Author(s): Lauren Omer Turley
Published: July 29th, 2022
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Agriculture seems to be on a roller coaster recently with the volatile commodity markets, energy costs, and the tough summer weather. Looking back over the last ten years, grain farmers have seen a wide range of commodity prices and yields. There has been much more variance on the income side than the costs per acre. It is interesting to look at trends over the past ten years using data from the Kentucky Farm Business Management (KFBM) program.
Kentucky grain farms had record incomes for the 2021 crop. Outstanding yields coupled with higher prices resulted in high net farm incomes and management returns. Looking at Figure 1, you can see that net farm incomes (NFI) and management returns usually correlate with grain prices received. Higher prices usually lead to higher incomes and a decrease in prices results in lower incomes, on average.
Figure 1: Incomes and Grain Prices
The other major factor in income is yields. Table 1 shows the yields for corn, beans, and wheat over the last ten years. As you can see, 2021 average yields were outstanding for all three crops. With 2012 being a drought year, the corn and wheat yields have seen more variance than beans. The last five years have seen solid yields across all crops. This makes one wonder what the next ten years of yields will look like.
Table 1: Historical Yields
KFBM also tracks family living expenditures and capital purchases (machinery and building) for the farms in the program. Family living expenses are always an area of interest to lenders. It is difficult for anyone to change their lifestyle and this has held true with KFBM farms. Regardless of high income or low income, family living expenses held fairly steady over the last ten years, with exception of 2021. In 2021, the average farm spent $92,000 on family living expenses. This was an increase of nearly 28% over 2020. The average family living expense over the past ten years was $74,897. Figure 2 shows the family living compared to NFI and management returns. For five years, family living expenses were greater than management returns.
Figure 2: Income and Spending
Another trend interesting to examine is capital purchases (equipment, grain bins, tile, barns, farm shops). All capital items have seen a recent increase in prices and availability, to an extent. Higher incomes usually result in greater cash on hand, thus more capital purchases (Figure 2). Grain bins have truly been able to help producers reap higher prices over the last two years.
Income is only one side of the equation. The other side is input costs, which have to be managed to generate higher NFI. Over the last ten years, KFBM producers have had to manage their costs to keep them as low as possible. The period from 2014 to 2019 was tight for producers, thus they became great managers of their costs. Table 2 shows several costs per acre that are most concerning for producers.
Table 2: Input Costs
Table 2 represents a large portion of the total expenses for a grain farm. Fertilizer and rent are most likely the two largest costs for all grain farms. Undoubtedly, input costs will be higher in 2022. You can see that there has been quite a bit of variance over time in these costs and there hasn’t been a true upward or downward trend in any category. Using averages, over a five or ten-year period, can help producers better plan and keep input costs at a manageable, and hopefully profitable, level.
Due to the high-income carryover from 2021, 2022 has been easier to manage. The high input costs were concerning, but cash was not as tight. The market volatility has most likely created large swings in the average prices that will be received per farm. There could easily be a $2/bushel swing in prices received from farm to farm. Yields won’t be at 2021 levels across most of the state, yet there is still a strong possibility for another year of high NFI.
Recommended Citation Format:
Turley, L. O. "Historical Farm Income and Expenses."Economic and Policy Update(22):7, Department of Agricultural Economics, University of Kentucky, July 29th, 2022.
Author(s) Contact Information:
Lauren Omer Turley |KFBMArea Extension Specialist |lauren.o.turley@uky.edu
Recent Extension Articles
As a seasoned expert in agricultural economics and management, my understanding of the intricacies within the field allows me to dissect and analyze articles with a discerning eye. Lauren Omer Turley's work on "Historical Farm Income and Expenses," published on July 29th, 2022, delves into the complexities of the agricultural landscape, drawing insights from the Kentucky Farm Business Management (KFBM) program.
The article begins by addressing the recent volatility in agriculture, highlighting the impact of commodity markets, energy costs, and adverse summer weather on grain farmers over the past decade. Turley employs data from the KFBM program to provide a comprehensive overview of the trends shaping the industry. This methodological approach is crucial, as utilizing real-world data enhances the credibility of the analysis.
The centerpiece of Turley's examination revolves around the net farm incomes (NFI) and management returns of Kentucky grain farms, particularly in 2021. Figure 1 visually correlates these factors with grain prices, demonstrating a direct relationship between higher prices and increased incomes. This observation aligns with economic principles and is supported by the evidence presented in the article.
Table 1 presents historical yields for corn, beans, and wheat over the past decade. The author emphasizes the exceptional yields in 2021, attributing them to favorable conditions. This detailed analysis of crop yields provides a nuanced understanding of the factors influencing farm incomes, showcasing Turley's expertise in agricultural production dynamics.
Family living expenses and capital purchases are explored as additional facets of the agricultural economic landscape. Turley notes the stability of family living expenses over the ten-year period, with a notable exception in 2021, where expenses increased by nearly 28%. Figure 2 visually compares family living expenses to NFI and management returns, offering a comprehensive view of the financial dynamics within Kentucky grain farms.
The article also touches on the trend of capital purchases, such as equipment and grain bins, emphasizing their role in leveraging higher incomes. This discussion underscores the author's ability to connect different elements of agricultural management, providing a holistic perspective.
The management of input costs, a critical aspect of agricultural profitability, is thoroughly examined in Table 2. Turley identifies fertilizer and rent as primary concerns for grain farms, demonstrating an acute awareness of the key cost drivers in the industry. The recognition of the need for cost management during the tight period from 2014 to 2019 showcases the author's in-depth understanding of the economic challenges faced by producers.
In conclusion, Lauren Omer Turley's article navigates through the complexities of historical farm income and expenses with a depth of knowledge grounded in data analysis and practical insights from the field. The meticulous examination of various factors affecting agricultural economics positions the author as a credible source in the realm of agricultural management and economics.
