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The Economics of

Agriculture
Pat Westhoff (westhoffp@missouri.edu)
Food and Agricultural Policy Research Institute
University of Missouri
www.fapri.missouri.edu
Food, from Farm to Table
National Press Foundation
St. Louis, Missouri
July 20, 2015

Agenda
A

farm-level example

Bigger

picture: Some national


statistics

The

outlook: Recent past and a look


ahead

Whats 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)


ScenariosWhat happens if theres a change in policies, the weather, oil
prices, technology
We use models of agricultural marketsand expertise built from many
years of experience
Educate, not advocatewe dont make recommendations, but try to help
policy makers and others make more informed decisions
Our

website: www.fapri.missouri.edu

A farm-level example
Theres
But

no such thing as a typical U.S. farm

heres an example of a farm thats 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 cornsoybean farm: assets


Total

assets: $3,559,000

Real estate: $2,265,000 (~$7,500 per acre owned)


Machinery:
$576,000
All other:

Machinery

$718,000

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 cornsoybean farm: income & expenses


2014-18 average
projected under
the new farm bill
Receipts from sales
Government
payments

$612,000

Notes
Down from $766,000
in 2013

$19,000

Includes new farm bill


subsidies, but not
subsidized crop
insurance

Cash expenses

$440,000

About 70% of receipts

Net cash farm income

$191,000

Down from $319,000


in 2013

Source: 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

U.S. farm numbers and


average size
7.0

600

6.0

500

5.0
4.0
Million farms

3.0
2.0

400
300

Acres per farm

200

1.0

100

0.0

Old #s
New #s
Old size (acres)
New size
Source: U.S. Census of Agriculture, various issues. A new approach
was used after 1997, increasing farm numbers and reducing farm

Farm numbers by size of


farm
Less than 180 acres
180-1000 acres
Over 1000 acres
Total

1997

2012

736,292

813,183

1,302,151

1,122,640

177,433

173,480

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)
90%
80%

81.2%

81,660 farms with sales >$1


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

70%
60%
50%
40%

35.2%

30%
20%
10%
0%

31.8%

27.8%
14.9%
5.2%
Under $100,000

3.5%
$100,000-$1 million

Farm numbers

$1 mil.-$5 mil.

Value of sales

Source : 2012 Census of Agriculture (

0.4%
$5 mil and above

Finances of farm operator households:


median results for 2013 by class of farm
Residence
farms
Number
Farm
income
Off-farm
income
Household
net worth

Intermedia Commercia
te farms
l farms

1,160,514

696,780

-$2,175

-$863

$86,366
$707,483

All farms

188,058

2,045,532

$174,185

-$1,141

$55,000

$47,000

$62,500

$746,446

$2,645,617

$801,980

Source: USDAs Economic Research Service,


http://
www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx ,
second
table
Definitions:
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.

Typology of farms from


ERS
Source:
http://
www.ers.usda.
gov/topics/fa
rm-economy/fa
rm-structureand-organizat
ion/backgroun
d-on-farm-str
ucture.aspx

U.S. farm income statistics


2010-2014
average, billion
dollars

Notes

Crop receipts

$208

Peaked in 2012

Livestock receipts

$173

Exceeded crop receipts


in 2014

Government
payments
Production expenses

$11
$332

About 5% of crop
receipts
Was below $200 bil. until
2004

All other
net income
$46
farm-related
Source:
FAPRI-MU
data sets from March
2015, basedIncludes
on data from
USDAs
non-money
Economic Research Service. Note that these figures and
are often
revised, income
but it
and
more
is unlikely that the stories above would change with
data
revisions.
Net farm income

$106

Peaked in 2013

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

U.S. farm cash receipts


2010-2014
average, billion
dollars

Notes

Feed grains

$72

Corn; sorghum, hay,


barley

Oilseeds

$42

Soybeans, peanuts,
canola

Food grains

$17

Wheat; rice

Cotton and sugar

$11

All other crops

$66

Fruits, vegetables,
nursery

Cattle

$66

Some double-counting

Poultry

$40

Chicken, eggs, turkey

Dairy FAPRI-MU data sets from March


$39 2015, based
Almost
entirely
cows
Source:
on data
from USDAs
milk
Economic Research Service. Total receipts averaged
$381 billion per year

U.S. farm production


expenses
2010-2014
average, billion
dollars

Notes

Feed

$56

Mostly from corn, soy


meal

Purchased livestock

$25

Calves, feeder cattle

Seed

$20

Fertilizer & chemicals

$40

Fertilizer, herbicides, etc.

Fuel and electricity

$21

Mostly diesel fuel

Contract & hired labor

$31

Capital consumption

$32

Depreciation

Interest

$17

Long- and short-term

Net rent to non$15


Rent paid minus received
Source:
FAPRI-MU data sets from March 2015, based on data from USDAs
operators
Economic Research Service. Total expenses averaged $332 billion

All other

$75

Repairs, maintenance,

U.S. corn and soybean costs and returns


dollars per acre, average of 2013 & 2014
Corn
Seed

Soybeans

$99

$59

$151

$38

Chemicals

$29

$27

Fuel and electricity

$33

$22

All other operating


costs

$44

$34

$356

$180

$326

$291

$683

$472

Fertilizer

Total operating costs


Land & other
overhead
Total costs

Market value of crops


$662
Source:
sold USDAs Economic Research Service (http://

$519

www.ers.usda.gov/data-products/commodity-costs-and-returns.aspx). Farmers
Difference
-$21
$47
would
also receive government payments and
(if they have a loss), crop insurance
indemnities. For corn (soybeans), FAPRI estimated in March that those would

Crop area planted, 2015


Area planted, million acres
Corn

88.9

Soybeans

85.1

Wheat

56.1

Upland cotton

8.9

Sorghum

8.8

Barley

3.4

Oats

3.1

Rice

2.8

Sunflowers

1.7

Peanuts

1.6

Source: USDAs 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

Meat and dairy production and


consumption per capita, 2014
Production,
billion pounds

Domestic
consumption,
pounds per capita

Beef

24.3

54.2

Pork

22.8

46.4

Chicken

38.6

83.4

5.8

15.8

Turkey
Milk

206.0

*Difficult to summarize, given consumption of milk and various


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

Corn costs and returns


FAPRI-MU projections, March 2015
1200
1000
800
Dollars per acre

600
400
200
0

Market sales
Variable costs

Payments & crop insurance

Cow-calf costs and returns


MU Ag. Markets and Policy projections, March
2015
1400
1200
1000
800
Dollrs per cow

600
400
200
0

Receipts

Expenses

U.S. net farm income


160
140
120
100
Billion dollars

80
60
40
20
0

Nominal
FAPRI-MU projections, March 2015

2015 dollars

U.S. consumer food expenditures


and farm sales receipts
1800
1600
1400
1200
1000
Billion dollars

800
600
400
200
0

Food expenditures
FAPRI-MU projections, March 2015

Crop and livestock receipts

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

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