Minding Ag's Business

Affluenza Strikes Again

By  Marcia Zarley Taylor
Real SW Minnesota crop farmers averaging 883 acres earned net incomes of about $375,000 last year, up from around $20,000 barely a decade ago.
Real SW Minnesota crop farmers averaging 883 acres earned net incomes of about $375,000 last year, up from around $20,000 barely a decade ago.

Affluenza struck most grain farms again in 2012, catapulting the average 883-acre Southwest Minnesota farmer to about $375,000 income levels for the first time in history, up 38% above 2011's record, according to a new report from the SW Minnesota Farm Business Management Association. Minnesotans largely sidestepped the drought last season, besting their 10-year yield history. They were able to capture an average of $6.27/bu. on their entire corn crop and $13.07 on soybeans, so crop insurance played little role in padding these returns. But these are only averages. The top 20% earned net farm incomes of about $895,000 last year, on par with Wall Street bonuses and professional athletes.

I know some of you think I'm Typhoid Marcia, spreading gloom amid all this economic cheer. But the thing that worries me most in the Minnesota report is how fast breakevens have marched lockstep with higher incomes. It cost the Minnesotans $11.75 to grow a bu. of soybeans, up from $4.55 seven years earlier. Corn breakevens jumped to $4.72, up from $1.41 in that same period. That makes growers pretty vulnerable to any shock in farm prices should a bumper crop materialize this season. We're not the lean, mean competitive machines we were prior to the ethanol boom. We're more like Europe, saddled with higher land costs.

Rapidly escalating land values and rents are the main culprit to overall input inflation, said Dale Nordquist, of the University of Minnesota's Center for Farm Financial Management. SW Minnesota cash rents averaged $225/acre, a 27% jump from 2011 and are already mounting again in 2013. Land now accounts for about a third of corn's breakeven costs, he added, although fertilizer is close behind. Total cost to grow corn averaged about $720/acre last year.

At an Illinois Soybean Association advisory meeting this week, speakers said Illinois 2012 returns won't be quite as favorable as Minnesota's, but they do seem to have reached fairy tale proportions. Dwight Raab, who directs the Illinois Farm Business Farm Management Association, worries that "we might have gotten complacent because of what we've seen in the last five years." Another Illinois lender said he's witnessed "some really nice balance sheets on 27- and 28-year-olds, but they haven't been around long enough to have seen the adversity or understand the risks involved in agriculture."

So while I'm thrilled to see farmers receive rewards for their hard labor, my advice is don't spend all of your dividends. This isn't normal, it seems more like a high fever to me.

Follow me on Twitter@MarciaZTaylor

(SK)

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Real SW Minnesota crop farmers averaging 883 acres earned net incomes of about $375,000 last year, up from around $20,000 barely a decade ago.

