John, my mom and I spent 6 hours sitting at the dining room table talking about farm finances. Spreadsheets and more spreadsheets, and there is still so much more to do to try to figure this thing out.
Which scares the beejeebers out of me.
You may already know this from some of our past post, but let me reiterate: farms don’t make a lot of money. As in - really not a lot of money.
Digest some of these numbers:
Almost 89% of all farms gross less than $350,000 a year.
These farms take home only tiny amounts (if any) from their farms
The vast majority of farm families rely almost entirely on off farm income.
This is not an exaggeration. This is the actual chart on this produced by the USDA:
For those of us not good at math (me) – let me remind you that the median means the middle of all incomes (not the average). Which means that half of all farms grossing in this range actually make less than that pathetic tiny line of red above represents.
These numbers from 2016 also do not take into account Trump’s trade wars with China and the fact that the agricultural outlook for 2019 is mind bogglingly bleak.
So why on earth would anyone farm??? This is a very valid question. The romantic answer that “farmers love living off the land and producing their own food,” is not only BS, it is inaccurate. Only about 2 percent of farms in the US grow fruits and vegetables - most farmers cannot even eat the food they produce.
The basic answer is that when you already own the land and the equipment, and the government supports the crops you grow – why not make a little more money by farming? If you are assured of making X amount each year as you are with corn, wheat, cotton, rice or soybeans – why not grow it?
Those farming under the $350,000 a year gross sales range are typically making extra money by farming. Because most farmers live where they work, farming pays the taxes on the land and your home, it covers your expenses and gives you a little extra pocket change to supplement what other family members bring home from working in town. On a good year, when commodity prices go up again and the cost of seed and chemicals have not yet caught up, you can make a lot more. It is like playing the slot machines – that one windfall of clanking chips might be exciting, but over time it evens out to be only a pocket full of change - if you are lucky.
But for those who don’t own land, equipment or want to grow something different than corn, wheat, cotton, rice or soybeans, that is where the real challenge lies. What is the market value of each potential product? What does it cost to grow? Can we use existing machinery? How much is seed, organic certification, labor to harvest? The list of variables goes on and on.
And so, spreadsheets.