Focus on Ag

Does farm size matter in bottom line profits?

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Ask many farmers or ag professionals, and probably anyone with any knowledge of crop farming, whether larger farm operations have a lower cost of production, and they would probably say YES.

However, the farm management data from Minnesota and other states does not support the assumption that average costs of production per acre get lower as crop farm sizes gets larger. Interestingly, in some cases it is just the opposite, and in most situations there is very little correlation to farm size.

The University of Illinois conducted a research-based study that compared costs of production for crop farm operations of various sizes during 2011. The study was based on 641grain farms, with similar characteristics, in central and northern Illinois that are enrolled in the Illinois Farm Business Farm Management (FBFM) program, and data was based on actual farm management records. The data from the farm operations was screened and analyzed by University of Illinois Farm Management Specialists.

The University of Illinois study found that total non-land farm operation costs on Illinois grain farms did not vary much, regardless of the operation size. The average non-land costs were $484 per acre for farms of less than 500 acres, $481 per acre for farms between 501 and 750 acres, $487 per acre for farms of 751-1,000 acres, $485 per acre for farms between 1,001 and 1,500 acres, $480 per acre for farms of 1,501-2,000 acres, $486 per acre for farms between 2,001 and 3,000 acres, $477 per acre for farms of 3,001-4,000 acres, and $525 per acre for farms over 4,000 acres.

Much of the higher non-land costs of $525 per acre for the crop farms over 4,000 acres can be explained by the higher percentage of crop acres planted to corn. The farms over 4,000 acres had an average of 76% of their crop acres planted to corn, while farm operations between 500 and 2,000 acres only had 59-63% of their crop acres planted to corn. Non-land costs associated with corn production tend to be significantly higher than similar costs for soybean production.

Land costs include the financial cost of owning land (interest and property tax) and cash rent paid, or cash-rent equivalent on share-rent acres. Just as with the total non-land costs, land costs per acre tended to increase as the farm size groups increased. Average land costs are $119 per acre for farms with less than 500 acres, $157 per acre for farms of 501-750 acres, $186 per acre for farms between 751 and 1,000 acres, $195 per acre for farms of 1,001-1,500 acres, $199 per acre for farms between 1,501 and 2,000 acres, $200 per acre for farms of 2,001-3,000 acres, $191 per acre for farms between 3,001 and 4,000 acres and $234 per acre for farms over 4,000 acres. 

The farms of under 1,000 acres had land costs of under $200 per acre, which is explained by the fact that more operated farm land is owned, much of it likely at fairy low debt levels per acre. Farms of this size tended to own 20-30% of their crop acres, while the farm group sizes above 1,000 acres only owned 12-16% of their crop acres. Average land cost per acre tends to increase as the percentage of cash rental acres increases. Average cash rental rates were $206-224 per acre for farms from 501 to 1,000 acres, compared to $236-276 per acre for the farm group sizes over 1,500 acres.

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