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Organic dairy farms had higher costs, but also higher gross returns, than conventional farms in 2016

Tuesday, September 8, 2020

Organic dairy production costs were substantially higher than those for conventional dairy in 2016—about 50 percent higher per hundredweight (cwt) of milk produced. Production costs include operating costs for feed, energy, and bedding, as well as the costs of capital and of the paid and/or family labor provided to the farm. Organic production costs were highest among farms with 10-49 cows at $48.87 per cwt, while production costs on conventional farms of that size were $33.54. Among farms with 100-199 cows in the herd, organic production costs amounted to $35.82 per cwt, while conventional farms in that category reported lower costs of $23.68. However, organic operations received much higher prices for their milk—organic gross returns per cwt of milk produced were about twice the gross returns realized by comparably sized conventional operations in 2016. With higher costs, but much higher gross returns, small organic dairy farms realized higher net returns on average than small conventional farms. (Net returns are the difference between gross returns and costs.) This chart appears in the Economic Research Service report, Consolidation in U.S. Dairy Farming, released July 2020. It also appears in the September 2020 Amber Waves finding, “Organic Dairy Farms Realized Both Higher Costs and Higher Gross and Net Returns Than Conventional Dairy Farms.”

Farm sector profits forecast to rise in 2020

Wednesday, September 2, 2020

Inflation-adjusted U.S. net cash farm income (NCFI), defined as gross cash income less cash expenses, is forecast to increase $4.0 billion (3.6 percent) to $115.2 billion in 2020. U.S. net farm income (NFI)—a broader measure of farm sector profitability that incorporates noncash items including changes in inventories, economic depreciation, and gross imputed rental income—is forecast to increase $18.3 billion (21.7 percent) from 2019 to $102.7 billion in 2020. While cash receipts from farm commodities are forecast to decline $15.2 billion (4.1 percent), direct government farm payments are expected to increase $14.6 billion (64.4 percent) because of supplemental and ad hoc disaster assistance payments for COVID-19 relief in 2020. Additionally, total production expenses—that are subtracted out in the calculation of net income—are projected to fall $7.3 billion (2.1 percent) in 2020, contributing to the growth in income. If forecast changes are realized, NCFI would be 5.7 percent above its inflation-adjusted average calculated over the 2000-19 period, and NFI in 2020 would be 13.8 percent above its 2000-19 average. Find additional information and analysis on the USDA, Economic Research Service’s Farm Sector Income and Finances topic page, reflecting data released September 2, 2020.

Productivity growth has contributed positively to U.S. agricultural output in all sub-periods since 1948

Wednesday, August 26, 2020

The total output—including livestock, crops, and other farm related outputs—produced by U.S. farms nearly tripled between 1948 and 2017, growing at an average annual rate of 1.53 percent. This output growth was primarily attributable to increased productivity, which grew at an average of 1.46 percent per year. Total inputs—including capital, land, labor, and intermediate goods—increased by 0.07 percent annually, by comparison. Though total input use grew slowly during this period, its composition shifted considerably. The use of intermediate goods (such as feed, seeds, and chemicals) increased by more than 130 percent, while agricultural labor declined by 76 percent and the amount of land devoted to agriculture was down by more than 25 percent. The continuing growth in intermediate goods contributed 0.58 percentage points per year to output growth, the highest among all inputs (capital, labor, and intermediate goods). However, the contribution of intermediate goods to output growth has been small (even negative in some years) since 1981. Over the long-term, productivity growth has been the major driver of agricultural growth. Productivity growth—spurred by innovations in animal and crop genetics, chemicals, equipment, and farm organization through research—is the only factor that contributed positively to agricultural growth in all sub-periods (measured from peak to peak between business cycles) since 1948. This chart appears in the July 2020 Amber Waves article, “Productivity Is the Major Driver of U.S. Farm Sector’s Economic Growth.”

