Doane Spotlight: More ‘MegaFarms’ in the future – and why

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Of all the “megatrends” in U.S. agriculture, the one that has persisted with only one exception since the “peak” during the Great Depression is the trend toward larger and larger farms but fewer and fewer of them! Take a look at the chart dating back to 1850 showing the number of farms in millions. Isn’t it curious how the “first” peak developed at the very beginning of what became known as “the Roaring 20s”? World War I had ended and people were singing “Happy Days Are Here Again” as the U.S. economy sizzled on two driving engines: The industrial revolution and the fact that Europe was in rubble while the infrastructure of the U.S. was largely unscathed and ready to roar.

But as the chart shows, the Crash of ’29 led to reverse migration of the unemployed back to their roots on the farm as hard scrabble subsistence of the Dust Bowl years unfolded. It caused that brief “spike” to a record 8 million farms in 1935, but then resumed in earnest with a steep, steady slide in numbers to the early 1970s, where farm numbers stabilized and held steady for a decade during what we now look back on as “the Roaring 70s” in agricultural history.

The Vietnam war was ending, but the “guns & butter” mantra of the Lyndon Johnson era, with its “war on poverty” raised deficit-spending to virtue status.

You may notice one other “aberration” in the decades-long trend to fewer farms—the most recent Census of 2007 picked up a 4 percent increase! Could it mean farm numbers have finally bottomed at just more than 2 million, less than 1 percent of the U.S. population? Or will it prove to be just another “blip”? Demographers and historians of U.S. agriculture think it may mark a low, tied to three realities:

  • The need for generational turnover of America’s farms by retiring baby boomers; where the average age of today’s farmer is pushing 60! Think about that. If the average age is 60, there has to be a substantial number of farmers well past retirement age.
  • The fact that crop farming has become very lucrative with grain prices launching to yet another “new era” of price levels in 2007-08, rising land values and rising net worth; this one was also fueled by soaring demand and easy money at record low interest rates.
  • With the urban economy in the U.S. still sputtering, many younger folks with farm backgrounds may suddenly “discover” they want to farm after all, but lack the necessary backing unless parents finance the purchase—and divide larger farms among two or three sons or daughters as “starter farms.”

Others think it is only a blip; that “megafarms will be a megatrend” over the next decade. One is Moe Russell of Iowa-based Russell Consulting. His firm offers farm management and marketing consulting in 31 states and Doane has a strategic marketing alliance with them for clients who want individualized counsel. At our annual Outlook Conference in St. Louis last fall, Russell showed why he thinks the 10,000, 15,000 and even 20,000 acre farm operations that are now the exception in the states he serves will become more and more common through “acceleration of consolidation.”

He showed a battery of slides showing a stunning variation in cost structure among the farmers in the study, even among farmers with very similar operations in size and enterprises conducted. The most telling slide of all was where he showed the collective performance of 300 farms (no identities revealed, of course). In just the four years from 2008-11, the data showed:

  • The bottom 10% of studied farms LOST $157 per acre, on average, 2008-11
  • The top 10% of studied farms EARNED $407 per acre, on average, 2008-11

The difference was management, management, management! Just look at the leverage points Russell found among the high profit farms over the four years studied:

  • An edge of $17 to $248 per acre in equipment cost per acre
  • An edge of $9 to $106 per acre in labor costs
  • An edge of $0 to $165 per acre in agronomic skill (productivity)
  • An edge of $0 to $85 per acre for input costs per acre
  • An edge of up to $315 per acre in superior marketing decisions

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