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Most small family farms are at high financial risk based on operating profit margin

Tuesday, January 23, 2024

Small family farms were more likely to have greater financial vulnerability than other farms, according to data from the 2022 Agricultural Resource Management Survey (ARMS). Researchers with USDA, Economic Research Service (ERS) calculated the operating profit margin (OPM), one of many financial risk measures, by taking the ratio of profit to gross farm income to find that in 2022, between 52 and 79 percent of small family farms—depending on the farm type (retirement, off-farm occupation, low sales, moderate sales)—were at the high-risk level. If OPM is less than 10 percent, the operation is considered at high financial risk. When OPM is between 10 and 25 percent, the operation is considered at medium financial risk, and if OPM is above 25 percent, the operation is at low financial risk. A majority of small-scale family farms, which have a gross cash farm income (GCFI) of up to $350,000, earn most of their income from off-farm sources. For these farms, farm profitability is not necessarily essential to the survival of the household. Small family farms make up 88 percent of all farms but account for only 19 percent of the total value of production. Large family farms (GCFI of $1 million to $5 million) in 2022 were most likely to have low financial risk at 51 percent and least likely to be at high financial risk at 27 percent. Midsize farms (GCFI of $350,000 to $999,999) were also most likely to be in the low-risk zone at 39 percent and least likely to be in the medium-risk zone at 23 percent. This chart appears in the ERS report America’s Farms and Ranches at a Glance, published December 2023.

Smaller cow-calf operations still outnumber large operations, but herd sizes have increased

Thursday, August 17, 2023

In the United States, most cow-calf operations are relatively small and have fewer than 50 cows though a few very large operations (with more than 1,000 cows) can be found. On cow-calf farms, calves are birthed, raised, and weaned on site. While some calves remain on the farm until they reach slaughter weight, most are either moved directly to feedlots after weaning or retained on-farm for additional weight gain before being sold to feedlots. Unlike many other animal production operations, cow-calf farms generally do not require a major upfront investment in capital assets specific to cow-calf production, such as housing. The combination of relatively lower cow-calf specific startup costs and pasture as a primary source of feed has resulted in a variety of operation sizes on a range of land types for both full- and part-time farmers. Data from USDA, National Agricultural Statistics Service, Census of Agriculture indicate that between 1997 and 2017, most cow-calf operations remained small. In 2017, 54 percent of farms with beef cows had fewer than 20 cows, slightly down from 1997. However, across the two decades, the overall number of cow-calf operations in the United States decreased by 19 percent, while the average herd size of operations grew. These changes in farm number and herd size, while notable, have not been as significant as industry shifts in hog and dairy production. This chart is drawn from the USDA, Economic Research Service report Structure, Management Practices, and Production Costs of U.S. Beef Cow-Calf Farms, published in July 2023.

Socially disadvantaged farm operations concentrated in South and West

Tuesday, May 16, 2023

Socially disadvantaged farmers and ranchers tend to be more concentrated in southern and western regions of the country than in other areas of the United States. USDA defines socially disadvantaged farmers and ranchers as those belonging to groups that have been subject to racial or ethnic prejudice. They include non-white and Hispanic farmers. In some counties, the proportion of operations classified as racially or ethnically socially disadvantaged is more than 58 percent, such as in parts of Arizona, New Mexico, Texas, and Florida. Overall, socially disadvantaged farms accounted for 9.4 percent of the 2 million farms in the United States, according to the 2017 Census of Agriculture. In 2017, 1.3 percent of all producers identified themselves as Black or African American only, 1.7 percent identified as American Indian or Alaska Native only, 0.6 percent identified as Asian only, 0.1 percent as Native Hawaiian or other Pacific Islander only, and 0.8 percent of all producers reported more than one race. In addition, 3.3 percent of all producers of any race indicated Hispanic, Latino, or Spanish origin. This chart appears in the USDA, Economic Research Service report Access to Farmland by Beginning and Socially Disadvantaged Farmers: Issues and Opportunities, published in December 2022.