Average net returns of large dairy operations exceeded those of farms with smaller herds between 2005 and 2018

Friday, August 14, 2020

Large dairy operations have significant financial advantages over small and midsized farms, primarily because of lower average production costs per pound of milk produced. Therefore, larger farms can earn profits during times when smaller farms bear losses. In every year between 2005 and 2018, average net returns increased with herd size and returns for herds of 1,000 head or more (the largest class for which the Economic Research Service (ERS) publishes annual estimates) exceeded those for all other herd sizes. While net returns fluctuate from year to year, farms with 1,000 head or more generated positive net returns of $1.12 per hundredweight on average between 2005 and 2018. These farms had positive net returns in 10 out of 14 years. By contrast, the smallest herd sizes (50-99 head and 100-199 head) never covered total costs, so their net returns were negative in every year. While some farms in each size class realize positive net returns, these class averages indicate that most small and midsize farms face persistent financial pressures. The persistent differences in net returns have led to structural changes in the dairy industry, with cows and production shifting away from smaller farms and toward larger ones. This chart appears in the ERS report, Consolidation in U.S. Dairy Farming, released July 2020. It also appears in the Amber Waves feature, “Scale Economies Provide Advantages to Large Dairy Farms.”

Demand for direct-hire labor in agriculture is seasonal

Wednesday, August 5, 2020

The ongoing COVID-19 pandemic has decreased labor availability in many sectors of the economy. In agriculture, labor inputs consist of unpaid farm operator labor (including spouse and family labor), direct-hire labor, and labor contracted through a third party. In 2018, 62 percent of total farm labor hours were unpaid, while the remaining 38 percent were paid. The majority (82 percent) of labor expenditures were to compensate hired employees, while 18 percent were spent on contracted labor. Paid labor hours are concentrated in certain time periods and regions, largely reflecting the importance and cyclicality of specialty crop production (which includes fruits, vegetables, and nursery crops). In the Atlantic region, paid labor hours peaked in the first quarter, whereas in the rest of the country, labor hours peaked in the second or third quarters. The Western region of the United States accounted for 35 percent of total employee labor hours, and the bulk of labor hours (37 percent) were recorded in the third quarter. If last year’s patterns hold, demand for farm-employed labor in the West could steadily increase and peak in the summer months. While the data in this chart predate the COVID-19 pandemic, agricultural workers have been deemed essential and information on the demand for these workers can provide insight into the potential impacts of the pandemic. This chart is based on data from the Economic Research Service data product, ARMS Farm Financial and Crop Production Practices, updated July 2020.

The number of hogs sold or removed per farm increased from 1998 to 2015

Friday, July 31, 2020

Contract operations (where the hog owner pays a per-unit fee to producers to care for the animals) sold or removed an average of 8,625 hogs per farm in 2015, an increase of about 3,500 from 1998. By comparison, non-contract operations (where producers own the hogs they raise) sold or removed an average of 5,217 hogs per farm in 2015, an increase of about 3,700 from 1998. The removal, or depopulation, of hogs from farms has distinctly different effects on contract operations and non-contract operations. Contract operations do not incur lost value from inputs invested in depopulated herds, whereas non-contract operations stand to bear depopulation and disposal costs as well as the entire costs of foregone hog sales, including costs associated with inputs (such as feed costs) that have already been incurred. While this research predates the COVID-19 pandemic, it can provide insight into potential impacts of depopulation due to the closing of processing hog plants during the COVID-19 pandemic. This chart updates data found in the Economic Research Service report, U.S. Hog Production From 1992 to 2009: Technology, Restructuring, and Productivity Growth, released October 2013.

Large dairy operations realized gross returns that exceeded total costs

Wednesday, July 22, 2020

Large dairy operations have significant financial advantages over small and midsized farms, primarily because of lower average production costs per pound of milk produced. Therefore, larger farms can earn profits during times when smaller farms bear losses. In 2016, average total costs of milk production fell from $33.54 per hundredweight among farms with 10-49 cows to $20.85 among farms with 200-499 cows. The latter costs were 21 percent higher than the average costs realized at the largest farms—those with at least 2,500 head. Larger herds realized lower gross returns because many are in regions with lower milk prices. Gross returns include milk sales, plus revenues from the sale of culled dairy animals, milk cooperative dividends, and the fertilizer value of manure. Despite their lower gross returns, lower costs led to much larger net returns among larger operations than among smaller farms. In 2016, farms with more than 1,000 head realized positive net returns on average, whereas farms with fewer head realized negative net returns on average. This chart appears in the Economic Research Service report Consolidation in U.S. Dairy Farming, released July 2020.

