High farm prices are in the news — are farmers getting rich?

March 2011

Dear Farm Aid,

We've been reading a lot about high farm prices lately. Seems like farmers are doing really well right now—we've even heard they're getting rich. What's the scoop?

Thanks,
Amin and Sarah
Portland, ME

A very interesting and important question!

It’s true that many farmers (particularly those growing corn, wheat, cotton and soybeans) are seeing high prices for their goods. Last month, corn prices hit $5.66 per bushel, up 59% from a year ago, and some analysts are predicting that corn farmers will receive record-breaking prices for their crop this year. Wheat prices reached $7.40 per bushel in January, up 51% from a year before.[1]

With such jumps in prices, it’s no wonder that people assume farmers are rollin’ in the dough. But, is it true? Are farmers getting so rich that we should close up shop here at Farm Aid?

If only…
Definitely not.

Unfortunately, with these higher prices have come higher production costs. Family farmers have seen enormous increases in their expenses—particularly for fertilizers, fuel, pesticides and seed—caused by recent spikes in oil prices that impact petroleum-based inputs and as a result of unfair corporate power that allows input manufacturers to jack up prices over time. The U.S. Department of Agriculture (USDA) recently forecast that farm expenses in 2011 will surpass $300 billion for the first time in history.[2] Yikes! Because of this rise in input costs, many family farmers will barely break even in 2011.

In some sectors, higher prices will do little to stop farm budget sheets from bleeding red ink. In 2009 and 2010, dairy farmers in particular struggled from incredibly low prices that were far below their cost of production, forcing many out of business and off their land. The recent crisis in dairy further exacerbates an already troubling trend—the number of dairy farms has steadily dwindled for decades, dropping by nearly 80% between 1982 and 2007. Today’s prices that farmers receive for milk, while higher, still may not match the cost of production for dairy farmers, who now face greater feed and fuel costs. Even for those who finally break even, unless they start to make more than it costs them to farm, they won’t recover from the debt they accumulated over the past few years.

So, while some family farmers will no doubt do better in 2011, many more will barely clear a profit. Few will find their business profitable this year and even fewer will be able to recoup the losses they endured from recent slumps in the market.

Keeping it in perspective…
We should view the current surge in commodity prices with some perspective. It’s a matter of economic ebb and flow: prices may be high today, and could even hold for a year or more, but there is never a guarantee that prices will stay high. For every year prices are high, there are generally many more when prices are low.

Even more troubling (and rarely highlighted) is how farm expenses have consistently risen faster than the prices farmer receive for their goods since the 1980s (check out Figure 1 below). Until this trend reverses, family farmers as a whole will struggle to keep their farms profitable from year to year.

Chart - figure 1

Remember, too, that not all farmers grow corn, soybeans or wheat.

For most livestock producers who raise cows, hogs and poultry, high crop prices mean high feed costs. While livestock producers may receive higher prices for their goods this year their gains will likely be overshadowed by the spike in feed costs.

Specialty crop producers who grow our fruits, vegetables and nuts also face unique challenges. They see little benefit when corn or wheat prices rise, but experience many of the same increases in production costs as other farmers. Additionally, they are not eligible for many crop insurance programs and federal subsidies available to commodity growers that can help balance out the good and bad years.

In general, this leaves a large segment of family farmers with on-going economic challenges that are not addressed when major crop prices go up. Timothy Wise, a researcher at Tufts University, recently reported that only the very largest farms in America benefit during periods of high prices.[3] Meanwhile, the majority of farmers continue to struggle with tight profit margins in today’s economy.

A credit crunch to make matters worse
On top of these struggles, many farmers are still reeling from the economic woes of the past few years. The country’s banking crisis and resulting “Great Recession” introduced extremely tight credit markets in America. Many farmers were turned down from their banks for loans they needed to keep their farms running in a tough economy. This was exacerbated by additional stresses that farmers (like many Americanfamilies) endured—rising healthcare costs or the loss of healthcare coverage, rising credit card debt, unemployment impacting members of the household, to name a few.

On the heels of the country’s financial crisis, our 1-800-FARM-AID hotline was ringing off the hook with calls from farmers in distress—calls to our hotline jumped more than 20% in 2009, staying high throughout 2010. Around 40% of those calls were from farmers of all kinds specifically seeking financial help.

In response, this past year Farm Aid teamed up with Food & Water Watch, the National Family Farm Coalition and the Rural Advancement Foundation International-USA to survey farm advocates and farm credit counselors nationwide in an effort to better understand the farm credit crisis. The results were staggering— 85 percent of respondents reported that farmers had more difficulty accessing farm loans since the beginning of 2009, while 70 percent reported that more farmers were being rejected for commercial farm loans. A great majority (86 percent) reported that there was more demand for Farm Service Agency loans, a last resort for farmers looking to secure credit for their farms. Check out our new report, Don’t Bank On It, to learn more about how credit markets have impacted family farm agriculture since 2009.

In it for the Long Haul
Family farmers know that the market is fickle. They know that systemic problems persist, even when they’re occasionally blessed with high demand and high farm prices. That’s why so many family farmers continue to push for farm policies that actually work for, rather than against, their interests and the interests of eaters across the nation—policies that ensure a stable family farm system of agriculture, not one where corporations control production, the market and everything in between.

Farm Aid remains focused on building a vibrant family farm-centered food system that enables all farmers to produce good food for everyone. Family farms won’t be saved because a select group of farmers are doing well in a given year. While a positive development for some, high crop prices do not mean all farmers are doing better. And they certainly don’t mean we’re about to walk away from our mission here at Farm Aid.

Further Reading

Sources

1. Glauber, Joseph W. (2011). “Prospects for the U.S. Farm Economy in 2011.” Presentation at the 2011 USDA Agricultural Outlook Forum. February 24, 2011.

2. USDA ERS. 2011. Farm Income and Costs: 2011 Farm Income Sector Forecast. February 24, 2011. http://www.ers.usda.gov/Briefing/FarmIncome/nationalestimates.htm

3. Wise, Timothy A. (2011). “Still Waiting for the Farm Boom: Family Farmers Worse Off Despite High Prices.” GDAE Policy Brief 11-01. Medford, MA: Global Development and Environment Institute, Tufts University. March 2011. Farm Aid provided research assistance for this report.


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