Last time I discussed the rapid rise of family living withdrawals, particularly on farm and ranch businesses that have a grain enterprise. Now, let’s do some additional analysis drawing from the good data from Nebraska Farm Business, Inc. and the University of Nebraska, and the Minnesota Farm Business Management educational programs.
One of my favorite discussions to facilitate with agrilenders is the topic of a historical perspective concerning living withdrawals. Let’s go retro back to the 1980s Farm Crisis era. In 1985, the Nebraska data showed living cost at $16,748 annually, while the programs up north in Minnesota found producers withdrawing $14,600. For comparison, Cornell data from 1967 had an average slightly above $4,000 annually.
Frequently in young and beginning farm and ranch seminars this historical perspective is presented to illustrate some of the challenges in farm business transition. That is, the grandparents often have a mindset of living off $4,000 annually, while mom and dad living in the 1980s are thinking withdrawals need to be in the high teens. When their adult children demand withdrawals north of $60,000, this is a spot of contention in discussions and agreements.
Another point of view from the Nebraska data finds income taxes and social security taxes have increased nearly four-fold from $7,280 to $26,078 from 2003 to 2008. With changes coming in tax rates from the new administration, these numbers are not likely to decrease.
One final view from the Minnesota data is that total living expense has jumped from $55,119 in 2003 to $89,147 in 2008, similar to the increase reported in the last article from Nebraska data. Living withdrawals are now $5,000-8,000/month, not including any co-mingled personal expenses and other perks of living on the farm or ranch. The question then becomes, “What salary level would one need to earn at an off-farm job to have a similar living standard?” The answer is probably higher than one would think.
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.