Smaller farms often rely on the principal operators and their spouses for labor, while larger farms rely on hired labor

Wednesday, July 8, 2020

The U.S. agricultural workforce consists of a mixture of two groups of workers: (1) self-employed farm operators and their family members, referred to as “unpaid labor” because their remuneration comes out of farm profits rather than a wage; and (2) paid labor such as hired and contract workers that receive wages. Overall, between 2014 and 2018, U.S. farms used about 59 percent operator, spouse, and family labor, compared to 41 percent paid labor. However, farms of different sizes relied on different mixes of labor. Principal operators and their spouses provided most of the labor hours (76 percent) used on small farms, those with annual gross cash farm income (GCFI) under $350,000. That share fell to 43 percent on midsize farms (GCFI between $350,000 and $999,999), 17 percent on large farms (GCFI between $1 million and $4,999,999), and 2 percent on very large farms (GCFI of $5 million or more). Large and very large farms relied most on hired labor, which provided 64 and 74 percent of the labor hours on those farms, respectively. By comparison, hired labor provided about 12 percent of labor hours on small farms and 39 percent on midsize farms. Contract laborers were important on very large farms (particularly in fruit and vegetable operations), contributing 20 percent of labor hours. This chart updates data found in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture.

Farm households reported that working off the farm provided greater and more stable income, along with health and retirement benefits

Monday, June 22, 2020

Nearly half of all family farm operators and their spouses reported having a job off the farm in 2018. The majority of households, regardless of farm size, report that they work off the farm because it is more lucrative than farm work, provides more reliable income, and may offer health and retirement benefits. Households had the option to report more than one reason for working off the farm. Among small family farms—those with annual gross cash farm income (GCFI) under $350,000—about 88 percent of these households reported working off the farm because it was more reliable and 75 percent because it was more lucrative. By comparison, among large-scale farm households—those with GCFI of $1 million or more—about 72 percent reported working off the farm because it was more reliable and 51 percent because it was more lucrative. In addition, about 40 percent of all principal operators or their spouses who work off the farm listed farm-related financial stress, such as low commodity prices or low farm revenue, as a reason for having a job off the farm. This chart appears in the March 2020 Amber Waves article, “Family Farm Households Reap Benefits in Working Off the Farm.”

Labor costs on specialty crop farms accounted for 3 times as much of their total cash expenses as the average for all U.S. farms

Tuesday, June 9, 2020

Some types of farms rely more on farm labor than others. According to data from USDA’s Agricultural Resources Management Survey, hired farm labor (including employees and contract labor) accounted for 13 percent, on average, of the total input costs used in agricultural production in 2018 (trailing only expenditures on fertilizer and chemicals). Specialty crop farms—which produce fruits, vegetables, and nursery crops—had the highest share of labor costs to total cash expenses at 39 percent. This made them the most vulnerable to labor shortages or wage shocks. The share of labor costs to total cash expenses for specialty crop farms was more than 3 times higher than the average for all farms. Dairy farms had the second highest share of labor costs at 14 percent, with large dairy farms mainly relying on hired labor. In contrast, corn and soybean farms rely mostly on unpaid operator and family labor, so paid labor accounted for less than 4 percent of total cash expenses in 2018. This chart updates data found in the Economic Research Service report, Farm Size and the Organization of U.S. Crop Farming, published in August 2013.

