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Rick Worthington Study Says: Half of U.S. Farms Lose Money
by Rick Worthington, click here for bio

Program: Farm and Ranch Report
Date: August 07, 2018

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U.S. farmers that are losing money are not alone, according to data collected by the USDA.

The study analyzed data from 2015. Over half of U.S. farm households report losses from their farm businesses each year, the USDA’s Economic Research Service reported in a press release.

There is a caveat. Because net farm income isn’t the total contributor to the financial well-being of farm families, tax-loss benefits and asset appreciation pushes the share of households with positive annual farm returns rises from 43 to 70 percent, according to the release.

Here is what the study discovered:

In 2015, the year analyzed in this study, farm households earned an average of $119,880. Average income for households operating residence farms (farms with less than $350,000 in gross cash farm income and where the principal operator has a nonfarm primary occupation) was $114,703. The average income for households operating intermediate farms (less than $350,000 in gross cash farm income and where the principal operator’s primary occupation is farming) was $70,338. And the average income for households with commercial farms ($350,000 or more gross cash farm income, regardless of the principal operator’s occupation) was $332,731.

While 82 percent of households operating commercial farms had positive income from their farming business, only one-third of residence farm households and slightly less than half of intermediate farm households earned money from their farming operation in 2015.

While the composition of farm household income varies by the size and type of farm, on average, farm households earned between $64,120 (intermediate farm households) and $115,337 (residential farm households) from off-farm sources in 2015.

Between 2003 and 2015, the value of total farm and nonfarm assets held by farm households increased by 40 to 57 percent. In 2015, the average farm household owned approximately $1 million in farm assets in addition to nearly $600,000 in nonfarm assets.

Many farms are labor-intensive, with considerable unpaid household labor put toward the farm operation. “Operator labor and management income,” or OLMI, is an alternative net income measure that accounts for the “opportunity costs” of unpaid labor and capital spent in farming, rather than in other pursuits. Once net farm income is adjusted for opportunity costs, it falls by an average of 52 percent across all family farms. Commercial farms had the highest average OLMI, while intermediate and residence farms had negative average OLMI. Returns were higher for experienced operators (more than 10 years of experience) than for beginning operators (10 or fewer years), even after controlling for assets.

Between 1990 and 2015, average farm real estate values increased every year except one at an average nominal rate of approximately 6 percent. Households owning commercial farms experienced average asset appreciation of an estimated $74,406 in 2015.

Farm households are able to offset their off-farm income with farm losses, thus reducing their taxable income. When tax-loss benefits and appreciation in farm real estate values are considered, average annual farm economic returns increased from an estimated $232,780 to $308,084 for commercial farm households in 2015, largely driven by asset appreciation. In addition, the share of farm households with positive returns from their farm operation increased from 43 percent to about 70 percent of all farms.

The ERS released stated that this study is based primarily on data from the 2015 Agricultural Resource Management Survey (ARMS), a cross-sectional sample of U.S. farm operations.

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