Road Warrior

Farm Family Living Costs Spiral Upward

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Farm family living costs appear to be hotter than the searing sun scorching the landscape across a good share of North America. The annual family living cost summaries provided by the professionals of the Nebraskaland Farm and Ranch Management Education Program provide evidence of these cost increases.

The average farm family living cost for 2011 was $85,733, up from $79,250 a year before. The average family size was 3.3. This year, the largest individual cost was medical expenses, including health insurance premiums, at well over $12,000. This expense has nearly tripled since the year 2000. Medical expenses were followed by minor repairs and supplies, food, the “catch all” category of miscellaneous, and personal items.

The amount paid in Social Security and income tax was a major cash flow drain. For 2011, the amount was over $40,000, illustrating the recent profitability of the farm sector. If one combines both family living cost and tax, the total cost was approximately $126,000. For a farm of 1,000 acres with 150-bu./acre corn in a “normal” year (if there is such a thing), this would represent approximately 80¢/bu. going toward living expense and taxes, which is a considerable cost and a cash flow drain to the business. Many farm management and marketing educators recommend family living cost and income taxes be included in breakeven and profitability analysis and the execution of a marketing plan.

A quick scan of other farm record systems finds that family living costs are approximately 20-25% higher for grain versus livestock producers. The nine-year super cycle occurring in the grain and row crop sector is being built into family living budgets of many producers. An economic correction in the agriculture sector could be interesting to observe, to see the degree these family living costs increase or decrease. Next time we will discuss some of the changes in the various components of the family living cost.

Side Note

Average annual U.S. household income was reported to be approximately $47,000, down 13% since the year 2000. Contrast this to China, where the average annual household income has increased from $1,070 to approximately $6,500, a six-fold increase, over the same period! The rebalancing of lifestyles and the world economy is well in progress since the year 2000. This is also showing up in the farm sector’s family living consumption expenses.

 

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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