Packing it in, American-style
Packing it in, American-style
More than 70,000 US farmers have left agriculture since
1993 and many more are expected to quit in the years to
come. Alan Guebert gives a sobering account of the
decline into unprofitability of one local farmer and
explains why the poor state of many farmers balance
sheets is making such action unavoidable
AT 10am on Sat, Feb 23, my long-time friend (who Ill call Paul) will witness the end of his 26-year Illinois farming career as the sharp rap of an auctioneers gavel begins another American farm sale.
It will be a bittersweet day for Paul. Bitter because the sale marks the end of his familys five generations as farmers; sweet because, as he says, he is "getting off the merry-go-round". The reference is to the high-cost low-profit – and, in the case of the last three years, no profit – cycle that has become American grain production.
Unlike many of the 72,000 US farmers who have left agriculture since 1993, Pauls departure is planned; he chose to quit farming while he was ahead. If the Feb 23 machinery auction goes well, Paul, his wife and daughter will raise enough cash to pay off creditors and retain a modest sum to launch Pauls new career as a travelling salesman.
It is a courageous and slightly scary decision for the 46-year-old with little education and business experience other than growing maize and soyabeans on the Illinois prairie. But Paul saw the day coming years ago. So did I.
In the past – but only when he asked – I offered Paul advice on how to market his grain more effectively; how to increase cash flow through better use of government farm programmes; how to switch cropping systems to meet his landlords profit expectations and how to tap investors to put cash into his farm business.
In the end, the efforts only delayed the inevitable because the core reasons for Pauls farming demise are not grain marketing, better use of farm programmes or seed choice. The reasons are size and Freedom to Farm. At about 200ha (500 acres), his farm is too small to generate enough profits to pay landlords their rent, cover the farms annual production expenses, permit machinery replacement and provide enough income for his family.
And that is true despite Pauls receiving about $305,000 (£220,000) in federal subsidies between 1996 and 2000 under Americas guiding farm policy, Freedom to Farm. The mathematics of todays grain production show why.
According to University of Illinois data, maize production in the state averaged 10.1t/ha (4.1t/acre) in 1996 and 10t/ha (4.05t/acre) in 2001. Variable cost of production per acre (seed, fertiliser, machinery) rose from $165 (£118) in 1996 to $179 (£128) in 2001.
But the tight vice that squeezed Paul out of farming was maizes selling price over the period: $3.33/bu (£93/t) in 1996 and only $1.95/bu (£54/t) in 2001.
The collapsing price dropped Pauls maize revenue from $371/acre (£265/acre) in 1996 to $131/acre (£93/acre) in 2001.
Missing from those figures, however, is land cost. Since Paul rents his land on 50-50 crop share leases, he splits the crop right down the middle with his landlords. In 1996, the landlords (Paul has several) received one-half of the $371/acre (£265/acre) – in the form of maize – or $185/acre (£132/acre) profit. In 2001, Paul and his landlords split $131/acre (£93/acre), or each received about $65/acre (£46/acre) in profit.
The numbers and the outcome were similar for his other major crop, soyabeans. Both production and variable costs for each acre of soyabeans were stable from 1996 through to 2001. The average selling price, however, was not, falling from $7.16/bu (£186/t) in 1996 to $5.45/bu (£142/t) in 2001. That meant revenue per acre fell from $244/acre (£174/acre) to $169/acre (£120/acre). Again, split half-and-half, Paul and his landlords saw their $122/acre (£87/acre) returns in1996 sag to $79/acre (£56/acre) in 2001.
But thats not all. From their share of the profit, the landlords paid property taxes – about $20/acre (£14/acre) – leaving them with $45/acre (£32/acre) return for maize on land valued at $3000/acre (£2140/acre). Thats a sickly 1.5% returnon investment.
Displeased with the returns and unwilling to sell the land, they began to search for new tenants – legally cutting Paul out – in the hope of increasing production and returns.
Paul was little better off: $45/acre (£32/acre) return on 100ha (250 acres) of maize yielded him just $11,250 (£8030) of income in 2001. His total soyabean income last year was $19,750 (£14,100). Combined, Paul earned only $31,000 (£22,140) in family income in 2001. And thats before he paid his taxes, about 25% of income.
And what of those big subsidies which, for Paul and his landlords, averaged about $60,000/year (£42,860/year)? Like many struggling farmers, Paul used the money to finance the following years crop rather than borrow from the bank.
As such, Paul spent much of it on crop inputs and used the remainder for living expenses to fatten his shrinking income. The landlords just pocketed the payments.
In essence, Pauls family never benefited from the subsidies. Indeed, they never benefited from Freedom to Farm other than to continue to farm and supply his landlords a modest living while waiting for grain prices to rise – a yet-to-be-delivered promise of Freedom to Farm.
Ironically, Paul was, and to this day remains, a big proponent of Freedom to Farm. He supported most of the farm groups and many of the politicians who supported, and still support, Freedom to Farm. It brought only diminishing income and bought him and his family afew years.
But given his modest-sized farm and four years of low prices, Paul could not wait forever. On Feb 23, the wait ends. And so does his familys 125-years of farming the productive Illinois prairie.