H-2A positions increased fivefold between fiscal 2005 and 2019

Friday, May 22, 2020

The H-2A Temporary Agricultural Program provides a legal means to bring foreign-born workers into the United States on a temporary basis. Workers employed on an H-2A visa are allowed to remain in the U.S. for up to 10 months at a time. Employers must demonstrate, and the U.S. Department of Labor must certify, that efforts to recruit U.S. workers were not successful. Employers must also pay a region-specific minimum wage, known as the Adverse Effect Wage Rate, which is set at the average wage for crop and livestock workers in that region in the prior year, as measured in USDA’s Farm Labor Survey. In addition, employers must pay for application and visa processing fees, provide housing for their H-2A workers, and pay for their domestic and international transportation. One of the clearest indicators of the scarcity of farm labor is the fact that the number of H-2A positions requested and approved has increased fivefold in the past 14 years—from just over 48,000 positions certified in fiscal 2005 to nearly 258,000 in fiscal 2019. The average duration of an H-2A certification in fiscal 2019 was 5.3 months, implying that the 258,000 positions certified represented about 114,000 full-year equivalents. The impact of this year’s shelter-in-place restrictions due to COVID-19 are not reflected in the data discussed. This chart appears in the Economic Research Service topic page for Farm Labor, updated April 2020.

Milk sales accounted for nearly half of New York’s farm sector cash receipts in 2018

Monday, May 4, 2020

Each August, the Economic Research Service (ERS) produces and publishes estimates of the (farm sector) cash receipts—the cash income the farm sector receives from agricultural commodity sales—from the prior year. These data include State-level estimates, which can help offer background information about States subject to unexpected changes that may affect the agricultural sector, such as the current COVID-19 shelter-in-place restrictions in New York and other States. In 2018, U.S. cash receipts for all commodities totaled $373 billion. New York contributed about 1 percent ($5 billion) of that total, ranking 27th among all States. Receipts from milk accounted for the largest share of cash receipts in New York, at 49 percent ($2.5 billion). The State ranked third in milk cash receipts behind California and Wisconsin, accounting for 7 percent of milk cash receipts nationwide. New York also ranked third in apple cash receipts behind Washington and Michigan, accounting for 9 percent ($262 million) of apple cash receipts nationwide and 5 percent of New York’s total cash receipts. Receipts for corn and cattle/calves each accounted for 7 percent of the State’s total cash receipts. Although contributing a smaller amount to total cash receipts in the State, nationwide New York accounted for 18 percent ($26 million) of maple products receipts, 13 percent ($53 million) of cabbage receipts and 13 percent ($24 million) squash receipts. This chart uses State-level data from the ERS data product Farm Income and Wealth Statistics, updated February 2020.

Forecast for higher solvency ratios in 2020 indicates that more of the farm sector’s assets are financed by credit or debt

Monday, April 27, 2020

Solvency is a measure of the ability of a farm or ranch operation to satisfy its debt obligations when due. Popular measures of solvency include the debt-to-equity ratio, debt-to-asset ratio, and equity-to-asset ratio. Solvency ratios compare the amount of debt relative to equity invested in the farm sector. As a result, these ratios provide a measure of the farm sector’s ability to repay financial liabilities via the sale of assets. The ratios also measure the farm sector’s risk exposure and ability to overcome adverse financial events. The farm sector debt-to-equity and debt-to-asset ratios are expected to continue their slow increases from 2012. The Economic Research Service (ERS) forecasts a debt-to-equity ratio of 15.7 percent in 2020, and a debt-to-asset ratio of 13.6 percent. These higher ratios indicate that more of the farm sector’s assets are financed by credit or debt relative to owner capital (equity). This is the result of farm sector debt growing at a faster rate than farm sector assets. The impact of this year’s shelter-in-place restrictions due to COVID-19 are not reflected in this ERS data. This chart appears in the ERS topic page for Farm Sector Income and Finances.

