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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.”

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.”

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.

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.”

Production contracts dominate hog and poultry production, while marketing contracts are more widely used in crops and dairy

Monday, February 10, 2020

Contracts are widely used in the production and sale of U.S agricultural commodities. Under marketing contracts, ownership of the commodity remains with the farmer during production, with little involvement from the contractor. By comparison, under a production contract, the contractor usually owns the commodity (e.g., the chicks for poultry operations) during production and often provides specific inputs and services, production guidelines, and technical advice to the grower—who receives a contract fee for raising the commodity. Across all commodities, the value of contract production was nearly evenly split between marketing and production contracts in 2018. However, the use of contract types varies sharply across commodities. Most contract crop production (except for seeds and some processing vegetables) used marketing contracts, as did all contract dairy production. In contrast, production contracts were used extensively for the production of hogs and poultry. Some hogs may be raised under a production contract between a grower and an integrator (an intermediary that coordinates production), and then sold by the integrator under a marketing contract with a processor, who slaughters and processes the animal for sale. This chart updates data found in the July 2019 Amber Waves article, “Marketing and Production Contracts Are Widely Used in U.S. Agriculture.”

Contracts are most prevalent in production of poultry, tobacco, hogs, peanuts, and fruits

Monday, October 28, 2019

Contracts are widely used in the production and sale of U.S agricultural commodities. Farmers use contracts to obtain compensation for higher product quality, specify outlets for products, and provide assurance of sales to manage income risk or finance debt. Processors use contracts to gain timely flows of products and greater control over the characteristics and consistency of the products they acquire. Contracts cover relatively small shares of corn, soybean, and wheat production—and those shares have changed little in 20 years. In contrast, most poultry is produced under contract, and what is not produced under contracts between processors and growers is raised in facilities operated directly by processors. These differences between commodities reflect differences in markets and product characteristics. Because corn, wheat, and soybean producers have many potential buyers and can store their crops for long periods, cash markets work well for them. On the other hand, poultry producers make a substantial investment to produce birds that lose value quickly after reaching maturity, and there are usually just one or two local buyers for the product. Facing a risk that, without a contract in place, buyers would be able to force the price down, poultry producers are reluctant to invest in their business without the assurance of a contract. This chart appears in the December 2018 report, America’s Diverse Family Farms: 2018 Edition. It was also highlighted in the ERS’s Amber Waves Data Feature, “Marketing and Production Contracts Are Widely Used in U.S. Agriculture” in July.

Productivity of farms in the Heartland increased over time, but more slowly for smallest farms

Friday, October 11, 2019

Recent ERS research examined productivity trends in the Heartland region, which includes all of Iowa, Illinois, and Indiana, and parts of Minnesota, South Dakota, Nebraska, Missouri, Kentucky, and Ohio. Findings show that the smallest crop farms (less than 100 acres) fell further behind larger farms in terms of productivity between 1982 and 2012. Total factor productivity (TFP)—a measure of the quantity of output produced relative to the quantity of inputs used—grew at similar rates across farm-size classes except for the smallest, which had slower growth rates. (However, data for 2012 reflects a severe drought in the Heartland region that year and so does not follow historical trend lines.) While the TFP for farms in the four largest size categories increased by 47 to 59 percent between 1982 and 2012, TFP for the smallest farms increased by only 17 percent. Some technological advances in recent decades, such as very large combine harvesters and precision agriculture technologies, were not as advantageous for the smallest farms to adopt due to cost. This may help explain why the farm productivity growth of the smallest farms has lagged behind that of larger operations. This trend has resulted in a deterioration of the competitive position of farms in the smallest size category, and has likely contributed to a decline in their share of total output. This chart appears in the December 2018 Amber Waves feature “Productivity Increases With Farm Size in the Heartland Region.”

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

Thursday, September 12, 2019

Farms of different sizes rely on different mixes of labor. During the 5 years encompassing 2013–2017, the principal operator and the operator’s spouse provided most of the labor hours (75 percent) used on small farms—those with annual gross cash farm income (GCFI) under $350,000. That share fell to 44 percent on midsize farms (GCFI between $350,000 and $999,999), 19 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 69 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. Small and midsized farms are more numerous, but account for less production overall. Overall, principal operators and their spouses provided 47 percent of the labor hours used on U.S. farms in 2013–17, while hired labor provided 35 percent, and other operators and other unpaid family labor provided another 9 percent of total hours, the same share as contract labor (workers employed by firms hired by the farm). Contract laborers were particularly important on very large farms, contributing over 27 percent of labor hours. This chart updates data found in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture. This Chart of Note was originally published April 15, 2019.

