Farm expenses keep rising; no simple solutions, experts say
A new report confirms U.S. farm expenses continue to rise, and agricultural business management specialists say that should cause farmers to take a closer look at how they operate.
Farm production expenditures nationwide totaled $367.3 billion in 2013, up 2 percent from $360.1 billion in 2012, according to the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture.
Nearly all types of farm expenditures rose during the year, NASS says. For instance, diesel cost $10.9 billion in 2013, up 4.8 percent from a year earlier.
U.S. farms averaged $175,270 in spending in 2013, up 2.3 percent from $171,309 a year earlier.
Minnesota farmers spent $19 billion on expenses in 2013, up from $18.4 billion a year earlier. The report didn’t break down statewide expenditures for North Dakota, South Dakota and Montana.
If crop prices don’t improve, some expenses, such as land rental rates, will come down eventually, experts say.
“They’ll have to, but it could take a year or two,” says Jack Davis, crops business management field specialist with South Dakota State University Extension.
Many farmers are locked into multiyear land rental agreements that have at least one more year to go. But producers with rented land up for renewal after this growing season should take a hard look at whether to renew the agreement and, if so, at what rate, Davis says.
Farmers don’t want to give up rented farmland, but they need to avoid losing money, he says.
The NASS report found farmers are spending more on rent – and that rent accounts for a bigger share of total spending. In other words, spending on rent has gone up faster than spending overall.
Producers nationwide spent $31.4 billion on rent in 2013. That was 8.5 percent of total farm production expenditures.
In 2012, farmers nationwide spent $29.7 billion on rent, 8.2 percent of total expenditures.
Some expenses, such as county land taxes, are unlikely to drop, Davis says.
By and large, farmers should pay closest attention to land rental rates, machinery expenses and seed and fertilizer costs, he says.
Farmers facing cash-flow problems might consider selling land they own, then rent it, Davis says, though he adds that doing so might not be feasible.
As crop prices lag, producers need to make sure the cost of applying fertilizer and other inputs will be justified by the grain produced by its application, says Sonja Flaagan, Northwood, N.D.-based instructor for the North Dakota Farm Business Management program, which provides objective financial assistance.
Too often, producers plan on spending a certain amount of money on inputs, without analyzing whether that amount makes the most financial sense, she says.
The NASS report didn’t measure household spending by farmers and ranchers.
But as rising production expenses and weakening crop prices cut into farm profits, farm families need to examine their personal spending, she says.
“A lot of farmers have gotten used to record profits in the past few years,” Flaagan says.
“But when your cost of inputs increase, and there’s not always a way of dealing with that, maybe you’ll have to have a year or two when you don’t spend as much on the family living side of things,” she says.