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Perspective: Indian Summer for Small Farms

August 31, 2011
By: John Phipps, Farm Journal Columnist
 
 

Scarcely had the pixels faded (the modern equivJohn Phippsalent of ink drying) on my column about winner-take-all (WTA) agriculture (Spring 2011) when events began challenging my predictions. While the forces remain in place for WTA outcomes, a quiet economic sea change of unacknowledged scope is becoming harder to ignore.

I was preparing for a visit by Danish farmers, and experience told me they would be intensely interested in hard numbers. Inevitably, such discussions falter not because of language (Danes speak English remarkably well) but arithmetic. Within minutes, we get bogged down converting acres to hectares, dollars to kroner and bushels to tonnes.

So I dragged out a small spreadsheet I use for quick-and-dirty crop comparison and budgeting. To make it interesting, I calculated a comparison between 2006 and 2011. The bottom lines were so unbelievable that I rechecked the data several times.

My "out-of-the-field" margin for corn had ballooned by more than 300% in those five short years. This is calculating total receipts (sales plus government payments) minus variable expenses: fertilizer, seed, chemicals, fuel, rent and interest. It’s my own benchmark measure, but if you are consistent year-to-year, it should provide a fair comparison.

I knew things were getting better in grain farming, but when the break-even I have been constantly scolded to carve on my heart is $3 below the market, I lose interest. In fact, those of us who dutifully lock in profits have been pounding our heads on nearby walls.

I also knew I am the beneficiary of a lag time in cash rents (multiyear contracts), that about a third of our ground is owned and that 2006 was not a banner year. But 3X is a quantum leap. High margins change everything: all my beautiful WTA logic wasted—or at least postponed.

The minimum farm size for a decent family living has plummeted. If you own only 80 or 160 acres, as is often the case from an inheritance, farming small not only works, it’s a no-brainer. Similarly, coming back to a previously too-small farm is doable (assuming access to individual health insurance, of course).

I had overlooked the fact that a return to ownership (rents) provides a double jackpot. Despite lost off-farm employment opportunities due to the recession, 200- to 500-acre farmers can, for the time being, stand fast against even enormous competitors. Success is also possible, but much riskier, with all rented ground. It appears the winners won’t be taking all just yet.

Can It Last? Even if profits remain strong, is this sustainable? Certainly, smaller farms will struggle with any estate division, and a relentless creep of costs to match revenue seems likely.
But the golden goose here is the absence of rampant consumer inflation. Although food, health care, higher education and energy are rising, overall inflation remains trivial due to the inability of wages to rise during high unemployment. Living expenses don’t appear to be an increasing burden.

While economies of scale and WTA biases are still with us, profits that would have been ridiculed as fantasy five years ago are granting hard-pressed small operations a chance for a golden autumn at the least.

Farmers—and the farm media—are frantically looking for a flaw in this rosy picture. We have had three years of stern warnings that it can’t last. I am not so sure.

But rather than argue about what can go wrong, some acknowledgment of this halcyon moment should be offered, along with gratitude to be doing what we do right now. We might not have truly earned this excessive good fortune, but we can try to appreciate it with grace anyway. For those who have been farming at the edge of profitability for too long, the relief must be monumental. And if my vision of the future is premature or even wrong, that is of little consequence. n

John Phipps is a farmer from Chrisman, Ill. He is the TV host of "U.S. Farm Report." Contact him at johnwphipps@gmail.com. For local station listings, log on to www.USFarmReport.com.

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FEATURED IN: Top Producer - September 2011

 
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