How do they do it?

So I was reading an article about how most
big farmers these days are in debt passed
their eyeballs. With $1.80 a bushel corn
and the couple hundred dollars per acre
they spend putting it in how do they do
it? I dont grow corn but I figured out how
much it would cost me to raise a acre of
feild corn and I'd lose $240 dollars an acre with
current prices and that's figuring on a
200 bushel an acre corn. So forgive my
ignorance and inform me please, how do
they afford 4 hundred thousand dollar
tractors?? What am I missing here?
Thanks,
-Garrett

You hope you have enough equity to borrow against and hopefully have some money saved until things get better or your done . Farm prices go down food at the store goes where wrong with that picture

The cost to farm an acre of corn here in Iowa is over double that figure considering land costs if it is rented land or if the farmer is making big land payments.

They make it up in volume.

some get help
help

They just find another sucker bank manager to loan from. Basically just using all of the little guys' money to pay for the big guy. Banks will pretty much loan to anybody if you have enough collateral. They don't care if the money comes from drugs or human trafficking or whatever.

Sean Feeney down below has it right.

Don't sell much of the crop below the cost of production,figureing in Govt subsidies and raise a variety of crops.Economy of scale does help and most avoid paying much income tax.

Farm Welfare, gov't keeps them going.

To make a small fortune in farming... Start with a large one.

Corn is currently about $2.80/bu at our local elevator in western MN, but margins are very tight right now.

Lon

A farm subsidy costs money but a lot better use of govt help than supporting people that don't want to help themselves. The farm subsidy keeps a lot of bellies from rubbing backbones. We need to help farmers through lean times. We sure don't want to have to depend on the Chinese to feed us. I grew up on a dairy and cotton farm in the late forties to the mid 60's. Govt help may not have been available back then

Seems lots of farmers don't own their own land anymore, rent and bank payments are killers.

Imagine not having to pay $150-$350 per acre rent and that cost analysis you did shifts dramatically.

Wow 1.80! It was $3.37 here Thursday when I took a load in.

Your numbers are all screwed up. But, let me say this one more time. POLITICIANS, AT A VERY EARLY POINT IN THEIR POLITICAL CAREER, ARE TAUGHT TO NEVER, EVER, EVER, LET A FOOD SHORTAGE HAPPEN! Soooo, do you see any food shortages? H'mmm?

How is growing corn for ethanol and to feed the slave labor in China helping to keep Americans from starving?

Corn is about 2.80 here, it is going to be break even this year for good operators.

Yeah, I mean it might have gone up, this was a couple weeks ago but it was scary low for awhile.

I'm will to accept that my numbers are not exact but this is from talking to other farmers in the area as far as what it costs them and finding a average. And 1.80 was the current price at the time, I have no clue what it is now. I'm not worried about a food shortage because frankly I dont care we grow enough of our own we'd be fine. I am just curious about how these farmers make it.

Its hard for me to complain about farm welfare.

1) it allows me to have a reasonable priced steady supply of food.

2) my house would be worthless without subsidized flood insurance; and taking subsidized flood insurance while complaining about subsidized crop insurance would be the kettle calling the pot black.

I could well do without any of the subsidized food and I didn't build a house in a flood plane.And if you read my reply it merely stated the facts as they are.Poster wanted to know how they do it,I told him.

How did you come up with that reply? Any farmer that borrows money needs to have financial documents (balance sheet, tax returns, cash flow projections, etc) prepared and up to date before lenders can proceed with loan paperwork. Your reply implies they can walk away from one place and get more money somewhere else without accountability...

Lon

Well, Mr. Edwards certainly has a lot to say. Some of it sounds counterintuitive, and some of it is speculation and wishful thinking. Maybe some it is accurate, I don't know. I think if all farm subsidies were dropped, there would be chaos in the agriculture business. If we decide to make substantial changes it must be carefully planned and debated.

A lot of farmers rent land because they can't afford to purchase it at 3 to 10k per acre. (Depends a lot on where you're at but the purchase price is generally proportional to the gross income potential.) Unless they inherited it or purchased it little by little over many years I'd imagine that most farmers are making payments for their ground, either in rent or loans.

The trouble as when corn shot up from $3 to $7 some years ago, the 2012 drought and other issues.

The better prices lasted just enough years the seed companies, fertilizer suppliers, machinery manufacturers and so on raised their prices the same amount.

Land prices went up, which raised property taxes. I was paying over $60 an acre on a chunk of land in property taxes. Used to be $30....

Anyhow, all of those have not dropped their prices much at all.

