The high cost of farming

Agriculture gets plenty of undue criticism from various sources over the cost of food and fiber production to U.S. taxpayers and ultimately to U.S. consumers. It’s no secret that some farmers made a lot of money the past few years, but there is another side of that story.

Five years ago the United States was trying to recover from the worst financial debacle since The Great Depression. Through the trying times of the latest financial recession agriculture did well — surprisingly well according to some financial analysts. Well enough that Wall Street investors, who had their greedy financial fingers gnawed back to the very nubby, saw continued losses in the stock market and in everything from money to oil, turned to agriculture for financial comforting.

More money invested destabilized a once stable commodity market and is helping keep commodity prices good for some farmers — grain growers in particular.

All is well! Or, upon closer evaluation, maybe all is not so well.

First, we are dealing with hundreds of billions of dollars for agriculture as a whole and millions of dollars, even for small scale farming operations these days. In general, the more zeroes in the number, the bigger the risk. At the farm level, make a little mistake and it costs a lot of money.

Or, more likely, get a bad weather season and what used to take a couple of years to recoup is now a financial disaster.

As a veteran Virginia farmer said a couple years back, “I never thought as a farmer I’d see so much money pass through my hands and have so little of it stick.”

As a journalist, numbers generally scare me, but here are some that should scare every American consumer and spur every elected official in the country into rapid legislative action.

In 2013, U.S. farmers are projected to spend close to $400 billion to grow the food we eat and the clothes we wear — plus a multitude of other uses of farm-grown commodities.

In 2012, that number was more than $350 billion and the year before $318 billion. Go back to 2005, the total cost of production for U.S. agriculture was estimated at $200 million — about half the current cost.

If you look at gross revenues for farmers over the same time period, some problems begin to pop up. First, gross revenue for 2013 is expected to increase to about $475 billion, or about a $75 billion differential between costs and return.

In 2008, for example, the differential between production cost and revenue was roughly $100 billion.

So, while mainstream U.S. media was touting the evolution of on-the-farm millionaires and as the U.S. Congress continues in multi-year gridlock over a farm bill that includes a very, very small percentage of the value of U.S. agriculture, farmers went about the business of losing about $25 billion in real revenue over the past five years.

How many U.S. industries could withstand a $5 billion annual loss over a five-year period and remain viable and economically healthy? Could the financial industry or the automotive industry survive those kind of losses without a government bailout? They didn't!

Sure, $75 billion in gross revenue spread among America’s 2.2 million farms looks at first glance like a lot of money. Using an online math calculator to avoid stressing my math skills, I am surprised that the $75 billion in gross revenue above the stated cost of farming in 2013 amounts to about $34,000 per farm — hardly a get rich quick scheme.

In 2012, the number of U.S. farms dropped by about 12,000 and total acreage dropped by three million. It’s hard to imagine how that could happen, if farming is as ultra-lucrative as some naysayers seem to think.

Farmers in the U.S. are statistically the best in the world, if best is defined as growing the most bushels per acre of major crops. Or, if best is defined by producing the most pounds of meat per pound of feed.

How good for the global food supply can it be to take three million acres of the most productive agriculture land on Planet Earth out of production?

Of greater concern on a global basis, the 50-year trends on caloric production and caloric demand are likely to cross within the next 25 years, with demand for the first time in the history of mankind exceeding production.

While food shortage skeptics accurately point out that global farm acreage is up slightly (less than a percent) over the past few years, the reality is that increase is coming in countries in areas of the globe that are traditionally among the least efficient in the world. Though acreage is up, global efficiency in food production is actually shrinking.

The cost of farming, however, is definitely not shrinking.


TAGS: Management
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