The foodservice industry accounted for 37 cents of the 2018 U.S. food dollar

Friday, April 24, 2020

In 2018, restaurants and other eating-out places claimed 37.4 cents of the U.S. food dollar—foodservices’ highest share during the 1993 to 2018 period covered by the Economic Research Service’s (ERS’s) Food Dollar Series and the seventh consecutive annual increase. More eating out in 2018 was also reflected in the 12.3-cent retail-trade share claimed by grocery stores and other food retailers, which was at its lowest level in the 1993-2018 period. The only other industry groups that showed an increasing food dollar share in 2018 were farm producers, up 0.3 cents to 8 cents in 2018, and energy industries, such as electric power and natural gas, which increased their share for the third consecutive year, up to 4.2 cents. ERS’s annual Food Dollar Series provides insight into the industries that make up the U.S. food system and their contributions to total U.S. spending on domestically-produced food. ERS uses input-output analysis to calculate the value added, or cost contributions, from 12 industry groups in the food supply chain. Annual shifts in food dollar shares between industry groups occur for a variety of reasons, ranging from the mix of foods that consumers purchase to relative input costs; implications of this year’s COVID-19-related shelter-in-place restrictions will be reflected in the 2020 food dollar. This chart is available for the years 1993 to 2018, and can be found in ERS’s Food Dollar Series data product, updated on March 23, 2020.

Record high table egg lay rates in the second half of 2019 drove up egg production despite reduced flock size

Friday, April 10, 2020

In 2019, the United States produced more than 8 billion dozen table eggs, a 2.8-percent increase over 2018. Much of this growth came in the first half of 2019, driven by a larger layer flock—a flock of egg-laying hens—as well as higher egg lay rates. However, this growth resulted in an oversupply of eggs, which put significant downward pressure on egg prices. In response, the industry took measures beginning in June 2019 to downsize the layer flock. For the remainder of 2019, the layer flock inventory fell below or hovered around previous year levels. Nonetheless, table egg production in the second half of 2019 remained 1.5 percent higher over 2018 because of record-high lay rates. On November 1, 2019, the U.S. table egg lay rate reached 82 eggs per 100 layers, the highest rate on record. Lay rates, which have increased by approximately 11 percent since 2000, have been an important driver of growth in egg production. Several factors can affect lay rates, including day length, hen age, nutrition, disease, genetics, and flock management. Egg production decreases with shorter days, particularly during fall and winter, but this can be remedied with artificial lighting. Younger hens and older hens do not produce as many eggs as those hens of peak production age (approximately 26 weeks). Finally, advancements in nutrition, disease prevention, genetic selection, and improved flock management practices have contributed to improving overall hen health, which is associated with good lay rates. In the beginning of 2020, although lay rates continued to trend higher year over year, the layer flock contracted sizably. This tightening of supply has been met with a surge in demand, causing prices to increase in March. This chart is drawn from the Economic Research Service Livestock, Dairy, and Poultry Monthly Outlook, published March 2020, and the Livestock & Meat Domestic Data: Production Indicators.

Agricultural consolidation has increased the midpoint acreage for most crops since 1987

Monday, April 6, 2020

Over the past three decades, the midpoint acreage—where half of the acres of a specific crop are on farms that harvest more than the midpoint, and half are on farms that harvest less—has shifted to larger farms for almost all crops. In 1987, for example, the midpoint acreage for corn was 200 acres; it increased to 685 acres by 2017. Four other major field crops (cotton, rice, soybeans, and wheat) showed a very similar pattern: the midpoint for harvested acreage increased between 1987 and 2017 by amounts ranging from 166 to 243 percent. The midpoints also increased persistently in each census year, with the single exception of a decline in cotton from 2007 to 2012. Economic Research Service researchers extended the analysis to 10 more field crops and to 40 fruit, tree nut, berry, vegetable, and melon crops. Consolidation was nearly ubiquitous, as the 2017 midpoint acreage exceeded its 1987 level for 53 of 55 crops (the exceptions were lemons and plums/prunes). Consolidation was also substantial—the average 1987-2017 midpoint increase across the 55 crops was 148 percent, and 44 of 55 crops showed at least a 100-percent increase. Finally, consolidation was persistent over time, with continued midpoint increases for 42 crops between 2012 and 2017. This chart appears in the February 2020 Amber Waves feature, “Consolidation in U.S. Agriculture Continues.”

