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Wednesday, February 24, 2010

Farm Family Well Being:  How Is Your Family Budget?


All of those well-published figures about increased net farm income for the US expected this year seem to hide reality. First of all most of the increase in net farm income will come from the livestock sector. That means profitability growth will be small to non-existent for grain farmers. But beyond the billions of dollars in commodity income and billions of dollars in expenses paid is the impact on the individual farm family budget. How are you and your spouse and kids going to do this year, given all of the financial dynamics that are yanking, and pulling, and bashing? Your shoulders sag when you hear that statement, “Honey, we need to talk about our bank account.”

What is the financial health of the typical farm family and its household budget? That is the question that USDA economists are trying to answer in their latest report on the 2010 farm economy. For more than 10 years the median income for farm household has surpassed that of the average US family by a margin of anywhere from 3 to 21%, and farm family wealth has been 4 to 5 times that of the average US family, but economists say farm family budgets are either very solid or very weak and 5 to 8% of farm families have negative household income each year, and there is a larger percentage of farm families in the poverty level than the percentage of non farm households. In brief, farm income is highly variable from year to year.

The recent wealth of farm families is a recent trend. USDA economists say in the 1930’s the per capita income for farm families was about half that of nonfarm households, and in the 1970’s they moved to income equality. The 1980’s brought farm families ahead of their urban cousins. USDA’s yardstick for measuring the well being of farm families is a gauge of expenditure for consumer items. Your pick up, new front end loader, and auto-steer electronics do not count as consumer items, but the economists track over 200 different items, including food, entertainment, apparel, household furnishings and equipment, education, child (or adult) care, personal care and services. When those were totaled, USDA reported, “At the aggregate level, mean farm household consumption ($42,368) is 14 percent higher than mean farm household expenditures ($37,288).” The difference is the cost of housing, since the economists report most farm families live in a home owned by the farm, and they are not expending cash to pay rent to themselves. When compared to all US families, the average family has a 30% higher consumption level because of the cost of housing they pay in either mortgage or rent. Without the housing component, household expenditures are essentially the same.

While farm families are similar to all US families in times of income variance, there is more of a boom and bust expenditure attitude among the US households, compared to farm families. The economists report, “When income is unexpectedly low, farm households will be less inclined to cut back essentials such as food compared to similar households with more stable income, and when income is unexpectedly high, they will be less inclined to expand discretionary purchases.”

USDA’s examination of farm households discovered that large farms, which were defined as $100,000+ in sales, had higher instances of both wealth and poverty than farms as a whole and all US families as a whole. Those farms make up only 16% of all farms, but income poverty is 22% among persons living in those households, compared to 14% for all farm families and 12% for all US families. On the other end of the scale, the economists reported they have higher incomes because of higher exposure to risk and lower tendencies to consume. That makes them equivalent to the upper scales of the general US population.

Farm families have not always enjoyed higher standards of living, and have only surpassed the general US population in the 1980’s. But that has not come without a large dichotomy between the upper and lower ends of the wealth scale of farmers. Compared to the general population, wealthy farmers are more wealthy and poor farmers are more poor, particularly those which are considered large farmers. When it comes to expenditures, farm families spend about the same amount of money as the general population, but spend less in both good and bad times for family income levels.

Posted by Stu Ellis on 02/24 at 01:56 AM | Permalink

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