Comments

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Bonnie Dukowitz
4/20/2013 | 6:14 AM CDT
Which is my point, Aaron. The subject matter of this article was financials in SW Mn. It would be of benefit to have a info. from other areas of the Country for comparisions. If I wished to listen to gospel music, I would go to church. Rock n roll, to a concert and whiners club, to a bar with a loud juke box. All the opinions in this blog do have some merit, just not on this post, at the request of the post providers. Keep abusing it and we will all lose it.
KEITH PEARSON
4/19/2013 | 4:49 PM CDT
Hey guy`s I`m getting a little sick of all the wineing about the crop ins that these morons dont know nothing about.They are worse than a two year old ever thought of being. So I suggest they support the dairy farmer & eat alot of cheese with that wine of theirs dont you think.
Aaron Cross
4/19/2013 | 12:45 PM CDT
You are correct Bonnie, but someone has to stand up for the truth. When someone is spreading mis-information, constantly in this case, someone has to stand up and be accurate.
Bonnie Dukowitz
4/18/2013 | 4:34 PM CDT
I guess my brain is lit not with the brightest bulb. I thought this article was primarily income and expense. Good Grief!
Aaron Cross
4/18/2013 | 3:12 PM CDT
Bill, then the government made money off of you, because they get a return of profit from the AIP's
Bill Billson
4/18/2013 | 2:55 PM CDT
Marcia you need to research the crop insurance program more closely. I didnt collect any indemnity payments in 2013 but the taxpayers paid approximately 40 dollars for every acre I insured. The crop insurance subsidies were way more excessive than the 18.75 per acre of DCP I receive.
Aaron Cross
4/18/2013 | 2:47 PM CDT
Actually Lon, the government had an underwriting gain in Minnesota, so the government actually made money there! Get your truth bending straight!
Lon Truly
4/18/2013 | 1:35 PM CDT
Marcia your statement regarding subsidization of federal crop insurance is false. Your statement says that the taxpayer did not subsidize Minnesota farmer's crop insurance premiums as farmers there did not receive any indemnities to speak of. In most cases the taxpayer subsidized the majority of the costs of Minnesota's farmers crop insurance premiums as direct payments to the insurance companies peddling these policies. Try telling the truth, you will earn more respect. As far as 'skin in the game" goes, taxpayers are being skinned alive with not only the costs of subsidizing these ridiculous farmer financial security blankets but all the other taxpayer costs for running these schemes. See http://static.ewg.org/pdf/2012cropinsurance.pdf
Aaron Cross
4/18/2013 | 12:26 PM CDT
Right on Marcia!!!
Marcia Taylor
4/18/2013 | 11:37 AM CDT
Lon,I try not to stay in the background on these discussions, but keep in mind Minnesota's returns were free of crop insurance indemnities, so farmers there subsidized federal crop insurance last year with their premiums, not vice versa. For the record, let's remember that the biggest thing driving up land values has been the global shortage of feed grains and tight stocks, not crop insurance. Also for the record, I think crop revenue insurance is a far better policy than direct payments and free disaster aid because farmers do have "skin in the game." Taxpayers may ask that farmers pay a higher percent of their premiums, but I've already said that. Now on to the next story!
Aaron Cross
4/18/2013 | 10:33 AM CDT
Written by someone who knows way more than Lon or Bill, and is a professor that is no where near as biased as Lon or Bill
Aaron Cross
4/18/2013 | 10:30 AM CDT
Also on the issue of crop insurance, an update this week at Kansas State University (KSU) Extension Online by Prof. Art Barnaby indicated that, "The President's just released budget proposal includes additional cuts to the crop insurance industry. These cuts are in addition to the cuts made under the 2011 Standard Reinsurance Agreement (SRA). The President's budget proposes additional cuts to crop insurance agents' commissions and reductions in the Approved Insurance Provider (AIP) rate of Return On Investment (ROI). The President's budget also proposes increases in the farmer's paid premium share. One item often overlooked is in the good years, the government and the AIP both have had underwriting gains. So the actual money spent on crop insurance by the government is less than the amount reported. However, in the underwriting loss years government spends more than the budgeted amount, but this is the reason one cannot evaluate the performance of crop insurance based on a single year. One of the debate issues is how much does it cost the insurance industry to delivery crop insurance? Most studies assume the A&O covers all of the cost and then the author makes the argument for additional cuts. But the insurance industry claims the A&O does not cover all costs." The KSU update pointed to a paper by Drs. Keith Collins and Frank Schnapp titled, "Explaining the Costs of the Crop Insurance Program". Dr. Barnaby noted that, "Dr. Frank Schnapp is an economist with the National Crop Insurance Services (NICS). Dr. Keith Collins is the retired Chief Economist with USDA and now a consultant. The NCIS analysis ended in 2010; with RMA having almost a $4 billion underwriting gain. In 2011 the government had about a $1.5 billion underwriting loss and the AIPs had about a $500 million gain. The numbers are nowhere near final for 2012, but both the AIPs and RMA will show underwriting losses. All of this analysis shows that crop insurance must be evaluated over a period of years. This analysis seems timely because of all of the proposed cuts to crop insurance including reductions in farmer premium subsidies."
Bill Billson
4/18/2013 | 7:56 AM CDT
A 883 acre soybean/corn farmer is barely full time employment and to average 375000 you wonder why the poor meat packing laborers in Worthington MN need to pick up the tab for my crop insurance? I have sympathy for rookie major league ball players who make 400,000 and arent guaranteed any income if they have an injury or poor performance. We need to lobby for a new tax on the poor to pay ball players just like us farmers receive.
Bonnie Dukowitz
4/18/2013 | 6:06 AM CDT
C'mon Lon, Quit nitpicking. Marcia is a reporter and Editor. This article was information from S.W. Mn. and was quite informative. If all she ever wrote was exactly as to what you wanted to read, there would not be a reason for her to write or for me or anyone to read.
Lon Truly
4/17/2013 | 11:24 PM CDT
Previously Marcia you have said that federal crop insurance financial security blankets are capitalized into higher land values and that that is not a problem and that fci is just too important to dismantal. Now you are worried about the reality of higher costs for those of us farming caused to a great degree by government investment/profit guarantees and multimillion dollar financial security blankets available to the largest farmers. Which is it Marcia? Many farmers are coming to realize that federal crop insurance is a major rotten apple that needs to be mothballed. For government to perpetually guarantee that those with the greatest probablility of the greatest incomes (largest farmers) will always have the greatest incomes is a failed and obsolete model that drives smaller farmers out of business.
Cypt Frms
4/17/2013 | 6:09 PM CDT
EI farm in south arkansas and i netted in the 7 figure range so much for mid western farms. The south wins this battle.