We are squeezed by the up and down incomes, but the expenses aren’t dropping back in line.

Paul

400 grand is cheap try about 6 for the big four wheel drives and another 6 for a new combine and you haven’t got one implement or a truck yet

Oh, I don't disagree - my point was simply how much land rental cuts into margins.

Pretty tough to slice the pie thin enough when have to pay 1/3 crop value per acre in rental costs.

Big gov't created the problem in the first place, then needs to get bigger to try and solve it, it's the typical crap cycle with them.

Yeah I've never priced them out.

We've had a lot tougher farming years in the USA than the ones we're in now. It hits each farmer a little differently, though. In 1930 a local neighbor was going broke. My grandfather went right over and paid him cash for his farm. My grandfather was a smart farmer, as was my father. Everything was paid for (after 1914) and still is. I don't buy anything unless I can pay cash for it. Last tractor I bought, in 2016, I could have paid cash for but didn't when dealer (owner of the dealership) told me: "Bill, I know you want to pay cash for this tractor but if you finance it through John Deere , you'll get another $4000 off." I jumped at that one, got the additional $4000 off and paid the loan off within a few days. What I'm talking about when I bring politicians into it is that they're scared for their political lives over what would happen if a major shortage of food ever occurred. They would lose their jobs. Riots in the streets would occur that would make today's situation look like a Kindergarten romp. They let the farmer produce plenty of food and then through a payment to him through the back door. Keeps everyone pacified.

CNB, I noticed from some of your other posts you are looking at getting into farming. I will strongly recommend that you keep the rental cost of the farmland in your financial calculations. Keep separate books for your land holdings and another set of books for your farm operation. The extra detail will give you a much better financial picture of your operations from year to year and help you identify what is profitable and what a loosing effort.

For example: if your 400 acres can be rented out for $250 per acre, pay yourself ( 400 acres X $250 per acre) $100,000 farmland rent. Say in year one you post a total net profit of $150,000, you can identify that $100,000 came from owning the land and $50,000 came from your farming operation. If you and your wife put 2500 hours of labor into the farm that year you and your wife would have earned about $20 per hour for your labor.

Say in year two you post a total net profit of only $80,000 you can identify that $100,000 came from owning the land and your farming operation generated a net loss a loss of $20,000. If the books were combined you might be tempted to say "Whoo Ho" I made $80,000 this year. By keeping separate books you can identify that your land ownership generated another $100,000 that year, the same as if you had rented it out to another farmer, but the farm operations needs some improvement if you want to stay in business.

As you expand, keep separate books for each new venture. Say if you feed livestock, pay your crop operation the market price for any grain, hay and bedding that go into the livestock operation, so you can easily identify where your profits are actually coming from. The profitable operations will be where you want to expand, and you want to either improve or shut down the money loosing operations.

If you really want to get into details, pay yourself and your wife an hourly wage from your farm operations, the same wages as you each could have earned in off-farm jobs. Say $15 per hour. In year one you can identify that: $100,000 of your profits came from owning the land; $30,000 came from your labor and $20,000 came from your farm management skills. In year two: $100,000 of your profits came from owning the land; $30,000 came from your labor and a loss of $50,000 came from your farm management. That information may sometimes hurt to admit, but it really makes it much easier to focus in on what is working for you and what is not working for you.

Best wishes in your new ventures!

Wow - excellent post - thank you.

Much to think about...

ss55 you provided a ton of information is a very good way. I am sure lots of folks, not just the OP, appreciate it.

Knowing how to use futures markets is an essential tool for large farming operations.

Large producers need to know how to forward contract a high portion of their crops at profitable prices on the futures markets. The risks from market variables are greatly reduced. They can often lock in a profit before the crop is planted or lock in a livestock sale price, grain delivery schedules and grain costs all on the same day that the feeder animals are purchased.

Well recent events have shown the production end,producing basic commodities is not a problem actually way too much is being produced.If any part needs help its the processing and distribution segments.

How do hey do it? Old saying around these parts- "If you owe the bank $5,000.00, THE BANK owns YOU! If you owe the bank $5 million, YOU own the BANK!" Seems to work that way here.

Grow wheat, hay and edible beans instead .

Part of that too is many farmers don't want to pay ANYTHING for the land. They want it practically for free. Guy running my ground is at the lowest price he can be at without me developing it with new shiny houses. Nobody gets anywhere near $200 an acre here. Starts at $100 and goes down from there. Many houses going up.

You don't think someone can default and get a loan elsewhere? Sure that never happens.....