Kevin Hursh
How big do you have to be in order to have a viable grain farm – one that can support your family without outside income? Can this be done on 1,000 acres? Can it be done on 3,000 acres?
These are questions I’m sometimes asked. Young farmers working to build a viable operation want an answer and so do outsiders trying to understand grain farm economics.
I’m not an accountant pouring over the financial statements for scores of farms, but here are my thoughts on the issue.
First of all, 1,000 acres in the Red River Valley growing big crops of corn and soybeans is quite different from 1,000 acres of dryland in the Palliser Triangle or 1,000 acres of irrigated land in southern Alberta. The crops are different, the yields are different, the economics are different.
Rather than measuring farm size by acreage, it’s more instructive to judge size by gross return. If a farm’s gross return is under $250,000 a year, it’s unlikely the farm is able to provide a decent income for a family once all expenses are paid.
Well-run operations with a gross annual income of over $500,000 have a better chance of providing a living, but how many people are involved also matters. Farm ownership structures can be complicated and too many hands in the cookie jar can reduce returns for everyone involved.
Even with using a gross income measurement for size, expenses vary so much from farm to farm that it’s impossible to make a general statement about farm size viability until you know more specifics.
Farms in the same soil zone growing similar crops will likely have similar operating expenses per acre. Some will use more fertilizer than others, but costs for seed, crop protection products and diesel fuel are likely to be in the same ballpark on a per acre basis even for farms that vary significantly in size.
The big difference in expenses comes on the fixed expense side. A farm with all its land paid for that is renting very little ground is going to be in a far different category than a farm with sizable land payments and lots of cash rented ground.
If cash rent is $75, $100 or $125 per acre, that’s an expense you don’t have if the land is owned free and clear. On newly purchased land, your payments per acre often end up even higher than typical rental costs.
The machinery complement also makes a big difference. If a farm’s equipment investment per acre is out of whack as compared to other operations, that’s an additional cost. It also matters whether there are loan payments on the machinery.
If you take a farm’s gross return from grain sales and deduct all the variable costs – seed, fertilizer and crop protection – what you’re left with is a contribution margin: the amount you have left to pay fixed costs including a return to labour and management.
Yields are different each year and grain prices are often volatile. Therefore, the gross return can vary dramatically. However, a farm with high fixed costs is going to have a greater struggle for profitability.
There are efficient farms and inefficient farms in all the size categories. If you’re losing money on every acre, having more acres is unlikely to solve the problem. On the other hand, a small profit per acre adds up when you have more acres.
Over the last 15 years, most farms have made more money from land value appreciation than they have from farming. It has become easier to cash flow rented land than newly purchased land. However, land price increases have had a dramatic benefit on a farm’s net worth.
Yes, a farm can be too small to make a living without outside income. Certainly, the trend is towards larger and larger operations, but there’s no simple answer to how many acres a farm needs in order to be viable.