Contracts governed one-third of the value of agricultural production in 2017, with a concentration in livestock

Friday, July 12, 2019

Contracts are widely used in the production and sale of U.S agricultural commodities. Contracts provide farmers with a tool for managing income risks. Farmers also use contracts to obtain compensation for higher product quality, specify outlets for products, and provide assurance of sales for debt financing. Processors use contracts to ensure timely flows of inputs and greater control over the characteristics and consistency of the products they acquire. In 2017, 49 percent of livestock were raised under contract agreements—usually between farmers and processors—while contracts governed 21 percent of crop production. The share of crops produced under contract has declined in recent years as farmers turned to other methods for managing risks, such as diversification, hedging through futures markets, and investing in storage. This chart appears in the December 2018 report America’s Diverse Family Farms: 2018 Edition and the July Data Feature of the ERS Amber Waves magazine, “Marketing and Production Contracts Are Widely Used in U.S. Agriculture.”

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

Monday, April 15, 2019

Farms of different sizes rely on different mixes of labor. During the 5 years encompassing 2013–2017, the principal operator and the operator’s spouse provided most of the labor hours (75 percent) used on small farms—those with annual gross cash farm income (GCFI) under $350,000. That share fell to 44 percent on midsize farms (GCFI between $350,000 and $999,999), 19 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 69 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. Small and midsized farms are more numerous, but account for less production overall. Overall, principal operators and their spouses provided 47 percent of the labor hours used on U.S. farms in 2013–17, while hired labor provided 35 percent, and other operators and other unpaid family labor provided another 9 percent of total hours, the same share as contract labor (workers employed by firms hired by the farm). Contract laborers were particularly important on very large farms, contributing over 27 percent of labor hours. This chart updates data found in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture.

Small farms represented one-quarter of total production in 2017; share varied by commodity

Friday, April 5, 2019

The distribution of U.S. farm production varies by commodity and farm size. In 2017, small family farms—those with annual gross cash farm income (GCFI) under $350,000—produced most of the hay (76 percent) and poultry (60 percent). As a group, small family farms accounted for about 89 percent of all U.S. farms and 26 percent of U.S. agricultural production. By comparison, large-scale family farms—those with GCFI of at least $1 million—produced most of the dairy (68 percent), high-value crops like fruits and vegetables (56 percent), and cotton (55 percent). Large-scale family farms accounted for about 3 percent of all farms and 39 percent of total production. Midsize family farms—those with GCFI between $350,000 and $1 million—contributed large shares of cash grains and soybeans (36 percent), cotton (30 percent), and poultry (29 percent). These midsize farms together accounted for about 6 percent of all farms and 23 percent of total production. Nonfamily farms account for the remaining farms and production. This chart appears in the ERS topic page for Farm Structure and Organization, updated December 2018.

Crop production in the Heartland has shifted to farms with at least 1,000 acres

Tuesday, March 19, 2019

Past ERS research on consolidation in the U.S. farm sector has documented a widespread shift in agricultural production to large-scale operations. This structural change has likely been partly driven by productivity advantages enjoyed by larger operations. Recent ERS research examined consolidation trends in the Heartland region—which includes all of Iowa, Illinois, and Indiana, and parts of Minnesota, South Dakota, Nebraska, Missouri, Kentucky, and Ohio. Between 1982 and 2012, the Heartland’s largest crop farms (more than 1,000 acres) increased their share of total production in the region from 17 percent in 1982 to 59 percent in 2012. In contrast, over the same period, the share of total production declined for the four smaller farm size categories. Midsized farms (250–500 acres) experienced the largest decline in market share, falling from about 30 percent in 1982 to 10 percent in 2012. In aggregate, the productivity of crop farms in the Heartland region increased by 64 percent, or 1.5 percent per year, between 1982 and 2012. ERS researchers estimate that about one-sixth of this productivity growth was attributable to the shift in production to larger farms. This chart appears in the December 2018 Amber Waves feature “Productivity Increases With Farm Size in the Heartland Region.”

One-third of U.S. farm output is produced under contract, but the share differs by commodity

Monday, December 17, 2018

Farmers use contracts to manage price and production risks and ensure a market for their products. Processors, integrators, and buyers use contracts to procure farm products with specific qualities and reduce supply uncertainty. The share of value of production that was under contract across all commodities in 2017 was 34 percent, close to the share in 1996/1997 (32 percent). More than 50 percent of U.S. peanuts, tobacco, sugar beets, hogs, and poultry/eggs in 2017 were produced under contract. In contrast, less than 20 percent of wheat, soybeans, and corn were grown under contract. The share of tobacco production under contract jumped from less than 1 percent in 1996/1997 to 90 percent in 2017, as cigarette manufacturers switched from cash auctions to contracts to ensure a sufficient supply of specific types of tobacco. The share of hogs produced under contract nearly doubled, from 34 percent in 1996/97 to 63 percent in 2017. Hog processors can use contracts to better control the characteristics of the hogs they acquire, helping them offer more consistent quality of meat to consumers. The decline in dairy reported under contract may reflect changing perceptions of farmers about their transactions with dairy cooperatives; more research is required to clarify that dynamic. This chart appears in the ERS report America’s Diverse Family Farms: 2018 Edition, released December 2018.

