Dr.Klinefelter: By the Numbers

By Danny Klinefelter

DTN Farm Business Adviser

As is typically the case, it was late this spring and a two-year delay before the results of the 2012 Census of Agriculture were published. What may surprise readers is that peak commodity prices since 2007 couldn’t stop the century-old trend of farm consolidation.

The accompanying table shows the breakdown of farm size by total farm sales from 1982-2012. It is significant to note that farms with sales over $5 million just started to be broken out with the 2007 Census, but they are rapidly commanding market share.

Of the 2.1 million farms in 2012, only the top 8,565 — or 0.4 of 1% — produced 31% of total farm sales. Dropping down to farms with sales over $1 million, which includes those over $5 million, there were about 82,000 farms, 4% of the total, but they accounted for 67% of all sales. The $1 million and $5 million sales categories are the only farm sizes showing growth, and their market share is growing rapidly. Although there is inflation to account for, they increased from 23% of sales in 1982, and 50% of sales in 2002.

The next category down, mid-size operations with $500,000 to $999,999 sales, is just barely holding its own at 14% of total sales. All other farms — 2,027,643 of them — account for 92% of farm numbers, but only 19% of sales. The number of smallest farms, under $100,000 in sales, has remained fairly constant, but their share of the market continues to decrease.

With the growing importance of management specialization, the movement toward qualified suppliers, increasing costs of regulatory compliance and larger, technology-enhanced equipment, the trend is likely to accelerate.

Survival of smaller farms will become more reliant on off-farm income, producing higher-margin specialty products and finding ways to add value such as locally grown, direct-marketed crops and animal products. Although the organic market continues to grow, an increasing share of organic products are being produced on larger farms, so economy of scale can’t be ignored.

As the average age of farmers continues to become older, many farms that don’t have or don’t generate enough income to support two families are likely to opt for selling or renting out. But as my last article addressed, collaborative farming might be a viable option for some mid-sized operations. Under these business models, more nonfamily neighbors could join forces, sharing equipment, input purchasing and marketing for more efficiency. Retiring farmers have a financial incentive to match themselves with younger operators, so long-term equipment buyouts can help them avoid an income tax hit when exiting ag.

Blood relatives and in-laws have often farmed jointly; what’s new is that the concept of partnering may need to go beyond family. The key for such "team" farms to work is if they can find people with compatible objectives, management styles, work ethics and personalities.

Editor’s Note: Danny Klinefelter is a professor and extension economist with Texas AgriLIFE Extension and Texas A&M University. He is the former director of The Executive Program for Agricultural Producers (TEPAP), a management short-course for farm producers held each January, and its alumni association, AAPEX. For information on the course and DTN’s TEPAP scholarship program, go to http://tepap.tamu.edu

(MZT/AG)