overview
The farm business environment is more competitive and more international in scope than ever before. Managers must not only be highly skilled and knowledgeable of production techniques, but have to confront many complex financial decisions. Farming is a business with considerable uncertainty and risk.  The major goals of this ERS research program are to provide objective and timely economic analyses of the financial conditions in agriculture, to assess how current and emerging production technologies affect farms and whether these changes pose special risks to farm financial viability, and to determine whether farmers' use of adaptive management strategies contributes to economic success. More overview...

features

Changing Federal Tax Policies Affect Farm Households Differently—Recent Federal tax legislation has reduced income tax rates for both individuals and businesses and cut the number of farm estates that owe Federal estate taxes. Commercial farmers are the primary beneficiaries of the reduced business and estate taxes.

Small Farms Can Grow Into Large Enterprises —Today’s farmers are responding to challenges-competition with global markets, facing the need for new alternative markets where traditional markets have declined, and consumer demands for fresher and safer products. Smaller farms, in particular, may have more difficulty in adapting to the changing marketplace because of, among other things, lack of capital and other resources. Yet, as a recent ERS analysis shows, some smaller farms manage to grow into large commercial operations.

Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report—Most farms are family farms. Even the largest farms tend to be family farms. Small family farms account for most of the farms in the U.S. but produce a modest share of farm output. Average farm household income has been at or above the average for all U.S. households in recent years, with farm households receiving most of their income from off-farm sources.

Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities — Production and marketing contracts govern 36 percent of the value of U.S. agricultural production, up from 12 percent in 1969. Contracts are now the primary method of handling sales of many livestock commodities and of major crops. Use of contracts is closely related to farm size. For producers, contracting can reduce income risks of price and production variability, ensure market access, and provide higher returns for providing differentiated farm products. For processors and other buyers, vertical coordination through contracting is a way to ensure the flow of products and to obtain differentiated products, ensure traceability for health concerns, and guarantee certain methods of production. (11/05)

Assessing Farm Household Well-being—Beyond Farmers and Farm Income—The median farm household has higher income as well as higher wealth than the median nonfarm household. However, the median nonfarm self-employed household has a higher level of income than the median farm household, and a roughly-similar level of wealth. Providing an interesting perspective on the relevance of seeking parity for today's farmers are the findings indicating that the ranking of the well-being of farm households relative to nonfarm households depends not only on which well-being indicator is used but also which reference population is used.(01/04)

Demand for Farm Credit Expands, But Farm Lenders Remain Cautious—The four major categories of institutional lenders serving the farm sector, commercial banks, the Farm Credit System (FCS), the Farm Service Agency (FSA), and life insurance companies, provide credit, and keep a cautious eye on farm debt trends, interest rates, and farm debt repayment capacity. All are showing low levels of delinquencies and loan problems. The stability of their farm loan portfolios is benefiting from large government payments, sizable amounts of off-farm income, and an enhanced crop and revenue insurance program. Total farm business debt at $201.9 billion, increased 5.1 percent in 2002. The expected 3.9 percent increase in 2003 will be the eleventh consecutive annual increase. Despite price and weather problems facing some commodities, the supply of farm credit remains adequate and lenders appear confident about most of their farm customers. (04/03)

recommended readings
Characteristics and Production Costs of U.S. Dairy Operations—The total costs of producing milk vary across the U.S. Milk producers in the West had a significant cost advantage in 2000 over producers in other regions because their operations were much larger. Operations with 500 or more milk cows had significantly lower operating and ownership costs, indicating economies of size. Also, differences in animal performance, feed efficiency, and labor efficiency were critical in determining whether producers were in the low- or high-cost group for producing milk. (02/04)

Characteristics and Production Costs of U.S. Wheat Farms—Total costs of producing wheat in 1998 averaged $3.97 per bushel or $165.53 per acre, but varied widely by region, farm size, and other characteristics. Costs were generally lower in the Prairie Gateway region than in the Southeast, and generally lower on large farms than on small farms. About 85 percent of surveyed farms covered their operating costs at the average farm price of wheat in 1998 ($2.65 per bushel). Fewer were able to cover the full range of costs associated with production (including ownership costs and the opportunity cost of farmers' labor). SB-974-5 (7/02)

Determinants of Financial Performance of Commercial Dairy Farms—Data from the 1993 Farm Costs and Returns Survey revealed regional differences in the way extensive indebtedness, size of operation, and labor cost affect net farm incomes of dairy operations. Size of the operation, regardless of location, was identified as the factor contributing most to the variability in net farm income.

See all recommended readings...

recommended data product

Farm Business and Household Survey Data: Customized Data Summaries from ARMS — Use this new dynamic web-based data delivery tool to learn about agriculture online: farming practices, commodity production costs and returns, the economics of the farm business, the structure of American farming, and the characteristics of the American farm household. Get tailored reporting on agricultural production technology, farm business viability, and the structure of U.S. agriculture from the very latest information gleaned from ARMS-including, for the first time, data for 15 selected States as well as the nation as a whole. This new tool provides one-stop shopping, centralizing access to all ARMS data, including that previously provided in the Farm Financial Management and the Crop Production Practices data products.

recent research developments
What we've accomplished lately, including links to new journal articles, briefing presentations, etc.

questions and answers
Succinct treatment of timely issues related to farm financial management.

our newsletters
Agricultural Income and Finance Situation and Outlook—Provides historical estimates and forecasts of farm sector financial information that will allow you to gauge the financial health of the Nation's farmers and ranchers.

related briefing rooms
Farm income and costs
Farm risk management
Farm structure
Agricultural Resource Management Survey (ARMS)

related links
Links to other USDA and Federal agencies concerned with farm financial management.

for more information, contact: Mitch Morehart or Ashok Mishra
web administration: webadmin@ers.usda.gov
page updated: November 3, 2005

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