Redstate

By Flyover Country Posted in Policy — Comments (9) / Email this page » / Leave a comment »

I'm going to jump right out of the gate with a fairly controversial statement: large-scale farmers are one of the most misunderstood, maligned segments of the American business population. Don't believe me? Consider the WaPo's take on the matter:

[The Farm Bill] perpetuates the multibillion-dollar system of direct payments to corn, wheat, rice, cotton and soybean growers, with only minimal limitations on how much of this corporate welfare rich farmers can receive."

Rich farmers, eh? One sentence later...

To be sure, food stamps and other nutrition programs account for about two-thirds of the bill's cost. These would grow by roughly $10 billion, a needed increase, given rising food prices."

Let's see, doing the math, 2/3 of $300 billion, carry the two, that's roughly $200 billion for welfare! Let's do the (very approximate) basic math on an average 10,000 acre farm for 2008, at current levels...

Inputs (fuel, fertilizer, chemicals, seed) = $1,000,000

Services (Labor, Supplies, Prof. services, Marketing) = $740,000

Rent = $ 1,500,000

Insurance = $ 150,000

Cost of Goods Sold = $ 300,000

Total = $ 3,690,000

Bear with me, that's just the operating expenses for the farm. (And I went pretty shy on the inputs and rent...)

Income will be derived from three sources: grain sales, custom work, and the dreaded direct government payments (due to the high crop prices, these are the only price supports received).

Grain sales = $ 4,500,000

Custom work = $ 20,000

Direct payments = $125,000

Total = $ 4,645,000

Net income of $ 955,000

Wow, that's a lot of hooch, right? I mean, who would be ungrateful with nearly a million dollars of net income? Except, prices aren't always great, so it is in these years that Joe Producer needs to use his "windfall" profits to invest in infrastructure upgrades, rebuild working capital, and don't forget taxes on that income. Now, a good rule of thumb for any farm to operate by is to keep about $100/acre of working capital on hand to cover disasters, unexpected expenses or capitalize on market opportunities for growth. After all, farmers are still businessmen, and in a changing industry, they need to be prepared for anything, and they certainly need to be growing to keep pace. Well, if Joe Producer invests nothing into his infrastructure, doesn't take the family on vacation, and keeps his working capital to $80/acre, he has made $155,000 this year. A great income, yes, but not "rich". Oh, and that generous subsidy from Uncle Sam? It's about 3% of Joe Producer's income.

People look at large-scale farmers and see extraordinary incomes, but they don't understand that the farmer is at the mercy of commodity prices, energy prices, uncertain fertilizer and chemical supply, etc. Even the very seed stock he uses is subject to the whims of Al Gore's concubine, Mother Gaia. And this year, that eeeeeeevil rich farmer, Joe Producer will probably break even, even at $6 corn and $12 soybeans (which he is not seeing the benefits of, since no one is buying grain right now because they cannot swing the margin cost, and he probably pre-sold his grain at $4-$4.50 corn and $9-$10 beans anyway). And to top it all off, most input suppliers are requiring pre-payment on next year's crop. Farming, at any size, is a labor and is the most uncertain, stress-inducing occupation this side of serving in the military, or as an EMT, nurse, cop, or firefighter. The common link in those occupations is trauma, and the same for our brave military.

There is a fundamental sea change ongoing in agriculture, and a lot of producers of all sizes are going to lose their shirts. $20 billion per year from the government (after food program pork is removed) is not going to stop the bleeding. It is a drop in the bucket.

Big farmers are not enriching themselves at the public trough. They are producing 76% of the crops and revenue in this country. I will not dispute our misguided energy policy, but most big farmers are not part of that either. Many big farmers saw ethanol as the boondoggle it has turned out to be, and stayed away. They have enough to worry about as it is.

The only question for the American farmer is thus: are you going to get bigger, get smaller or get out? The middle ground is gone.