Pasture and rangeland have shifted to smaller farms over time

Monday, October 29, 2018

Unlike cropland, which has shifted toward larger farms since the 1980s, the other major component of U.S. farmland—permanent pasture and rangeland—has shifted to smaller farms. In 1987, farms and ranches with at least 10,000 acres of pasture and rangeland operated more than half (51 percent) of all pasture and rangeland, while those with less than 1,000 acres held 15 percent. By 2012, the share operated by the largest acreage class had gradually fallen to 44 percent, while the share of farms and ranches with less than 1,000 acres of pasture and rangeland had risen to 22 percent. Consolidation in cropland is driven by technologies—such as bigger, faster, and smarter pieces of equipment—that allow a single farmer or farm family to manage more cropland. Improvements in those technologies have not led to consolidation in pasture and rangeland, however, because planting, spraying, and harvesting machinery are rarely used on pasture and range. Pasture and rangeland are primarily used for grazing beef cows and their calves, although other livestock such as sheep, horses, and bison are also grazed. In 2012, 45 percent (over 400 million acres) of all U.S. farmland was devoted to pasture and grazing land. This chart appears in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture.

Small farms produce a different mix of commodities than larger farms

Monday, August 13, 2018

Commodity mixes differ by farm size. For example, hogs and poultry accounted for 29 percent of the production of small farms in 2016, a much greater share than in other size classes. Small farms typically raise the animals for processors under contracts, which reduces price risks and allows them access to bank financing. Dairy production and fruit, vegetable, and nursery crops—where economies of scale give an advantage to larger farms—accounted for 59 percent of the output of very large farms, compared to 12 percent of the output of small farms. Midsize farms emphasize corn and soybean production, as well as other field crops. This chart updates data found in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture.

Livestock production has shifted to more specialized farms over time

Friday, July 6, 2018

Livestock production has become increasingly specialized, relying less on homegrown and more on purchased feed. Since fully specialized farms have no cropland to absorb manure as fertilizer, they must move their manure off the farm. In 2015, 37 percent of all livestock were produced on farms that had no crop production, up from 22 percent in 1996. Specialization grew in each major livestock commodity during this period. In 2015, nearly 53 of all poultry production occurred on farms that raised no crops, up from 44 percent in 1996. Poultry manure is lighter than other manure and easier to transport, making it cheaper for a contract poultry operation to dispose of all its manure off the farm and reducing the incentive to grow crops on farm. Specialization increased substantially in hog production, where 31 percent of production occurred on farms with no crops in 2015, up from 14 percent in 1996. This chart appears in the March 2018 ERS report, Three Decades of Consolidation in U.S. Agriculture.

Older operators often run small family farms, particularly retirement and low-sales farms

Friday, May 25, 2018

A notable characteristic of principal farm operators (those most responsible for running the farm) is their relatively advanced age. In 2016, 36 percent of principal farm operators were at least 65 years old, compared with only 14 percent of self-employed workers in nonagricultural businesses. Older operators ran 37 percent of all small family farms—those with annual gross cash farm income (GCFI) before expenses under $350,000—including 68 percent of retirement farms and 38 percent of low-sales farms. By comparison, older operators ran 21 percent of large family farms (GCFI of $1 million to $4,999,999) and 23 percent of very large family farms (GCFI of $5 million or more). Improved health and advances in farm equipment enable operators to farm later in life than in past generations. The farm is also home for most farmers, and they can gradually phase out of farming by renting out or selling parcels of their land. Some larger, more commercially oriented farms run by older farmers may have a younger, secondary operator who might eventually replace the principal operator. This chart appears in the ERS report America's Diverse Family Farms: 2017 Edition, released December 2017.

Midpoint acreage more than doubled for all five major field crops

Thursday, May 10, 2018

Over the last three decades, the midpoint acreage—where half of acres 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 for corn was 200 acres, which increased to 600 acres by 2012. Four other major field crops (cotton, rice, soybeans, and wheat) showed a very similar pattern: the midpoint for harvested acreage more than doubled for each crop between 1987 and 2012. The midpoints also increased persistently in each census year, with the single exception of a decline in cotton in 2012. ERS researchers repeated the analysis for a total of 55 crops in all. Consolidation was nearly ubiquitous, as the midpoint increased in 53 of 55 major field and specialty crops between 1987 and 2012. Consolidation was also substantial, as most of these midpoint increases were well over 100 percent—and it was persistent, as most midpoints increased in most census years. This chart appears in the ERS report Three Decades of Consolidation in U.S. Agriculture, released March 2018.

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