Number of U.S. farms continues to decline, but farm size grows slightly

Tuesday, April 25, 2023

After peaking at 6.8 million farms in 1935, the number of U.S. farms and ranches fell sharply through the early 1970s. Rapidly falling farm numbers in the mid-20th century reflect the growing productivity of agriculture, increased mechanization, and increased nonfarm employment opportunities. Since 1982, the number of U.S. farms has continued to decline, but much more slowly. In 2022, there were 2.0 million U.S. farms, down from 2.2 million in 2007. Similarly, the acres of land in farms continue a downward trend with 893 million acres in 2022, down from 915 million acres 10 years earlier. The average farm size in 2022 was 446 acres, only slightly greater than the 440 acres recorded in the early 1970s. This chart appears in the ERS data product Ag and Food Statistics: Charting the Essentials, updated March 2023.

Beginning farm operations tend to be in the South and West

Monday, April 10, 2023

Beginning farms tend to be more concentrated in Southern and Western States than in other areas of the United States. In some counties in California and Texas, for instance, the proportion of beginning farms is more than one-third of the total farms. As of 2017, there were about 340,000 farms—with almost 900,000 operators—on which all operators were beginning farmers with 10 or fewer years of farm management experience. Most beginning farms are small-scale operations; about 67 percent of beginning farms produced less than $10,000 worth of output. Less than 2 percent of beginning farms achieve an annual production value of more than $1 million. New beginning farms and ranches accounted for 17 percent of the 2 million farms in the United States and 8 percent of the total agricultural production. Among farms with at least $10,000 in production value or sales, principal operators—the people most responsible for making day-to-day decisions—of beginning farms were 43 years old on average. In contrast, the age of operators of established farms averaged 63 years old. USDA offers numerous resources for beginning farmers. This chart appears in the Economic Research Service bulletin Access to Farmland by Beginning and Socially Disadvantaged Farmers: Issues and Opportunities, published in December 2022.

Eighty-nine percent of all farms are small family farms and they generated 18 percent of total production value in 2021

Monday, February 27, 2023

In 2021, about 89 percent of all farms were small family farms. Small family farms operated 45 percent of U.S. agricultural land and produced 18 percent of the total value of production. Farm size classifications are based on annual gross cash farm income, a measure of a farm's revenue—including sales of crops and livestock, payments made under Federal agricultural programs, and other farm-related cash income—before deducting expenses. Small family farms have gross cash farm income (GCFI) below $350,000. In comparison, large-scale family farms, with GCFI above $1 million, operated 27 percent of agricultural land and were responsible for 46 percent of the total value of production in 2021. Midsize family farms, with GCFI between $350,000 and $1 million, operated 18 percent of agricultural land and similarly generated 18 percent of the total value of production. Overall, family farms of all sizes comprised about 83 percent of the overall production value while making up 98 percent of all farms. The remaining 2 percent of farms were classified as nonfamily. This category includes partnerships (of unrelated partners), nonfamily corporations, and farms with a hired manager unrelated to the owners. Despite accounting for such a small percent of farms, the nonfamily category was responsible for 17 percent of the total value of production. This chart appears in the ERS report America’s Farms and Ranches at a Glance, 2022 edition.

Number of U.S. hog operations declined between 1997 and 2017, while farm size and contract production increased

Friday, December 9, 2022

The structure of the U.S. hog sector changed between 1997 and 2017, shifting hog production to fewer, but larger, farms. According to data from the Census of Agriculture, which is administered by the USDA, National Agricultural Statistics Service, the number of hog operations with inventory declined 37 percent between 1997 and 2002 and continued to drop through 2012. Despite ticking upward in 2017, the number of operations with inventory ended at roughly 66,000 operations, 47 percent less than in 1997. In contrast, the average farm size roughly doubled over those two decades, as measured by the number of head of hogs in inventory per farm. The share of the U.S. hog inventory on farms with 5,000 or more head rose from 40 percent in 1997 to 73 percent in 2017. Overall, the U.S. hog inventory increased by 18 percent over the period, and the average hog farm size rose to more than 1,000 head of hogs. Reductions in the number of hog operations and increases in hog farm size have occurred alongside increases in production contract use. For example, by 2017, the percentage of hogs sold under a production contract rose to more than 50 percent in Iowa and Minnesota (combined) and in North Carolina, three hog-producing States that together contributed to more than half the hogs sold in the United States. From 2012 to 2017, contract production rose from 51 to 59 percent in Iowa and Minnesota and from 83 to 91 percent in North Carolina. This chart appears in the USDA, Economic Research Service report U.S. Hog Production: Rising Output and Changing Trends in Productivity Growth, published in August 2022.

