Almost half of United States farm households report losses each year. An economist talks about the farms most at-risk, as well as what makes farming profitable.
The United States Department of Agriculture’s (USDA) Economic Research Service (ERS) reports nearly half of two million farm households are losing money on a cash basis. USDA economist Daniel Prager says small farms are more at-risk to suffer financial losses.
“Now farms where the operators are retired, or where it’s a low sales farm, are most likely to have negative income,” Prager said. “Larger farms are most likely to be profitable, but they also incur the largest loss when there is loss.”
However, U.S. farmer and ranchers walk a fine line when it comes to making a profit. The USDA ERS report measured net farm income, which does not capture the full financial contribution farming provides to America’s farm families. Put tax-loss benefits and asset appreciation into the picture, and the share of households with positive annual farm returns rises from 43 to 70 percent.
Prager says when looking at traditional measures of farm income, it is evident whether or not a farm operation should remain in business.
“Net cash income for the farm operation suggest that a household is better off not operating that farm at all,” Prager said. “But once we include some of the economic benefits from owning a farm, it makes economic sense for them to continue farming.”
Prager adds many farmers have a second source of income, whether from a second job or a family member that works off-farm.