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Farmland Price Compounds Challenges of Young Operators

KC Fed examines what it takes to get started in farming right now

Published on: Jun 14, 2013

Just starting out is hard, harder when the chosen career is farming: it's capital-intensive , labor intensive and uncertain at times. Nathan Kauffman, Kansas City Federal Reserve Economist, says in addition to lower levels of equity and higher debt ratios, farmland prices are now compounding the challenges of farming.

According to the latest report on young and beginning farmers from the Kansas City Federal Reserve, recent trends point to a decline in the share of young farmers who are full owners of the land they operate, mostly due to operations that have gotten larger and advancements in farming, requiring fewer owner-operators.

And, new technologies also mean rising production costs, serving as a barrier to farm ownership and triggering ripple effects in agricultural finance, Kauffman says.

KC Fed examines what it takes to get started in farming right now
KC Fed examines what it takes to get started in farming right now

"According to the USDA, about 40 hours of labor were required to produce 100 bushels of corn in the 1880s. Less than two hours of labor are needed today," Kauffman explains. "As a result, the average size of farms has grown from 133 acres in 1880 to 420 acres in 2012, and the number of farms has fallen from 4 million to 2.1 million during the same time."

An age shift has accompanied the size trend, also, with older farmers sticking around when times are good. Likewise, more younger farmers enter the profession.

So what does all of this create? Kauffman says often it can translate into ag financiers requiring more collateral for farmland purchases due to younger farmers' greater risk. Therefore, young and beginning famers are opting to rent land instead of an outright purchase.

"Escalating land values raise the fixed costs of agriculture and accentuate the difficulties young and beginning farmers face in building an owner-operator business," Kauffman writes.

And, with less experience typically comes less equity and lower debt-to-asset ratios. Overall, Kauffman says commercial banks are reporting that they are making fewer loans to young and beginning famers, though bankers are also seeing higher loan repayment rates among younger farmers. Though, he notes, this could be a function of more selective lending.

Despite the moving parts, current federal and state policies still support the owner-operator model of U.S. farm enterprises, Kauffman says. However, the future of farming could transition more toward a renter-operator model – especially if market forces continue to drive up the fixed costs of production.

Click here to read the full KC Fed Report, complete with graphs.

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  1. Anonymous says:

    I would like to encourage farmers of any age to consider filling the growing demand for non-gmo organic food. There are people like me who are looking to partner with farmers who have or can find land suitable for permaculture or organic cultivation. We will pay a premium for food grown using these old-fashioned (or alternative - depending on how far back you look!) methods. There is a growing demand for grass finished meat and poultry and free-range organic eggs (which means your chickens are not fed antibiotics or gmo grains either). Why keep letting the feedlots and other middle men get most of the profits when you could sell directly to the buyers willing to pay more than retail? (Don't believe me - search for grass-fed beef and check the prices.) Many of us who specialize in online marketing work for ourselves and can locate anywhere we can get decent Internet access. We want to move onto land in rural or even remote areas and contribute most of what we earn to the farm or a community that has values that were once common, but now mostly gone. Think about why many farm the way they do. Agribusiness supports education which encourages petrochemical supported monocultures. But just because that is how most farm does NOT mean everyone has to keep doing it that way. There are some great resources around. Look in my YouTube channel or contact me. Just search for growmap on any social network or go to growmap.com

  2. Anonymous says:

    This is nothing new. Nearly 30 years ago land was 1/7 what it is now. However interest on that loan was 3 to 4 times higher and grain was 30 percent of the value it is now. Simply put, there is never an easy time for young, low capital farmers to begin. Or an easy time for lenders to finance them. Where there is a true will though there is always a way. Not all bad though, because it weeds out the ones with true desire from the "hey theres a lot of money to be made right now" crowd.