U.S. hog sector increased specialization, production contract use, and farm size from 1992 to 2015

Wednesday, October 5, 2022

The U.S. hog industry has experienced structural change, productivity growth, and increased output since the early 1990s. The average U.S. hog farm has become larger, more specialized, and focused on contract production. Hog and pig producers sold more than nine times the volume of hogs per farm in 2015 than in 1992, ending at 8,721 head of hogs per farm in 2015. Over the same period, feeder-to-finish operations—those specializing in raising feeder pigs from 30-80 pounds to market weights of 225-300 pounds—became the majority, growing from 19 to 60 percent of all hog operations. Hog operations also became increasingly likely to use production contracts. A sharp increase in contract production occurred from 1992 to 2004, but contract production leveled off near 70 percent between 2004 and 2015. By 2015, the majority of hogs and pigs were being produced on specialized operations (89 percent) and under contract production (69 percent). From 1992 to 2015, production contract use increased from 3 to 53 percent of operations, with roughly 71 percent of feeder-to-finish operations engaged in contract production by 2015. These agreements were attractive because contractors typically provided the hogs and feed, made many management decisions, transported animals to market, and decided where and when hogs were to be sold. This chart appears in the USDA, Economic Research Service’s report U.S. Hog Production: Rising Output and Changing Trends in Productivity Growth, published August 2022.

Contract broiler growers have higher median but a greater range of household income compared to all U.S. farms and households

Wednesday, September 14, 2022

Farm households that raise broilers under contract have higher median incomes than U.S. farms and households overall. In 2020, the median income among all U.S. households was $67,251, while the median income among farm households was $80,060. The median for contract broiler growers was higher, at $106,694. These figures include on- and off-farm income. However, median income does not tell the whole story. The range of household incomes earned by contract broiler growers is wider than other groups. The bottom 20 percent of contract broiler growers earns $170,871 less than those in the top 20 percent, compared to $123,094 for all farm households, and $114,084 for all U.S. households. The wider range reflects, in part, the financial risks associated with contract broiler production. Grower compensation per bird can vary widely based on the productivity of the farm and the type of compensation system found in most broiler grower contracts. Sometimes called tournament-based systems, fees paid to the grower are based on the grower’s performance compared to other growers who provide birds to processing plants at the same time. This chart updates information found in the August 2014 Amber Waves feature “Financial Risks and Incomes in Contract Broiler Production.

Fees paid to growers for raising broiler chickens varied widely in 2020

Thursday, September 8, 2022

Almost all broiler chickens (99.5 percent in terms of the value of production in 2020) are raised under a production contract in which a farmer is paid a fee to raise animals owned by the contractor. In the broiler industry, growers are paid relative to other growers in what is often called a “tournament” pay system. Under tournament systems, broiler companies who manage each stage of the supply chain (also known as “integrators”) contract with farmers who grow birds to be delivered to a processing plant. Integrators provide chicks to multiple growers at the same time, for delivery to a processor in the same week. The growers provide housing, equipment, utilities, and labor. Integrators provide chicks, feed, transportation, veterinary services, and technical guidance. Once a flock of broilers is ready for processing, the integrator weighs the flock and tallies the cost of the inputs to determine the flock’s performance compared to other growers in the same tournament. Growers whose costs are lower than the average for all growers receive a premium over the contract’s base fee; those whose costs exceed the average for all growers receive a deduction from the base. The amount of the premium or deduction reflects the size of the cost difference. In 2020, the median payment to growers was 6.79 cents per live-weight pound delivered. But actual fees varied widely, from 4.29 cents paid to the bottom 10 percent of growers to 9.64 paid to growers to the top 10 percent. This chart uses data from the 2020 Agricultural Resource Management Survey to update the chart that appeared in the 2014 Amber Waves article “Financial Risks and Incomes in Contract Broiler Production.”

Number of U.S. farms continues slow decline as farm size slowly rises; overall land used remains constant

Tuesday, June 21, 2022

After peaking at 6.8 million farms in 1935, the number of U.S. farms and ranches fell sharply through the early 1970s. Rapidly falling farm numbers in the mid-20th century reflect the growing productivity of agriculture and increased nonfarm employment opportunities. Since then, the number of U.S. farms has continued to decline, but much more slowly. In 2021, there were 2.01 million U.S. farms, down from 2.20 million in 2007. With 895 million acres of farmland nationwide in 2021, the average farm size was 445 acres, only slightly greater than the 440 acres recorded in the early 1970s. This chart appears in the ERS data product Ag and Food Statistics: Charting the Essentials, updated June 2022.

