The Economics of Agriculture

Pat Westhoff (westhoffp@missouri.edu) Food and Agricultural Policy Research Institute

University of Missouriwww.fapri.missouri.edu

“Food, from Farm to Table”National Press FoundationSt. Louis, MissouriJuly 20, 2015

Agenda

A farm-level example

Bigger picture: Some national statistics

The outlook: Recent past and a look ahead

What’s FAPRI? Food and Agricultural Policy Research Institute at the University of

Missouri (FAPRI-MU) Now in our 31st year Mission: provide objective analysis of agricultural markets and policies

What we do and how we do it 10-year outlook for farm economy (commodity supply, demand and

prices, farm income, government spending, consumer food prices…) Scenarios—What happens if there’s a change in policies, the weather, oil

prices, technology… We use models of agricultural markets—and expertise built from many

years of experience Educate, not advocate—we don’t make recommendations, but try to help

policy makers and others make more informed decisions

Our website: www.fapri.missouri.edu

A farm-level example There’s no such thing as a typical U.S. farm

But here’s an example of a farm that’s not atypical Corn-soybean farm in Indiana 1,000 acres (300 owned, 700 rented)

Figures are from a “representative farm” project Developed by colleagues at Texas A&M Based on panels of producers For detail on dozens of such farms around the country,

see https://www.afpc.tamu.edu/pubs/0/666/WP15-1.pdf

The 1000-acre Indiana corn-soybean farm: some characteristics

500 acres of corn, 500 acres of soybeans For comparison, median bushel of corn is grown on

a farm with 500-1000 acres of corn (Census data) Median bushel of soybeans is grown on a farm with

on a farm with 500-1000 acres of soybeans So, most corn-soybean farms are smaller, but most

bushels come from farms at least this big

300 acres owned, 700 acres rented Very common that commercial size farms will rent

at least as much land as they own

The 1000-acre Indiana corn-soybean farm: assets Total assets: $3,559,000

Real estate: $2,265,000 (~$7,500 per acre owned) Machinery: $576,000 All other: $718,000

Machinery complement 4 tractors (3 will each cost over $100,000 to replace, even

if used tractors are purchased) 1 combine ($159,000, purchased used in 2014) Tillage equipment, planter, mower, auger, sprayer A farmer that prefers “new paint” would spend even more

on equipment, but might have lower annual repair costs

The 1000-acre Indiana corn-soybean farm: income & expenses

2014-18 average projected under the new farm bill Notes

Receipts from sales $612,000 Down from $766,000 in 2013

Government payments

$19,000 Includes new farm bill subsidies, but not subsidized crop insurance

Cash expenses $440,000 About 70% of receiptsNet cash farm income $191,000 Down from $319,000

in 2013Source: Agricultural and Food Policy Center (AFPC) at Texas A&M estimates based on FAPRI-MU market projections, March 2015. All figures are rounded to the nearest $1000.

Further notes: These are averages of 500 possible future outcomes. In some extreme outcomes, net income is near zero, or much larger than shown here. Many other representative corn-soybean farms have higher costs and lower income.

U.S. farm numbers and average size

1920

1930

1940

1950

1954

1959

1964

1969

1974

1978

1982

1987

1992

1997

2002

2007

2012

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0

100

200

300

400

500

600

Old #s New #sOld size (acres) New size

Millio

n fa

rms

Acre

s per

farm

Source: U.S. Census of Agriculture, various issues. A new approach was used after 1997, increasing farm numbers and reducing farm size relative to the old approach.

Farm numbers by size of farm

1997 2012Less than 180 acres 736,292 813,183180-1000 acres 1,302,151 1,122,640Over 1000 acres 177,433 173,480Total 2,215,876 2,109,303

Note that the number of small farms increased, the number of large farms held largely steady, while the number of mid-size farms fell by about 14%.

Source: 2012 U.S. Census of Agriculture, http://www.agcensus.usda.gov/Publications/2012/Full_Report/Volume_1,_Chapter_1_US/st99_1_001_001.pdf

Farm numbers and value of farm products sold (shares of total, 2012)

Under $100,000 $100,000-$1 million $1 mil.-$5 mil. $5 mil and above0%

10%

20%

30%

40%

50%

60%

70%

80%

90%81.2%

14.9%

3.5% 0.4%5.2%

27.8%35.2% 31.8%

Farm numbers Value of salesSource : 2012 Census of Agriculture (http://www.agcensus.usda.gov/)

81,660 farms with sales >$1 mil. accounted for 2/3 of sales in 20122,027,643 farms with sales <$1 mil. accounted for 1/3 of sales in 2012

Finances of farm operator households: median results for 2013 by class of farm

Residence farms

Intermediate farms

Commercial farms

All farms

Number 1,160,514 696,780 188,058 2,045,532Farm income

-$2,175 -$863 $174,185 -$1,141

Off-farm income

$86,366 $55,000 $47,000 $62,500

Household net worth

$707,483 $746,446 $2,645,617 $801,980

Source: USDA’s Economic Research Service, http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx , second tableDefinitions: Residence farms: Farms with less than $350,000 in gross cash farm income and where the principal operator is either retired or has a primary occupation other than farming.  Intermediate farms: Farms with less than $350,000 in gross cash farm income and a principal operator whose primary occupation is farming.Commercial farms: Farms with $350,000 or more gross cash farm income and nonfamily farms. 

