms my families farm is doing great... sports car, pool, etc. But he also has probably 6 or 8 employees, 6 or 8 of the biggest best tractors and all the implements to go with them, and he is farming grain on thousands of acres. At 180 acres, our farm is a tiny part of his operation. Even with all this farming, he still does land grating and digs ponds on the side. The sad thing is that he is doing very well, but all these little farm houses around here are now becoming rent houses and nearly everyone has to work in town.

Yeoman said...

Steven said:

"I see farmers around here doing very well! But, they aren't your "family farm" of the past."

I know what you mean by your description.

We see that here too, but in a bit different form. In the past decade we've seen an influx of out of state buyers, who like the idea of "ranching", but who don't know the front end of a cow from the back. They buy up places at greatly inflated prices, and then they hire a "manager" to run it.

These places are not economic, and occasionally one of these "ranchers" will complain about it. But they aren't part of the community, and they don't realize that in modern ranching in this region certain things were always cooperative efforts. They're very bad for real ranching, however, as they have no connection with the community, and they don't actually bother to run an economic outfit, which makes things worse for everyone else.

On the plus side, most of these outfits have such enormous overheads, that the cost of diesel fuel will be bad for all of them, and perhaps some will go under, opening some land up.

Anonymous said...

Let's say he owns the land out right, that is only a 3% ROE (you could add in the apreciation on the land for a total ROE), however that cost figure probably does not include his labor. Back that out and he probably made nothing from his land. He could do better with Government backed bonds...and not have the risk.

Ethan Book said...

Yes you are right that I was specifically speaking of the economics of farming when I said it was tough ... because I know there are jobs that are more difficult (thank God for our military!)

But, I think it is important to explore these things because the economics of farming are becoming more and more difficult and the only solution that many farmers can come up with is to get bigger.

I posted a little while ago about hog farmers in Iowa coming up with a solution for weathering the horrible market that is only getting worse ... try not to lose much is all they could come up with. The cattle feeders are starting to worry about the same thing ... and the dairy folks too. I hear about it everyday on the farm reports.

So, everyone who does grain is trying to get bigger because bigger will make them more money (in theory). I think we need to get out of the mindset that bigger is better (in all of our life, not just farming) and think smarter. Larry in another post talked about being a lowest-cost producer (I hope he gives more information). We really need to be researching ways to do that because the information is out there if we are willing to look for it.

Most of all what I was trying to convey is that the economics of farming are tough for those that are trying to begin farming ... whether it is conventionally or unconventionally.

Yeoman said...

In terms of tough, and farm size, I note that petroleum is at a record high today, and that the dollar is at a record low.

I suspect these costs are easier for me to adjust to than any of the grain farmers. For me, it means that I might want to start out moving cows about two hours earlier than I otherwise would, and just ride from the ranch yard, rather than drive out with a horse trailer. Maybe it means we should think of moving the cattle closer to the yard, and feeding with a horse drawn wagon.

Modern grain farming went over to petroleum in the 20s through the 50s, and not is totally dependent on it. That increased the size of the farms to the detriment of farmers, and it's made grain production a slave to petroleum. An all around bad situation.

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