Contracts are common in animal and crop production

Friday, April 29, 2022

In 2020, agricultural contracts governed the production of about 33 percent, by value, of all U.S. farm commodities. A contract is a legal agreement between a farmer and another person or firm to produce a specific type, quantity, and quality of crops or livestock. Farmers use contracts, with set pricing (or a pricing formula) or fees, instead of traditional cash sales to manage income risks. USDA, Economic Research Service identifies two types of agricultural contracts: marketing and production. Under marketing contracts, the ownership of commodities stays with the farmer during production. The contracts set a price or a pricing formula, product quantities and qualities, and a delivery schedule. Under production contracts, the contractor generally owns the commodity and provides inputs, services, production guidelines, and technical advice to the farmer. Relative to overall commodity production, marketing contracts and production contracts are equally used. However, crop farmers are more likely to use marketing contracts and livestock producers typically use production contracts. Marketing contracts represented 23 percent of all crop production in 2020. More than half the value of production of sugar beets, peanuts, and fruits was produced under marketing contracts in 2020, and less than 20 percent of soybeans, corn, and wheat production fell under marketing contracts. Production contracts represented 36 percent of all livestock production, including 76 percent of poultry and egg production, and 74 percent of hog production. Although marketing contracts are mostly used for crop production, a small percentage of poultry and eggs was produced using marketing contracts. Likewise, a small percentage of vegetable production occurred under production contracts even though most production contracts cover livestock. This chart was drawn from the Farm Structure and Contracting topic page, updated March 2022.

Small family farms produce majority of poultry and eggs, and hay

Tuesday, January 18, 2022

In 2020, most of the values of cotton (62 percent), dairy (73 percent), and specialty crops (57 percent) were produced on large-scale family farms. USDA defines a family farm as one in which the principal operator and related family own the majority of the assets used in the operation. Large-scale family farms are those with an annual gross cash farm income of $1 million or more. However, small family farms produced the bulk of hay production (59 percent) and poultry and egg output (49 percent) in 2020. Poultry operations are often classified as “small” because most output is under a production contract arrangement, with a contractor paying a fee to a farmer who raises poultry to maturity. Additionally, more than one-quarter of beef production occurred on small family farms that generally have cow/calf operations. Another 42 percent of beef production occurred on large-scale family farms, which are more likely to operate feedlots. Midsize family farms production ranges from 8 to almost 30 percent of value of production. Nonfamily farms produce the smallest share of the value of production for most commodities. Of all the commodities, nonfamily farms contribute the most to specialty crop production at 27 percent. This chart is found in the Economic Research Service report, America’s Diverse Family Farms: 2021 Edition, released December 2021.

Larger U.S. dairy farms tend to be more profitable than smaller dairy farms

Tuesday, June 1, 2021

According to the most recently available data, in 2016, 62 percent of U.S. dairy farms with at least 2,000 cows generated gross returns that exceeded total costs, compared with 43 to 44 percent of farms in the two next-largest classes (500-999 cows and 1,000-1,999 cows). In the smallest classes (10-49 cows and 50-99 cows), less than 10 percent of farms generated positive net returns. Total costs include cash expenses such as those for feed, fuel, and hired labor, but they also include estimates of the costs of the farm’s capital and of the family labor provided to operate the dairy farm. A farm that does not cover total costs can continue to operate, and to provide a living for the family operating the farm, if it covers cash expenses and the costs of the family’s labor (total cost except capital recovery). For example, while about 20 percent of farms with 100-199 cows earned positive net returns in 2016, 46 percent earned enough to cover all cash expenses and to provide a living for the farm family. However, these farms did not earn enough to cover annual costs of capital recovery (the replacement value of the capital, such as equipment and structures, used on the farm). Continued operation makes financial sense for those farms until the cash expenses of maintaining an aging plant rise enough to cut into the family’s income from dairy farming. This chart appears in the Economic Research Service report Consolidation in U.S. Dairy Farming, released July 2020. It also appears in the August 2020 Amber Waves feature, Scale Economies Provide Advantages to Large Dairy Farms.

