Traits of Farms Paid to Produce Energy

LINCOLN, Neb. (DTN) -- Energy-related payments to farmers for oil, natural gas and wind production have continued to be a significant form of farm income and vary widely depending on where farmers operate, according to a new study by USDA's Economic Research Service (ERS).

ERS studied data from USDA's Agricultural Resource Management Survey in its analysis covering 2011-20, finding that 3.5% of farms received energy payments and the average annual payment was more than $30,000.

It found average annual energy payments were as high as $62,944 in 2013 and as low as $14,032 in 2020 and tracked "closely over time" with oil prices, according to study findings.

"Energy payments were more common in counties producing oil and natural gas than in those with wind energy development," the study said. "Larger farms were significantly more likely to receive energy payments and higher payments on average."

ERS said higher crude oil prices through 2014 led to increases in the size of energy payments to farms with oil or natural gas resources.

Here are nine characteristics of farms receiving energy payments from 2011-20, according to the ERS:

-- Average annual energy payments were the largest and most common in the Plains region of Kansas, Nebraska, North Dakota, Oklahoma, South Dakota and Texas where energy production is most abundant. ERS found that 7.4% of farms in those states received payments with the largest at $39,087.

Payments were least common at 1.45% of farmers in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi and South Carolina and the smallest at an average of $10,953 in Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin.

-- Farmers were between an estimated 4.5% and 5.6% more likely to receive energy payments if located in oil and natural gas-producing counties than in counties with only wind energy production.

-- On average, payments were higher in counties with only oil and natural gas production at $32,167 than in those with only wind energy production at an average of $17,303.

"However, the median payment in wind counties was larger than the median payment in oil and gas counties," the study said.

"This difference is due to an uneven distribution of oil and gas payments, which included a large number of small payments and a small number of very large payments. This report did not find a statistically significant difference in the size of energy payments after accounting for farm size, location, and the asymmetric distribution of oil and gas payments."

-- ERS said the likelihood of and size of energy payments increased with the size of the farm.

"Midsize family farms (with gross cash farm income between $350,000 and $999,999) were more likely to receive energy payments; non-family farms were less likely," the report said.

"Controlling for other factors, payments were larger for midsize and large-scale family farms (with gross cash farm income of $1 million or more). Although the average payment size varies by farm operator demographic groups, this report did not find a statistically significant difference in energy payments after accounting for farm size and geography. This suggests that location, farm size, and energy market conditions were the key determinants of payment size."

-- ERS said it found Hispanic farm operators and those farmers with less education were less likely to be receiving energy payments, "even after accounting for other farm characteristics and location."

-- In 2020, 54% of all family farms had negative income from farming, ERS said, and 51% of farmers and their families sought other opportunities to earn income, such as working off-farm.

-- From 2011-20, on average, a small fraction of farmers received energy payments.

"This is in part because many farm operators (40% in 2017) did not own their land, and most agricultural producers (81% in 2014) did not own the mineral rights associated with their land," ERS said.

"The average payment was substantial, however, at $30,482. Payments were particularly large during the early years of the sample when oil prices were high and rising. Payments averaged $38,788 in 2011, increased to $62,944 in 2013, and then fell to $14,000 to $25,000 between 2015 and 2020. The total payments reached a maximum of $4.4 billion in 2014 before declining in subsequent years."

The average annual payment from energy, however, exceeded average government payments of $19,858. "In 2013, the average energy payment was 60% of the typical value of off-farm income. In 2020, however, during the COVID-19 pandemic when energy payments and off-farm income were lower, energy payments represented just 15% of off-farm income."

-- Less than 2% of farmers owning fewer than 100 acres received payments compared to more than 13% with more than 1,000 acres. "Energy payment size similarly grows with farm size, although the size of payments does not differ dramatically between the 101 to 500 and 501 to 1,000-acre groups, each with average payments of about $26,000. Payments for those owning fewer than 100 acres averaged $12,351 while among farm operators owning more than 1,000 acres, payments were four times that value ($56,797)."

-- ERS said as farmers' education increases, so does the "likelihood of receiving energy payments and the magnitude of the payments."

Just 2.2% of farms that have an operator with less than a high school diploma received payments, with an average of $19,331.

"Among those with a college degree or more, 4.2% of farmers received a payment, with an average of $43,278. The implication is that those who have more formal education are more likely to benefit from energy production on their farm."

Read the USDA report: https://www.ers.usda.gov/…

Todd Neeley can be reached at todd.neeley@dtn.com

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