Productivity growth helped accelerate growth in world agricultural output through 2016

Friday, April 3, 2020

The growth rate of the world’s agricultural output has varied over the decades. Output growth slowed in the 1970s and 1980s, but then accelerated in the 1990s and 2000s. In the latest period for which estimates are available (2001-16), global output of total crop and livestock commodities grew by an average rate of 2.45 percent per year. The different bar colors in the chart show the sources of this output growth. In the decades prior to 1990, most output growth came about from intensification of input use (more labor, capital, and material inputs per acre). Bringing new land into agriculture production and extending irrigation to existing agricultural land were also important sources of growth. During the periods of 1991-2000 and 2001-16, however, the rate of growth in input use significantly slowed. Instead, improvements in agricultural productivity—getting more output from existing resources—drove global output growth. Total factor productivity (TFP) grew from the adoption of new technologies, management practices, and other efficiency improvements in farming around the world. Between 2001 and 2016, TFP accounted for 77 percent of the total growth in agricultural output worldwide. This chart appears in the Economic Research Service topic page for International Agricultural Productivity Summary Findings, updated November 2019.

Farm share of U.S. food dollar rose in 2018

Wednesday, April 1, 2020

On average, U.S. farmers received 14.6 cents for farm commodity sales from each dollar spent on domestically produced food in 2018, up slightly from 14.4 cents in 2017. Known as the farm share, this amount rose for the first time since 2011. This increase coincides with a flattening in average prices received by U.S. farmers (as measured by the Producer Price Index for farm products) in 2017 and 2018, after steep declines in 2015 and 2016. A preliminary 2017 farm share estimate published last year was also 14.6 cents, but the 2017 figure has been revised downward to 14.4 cents in the newly-released updates. The Economic Research Service (ERS) uses input-output analysis to calculate the farm and marketing shares from a typical food dollar, including food purchased both at grocery stores and at restaurants and other eating-out places. The marketing share covers the costs of getting domestically produced food from farm to points of purchase, including costs related to packaging, transporting, processing, and selling to consumers at grocery stores and eating-out places. The relatively low farm share measures for 2015-18 occurred during a 7-year trend of increases in the portion of the food dollar going to the foodservice industry. Farmers receive a smaller share from eating-out dollars because of the added costs for preparing and serving meals at eating-out places, so more food-away-from-home spending also drives down the farm share. The data for this chart can be found in ERS’s Food Dollar Series data product, updated on March 23, 2020.

Average U.S. farm real estate value remains near its historic high

Monday, March 23, 2020

Farm real estate, including land and the structures on that land, typically accounts for more than 80 percent of the total value of U.S. farm sector assets. Farmers often use the value of their real estate as collateral for farm loans. After a long period of appreciation following the farm crisis of the 1980s, farm real estate values have leveled off since 2015. U.S. farm real estate value in 2019 remained near its historic high, averaging $3,160 per acre—a modest increase of 0.2 percent over 2018. The Economic Research Service (ERS) forecast farm income to increase nationwide in 2019. This increase, combined with historically low interest rates, contributes to the ability of the farm sector to support higher farmland values. Regional farmland real estate values vary widely because of differences in general economic conditions, local farm economic conditions, government policy, and local geographic conditions. For example, farm real estate values in the Corn Belt are nearly twice the national average, while values in the Mountain region are less than half the national average. This chart appears in the ERS topic page for Farmland Value, updated March 2020.

Nearly half of all principal operators of family farms and their spouses work off the farm, but the share varies by farm type

Monday, March 16, 2020

USDA’s Economic Research Service classifies farm households based on the annual gross cash farm income (GCFI) of the farm that they operate, and further separates small farms by the primary occupation of the principal operator. Data from USDA’s Agricultural Resource Management Survey consistently show that income earned off the farm is an important source of income for most farm households. Nearly half of all family farm operators and their spouses reported having a job off the farm in 2018. In general, spouses of principal operators are more likely to work off the farm, except among those classified as off-farm occupation farms. However, off-farm employment varies across farm types. For example, only 11 percent of operators of large farms and 3 percent of very large farms have a job off the farm, while between 17 and 19 percent of those operating low-sales, moderate-sales, and mid-size farms have an off-farm job. About 20 percent of operators on retirement farms hold off-farm jobs. This chart appears in the December 2019 report, America’s Diverse Family Farms: 2019 Edition.

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