Typology of farms from ERS

Source:http://www.ers.usda.gov/topics/farm-economy/farm-structure-and-organization/background-on-farm-structure.aspx

U.S. farm income statistics2010-2014

average, billion dollars

Notes

Crop receipts $208 Peaked in 2012Livestock receipts $173 Exceeded crop receipts

in 2014Government payments

$11 About 5% of crop receipts

Production expenses $332 Was below $200 bil. until 2004

All other net income $46 Includes farm-related and non-money income and more

Net farm income $106 Peaked in 2013

Source: FAPRI-MU data sets from March 2015, based on data from USDA’s Economic Research Service. Note that these figures are often revised, but it is unlikely that the “stories” above would change with data revisions.

Other notes: Government payments do not include crop insurance premium subsidies, which averaged $6.5 billion/year over this period. There are other measures of farm income, such as net cash farm income, which averaged $122 billion/year over 2010-2014.

U.S. farm cash receipts2010-2014

average, billion dollars

Notes

Feed grains $72 Corn; sorghum, hay, barley…

Oilseeds $42 Soybeans, peanuts, canola…

Food grains $17 Wheat; rice…Cotton and sugar $11All other crops $66 Fruits, vegetables,

nursery…Cattle $66 Some double-countingPoultry $40 Chicken, eggs, turkey…Dairy $39 Almost entirely cow’s

milkHogs $22Other livestock $5 Sheep, wool…

Source: FAPRI-MU data sets from March 2015, based on data from USDA’s Economic Research Service. Total receipts averaged $381 billion per year between 2010 and 2014.

U.S. farm production expenses

2010-2014 average, billion

dollarsNotes

Feed $56 Mostly from corn, soy meal

Purchased livestock $25 Calves, feeder cattle…Seed $20Fertilizer & chemicals $40 Fertilizer, herbicides, etc.Fuel and electricity $21 Mostly diesel fuelContract & hired labor $31Capital consumption $32 DepreciationInterest $17 Long- and short-termNet rent to non-operators

$15 Rent paid minus received

All other $75 Repairs, maintenance, misc.

Source: FAPRI-MU data sets from March 2015, based on data from USDA’s Economic Research Service. Total expenses averaged $332 billion between 2010 and 2014.

U.S. corn and soybean costs and returns dollars per acre, average of 2013 & 2014

Corn SoybeansSeed $99 $59Fertilizer $151 $38Chemicals $29 $27Fuel and electricity $33 $22All other operating costs

$44 $34

Total operating costs $356 $180Land & other overhead

$326 $291

Total costs $683 $472Market value of crops sold

$662 $519

Difference -$21 $47Source: USDA’s Economic Research Service (http://www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx). Farmers would also receive government payments and (if they have a loss), crop insurance indemnities. For corn (soybeans), FAPRI estimated in March that those would average $33 ($10) for payments and $33 ($4) for crop insurance in 2013 & 2014. Figures vary each year.

Crop area planted, 2015Area planted, million acres

Corn 88.9Soybeans 85.1Wheat 56.1Upland cotton 8.9Sorghum 8.8Barley 3.4Oats 3.1Rice 2.8Sunflowers 1.7Peanuts 1.6Source: USDA’s National Agricultural Statistics Service, June 2015. For comparison, there are about 4.5 million acres of vegetables and 5.2 million acres of orchards, according to the 2012 Census of Agriculture.

Meat and dairy production and consumption per capita, 2014

Production, billion pounds

Domestic consumption,

pounds per capitaBeef 24.3 54.2Pork 22.8 46.4Chicken 38.6 83.4Turkey 5.8 15.8Milk 206.0 *

*Difficult to summarize, given consumption of milk and various dairy products

Source: USDA’s World Agricultural Supply and Demand Estimates, June 2015 (http://www.usda.gov/oce/commodity/wasde/latest.pdf).

Corn costs and returnsFAPRI-MU projections, March 2015

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

0

200

400

600

800

1000

1200

Market sales Payments & crop insuranceVariable costs

Dolla

rs p

er a

cre

Cow-calf costs and returnsMU Ag. Markets and Policy projections, March 2015

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

0

200

400

600

800

1000

1200

1400

Receipts Expenses

Dollr

s per

cow

U.S. net farm income

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

020406080

100120140160

Nominal 2015 dollars

Billi

on d

olla

rs

FAPRI-MU projections, March 2015

U.S. consumer food expenditures and farm sales receipts

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

0200400600800

10001200140016001800

Food expenditures Crop and livestock receipts

Billi

on d

olla

rs

FAPRI-MU projections, March 2015

Thanks! FAPRI-MU website:

www.fapri.missouri.edu

To contact Pat Westhoff: 1-573-882-4647 westhoffp@missouri.edu

FAPRI-MU team: Julian Binfield Sera Chiuchiarelli Deepayan Debnath Scott Gerlt Hoa Hoang Lauren Jackson Willi Meyers Kateryna Schroeder Wyatt Thompson Jarrett Whistance Peter Zimmel