Share of off-farm income varies by commodity specialization

Monday, April 26, 2021

Farm households obtain income from farming and off-farm income, such as salaries, pensions, and investment interest. Among farm businesses, off-farm wage and salary income varied by commodity specialization. For general crops, beef cattle, and poultry operations, average off-farm wage and salary income contributed more than half of total household income. Dairy operations, by comparison, averaged $37,339 in off-farm wage and salary income, the lowest of any commodity. Dairy operations require extensive and ongoing time commitments, so managing a dairy farm rarely permits an operator to work many hours off-farm. As a result, dairy farm households relied primarily on income from the operation, an average of $148,831 in 2019. This chart is based on data from the ERS data product ARMS Farm Financial and Crop Production Practices, updated December 2020.

Nonoperator landlords residing within 50 miles of their land owned 67 percent of rented acreage in 2014

Monday, March 29, 2021

Errata: On April 1, 2021, the title was revised to include nonoperator landlords. The text citing total rented farmland acreage owned by those residing within 200 miles of their farmland was corrected to 83 percent. No other data were affected.

In 2014, 39 percent of farmland acreage in the 48 contiguous States was rented. Of this share, 80 percent was owned by landlords who did not operate the farms. ERS researchers examined the data obtained from the 2014 Tenure, Ownership, and Transition of Agricultural Land (TOTAL) survey to study the characteristics of nonoperator landlords and their tenants in the 25 most important agricultural States by cash receipts. The study found that nonoperator landlords residing within 50 miles of their land owned the majority (67 percent) of rented farmland acreage in 2014. Eighty-three percent of total rented farmland acreage is owned by those who lived 200 miles or less from their farmland. Total rented acres progressively declined as the distance between landlords and tenants increased. Those living more than 1,000 miles away, for example, owned only 4 percent of total rented farmland acreage. While some nonoperator landlords lived in major U.S. coastal cities, most lived in major cities in agricultural States. Nonoperator landlords were also more likely to be retired farm operators or descendants who inherited agricultural land, rather than investors from more distant parts of the country. Nonoperator landlords who lived farther away from their rented land tended to have larger holdings than those who lived nearby. This chart appears in the Economic Research Service report Absent Landlords in Agriculture – A Statistical Analysis, released March 2021.

Corn, soybean farmers covered part of their production with futures, options, and marketing contracts in 2016

Monday, March 22, 2021

In 2016, corn and soybean producers accounted for about 93 percent of future and options contracts used by U.S. farmers and 60 percent of all production covered by marketing contracts. With a futures contract, a farmer can assure a certain price for a crop that has not yet been harvested. An options contract allows a farmer to protect against decreases in the futures price, while retaining the opportunity to take advantage of increases in the futures price. While futures and options contracts are usually settled without delivery, marketing contracts arrange for delivery of a commodity by a farmer during a specified future time window for an agreed price. Farmers who use these risk management options frequently use more than one contract type. On average, farms that used futures contracts covered 41 percent of their corn production and 47 percent of their soybean production in 2016. Shares were relatively similar for marketing contracts, which covered about 42 percent of corn and 53 percent of soybean production. By comparison, corn and soybean farmers covered a little more than 30 percent of their production with options contracts for both commodities. This chart appears in the Economic Research Service report, Farm Use of Futures, Options, and Marketing Contracts, published October 2020.

Larger corn and soybean farms used more futures, options, and marketing contracts in 2016

Friday, November 13, 2020

U.S. farmers can use a variety of market tools to manage risks. With a futures contract, the farmer can assure a certain price for a crop that has not yet been harvested. An option contract allows the farmer to protect against decreases in the futures price, while retaining the opportunity to take advantage of increases in the futures price. Futures and options usually do not result in actual delivery of the commodity, because most participants reach final financial settlements with each other when the contracts expire. In a marketing contract, by contrast, a farmer agrees to deliver a specified quantity of the commodity to a specified buyer during a specified time window. Corn and soybean farms account for most farm use of each of these contracts, and larger operations are more likely to use them than small. With more production, larger farms have more revenue at risk from price fluctuations, and therefore a greater incentive to learn about and manage price risks. Fewer than 5 percent of small corn and soy producers used futures contracts, compared with 27 percent of large producers. Less than 1 percent of small corn and soy producers used options, compared with 13 percent of large producers. And about 19 percent of small corn and soy producers used marketing contracts, compared with 58 percent of large producers. This chart is based on data found in the Economic Research Service report, Farm Use of Futures, Options, and Marketing Contracts, published October 2020. It also appears in the November 2020 Amber Waves feature, “Corn and Soybean Farmers Combine Futures, Options, and Marketing Contracts to Manage Financial Risks.”

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.”