Farm Economic Research
I like to look at farming as an uncorrelated investment with an inverse relationship to overall (stock/equity) market returns. The yield is expected to be lower but should remain positive in a variety of financial climates. In my opinion, listening to farmers (Cole the Corn star), market gardeners (JM Fortier, Conor Crickmore, Curtis Stone, Diego, etc), micro green/urban farmers, ranchers (Salatin), talk about money is deceptive.
Anyone with any experience “making money” know that gross revenue is meaningless. Positive cash flow is king and really any enterprise in which you invest needs to have a positive ROI (return on investment). You can get sucked in to the shockingly similar sounding podcast of Zach Bush (food/farming) and Mike Green (investing) in terms of motivation. But, farming/investing/whatever as an enterprise (not hobby) needs to make a certain amount of money. In my mind living wages are for people in their 20s, real wages are the future of farming. Positive cash flow can probably be achieve on my scale at $40,000 in gross revenue. Anything extra would be great Year 1 and in reality I would need to make about $60,000. What about Net income goals and what does the USDA ERS illustrate?
USDA FARMING STATISTICS
My Farm is in Georgia and the closest market is Chattanooga, TN
The Average Net Cash Farm Income (NCFI) in Georgia = $64,470
The Average Net Cash Farm Income (NCFI) in Tennessee = $12,600
Note: Lies, Lies, and Statistics!!- Looking at Tennessee you will notice that the Average NCFI is only $12,600 despite TN having 28,200 more farms. Georgia also received $1,043,776,397 MORE in government payments/federal indemnities than Tennessee (which farms 600,000 more acres)! You see an interesting trend from these numbers in that TN farmers Top 3 agricultural products (Corn, Beans, Cattle) are different than Georgia (Broilers, Cotton, Eggs). From the numbers alone it looks like TN farmers are being penalized for the corn and beans and Georgia may be taking the money NOT to take these principle commodity crops to market.
What is a farm business in the eyes of the USDA?
“Farm businesses are farms that have annual gross cash farm income of at least $350,000 or smaller operations where farming is reported as the operator’s primary occupation. Average net cash farm income (NCFI) for farm businesses* is forecast at $104,500 in nominal terms in 2020, up 32.6 percent from 2019. Higher NCFI means more cash could be available to pay down debt, pay taxes, cover family living expenses, and invest. NCFI is not a comprehensive measure of profitability, however, because it does not account for changes in noncash income, including adjustments in farm inventory, accounts payable, accounts receivable, the imputed rental value of operator dwellings, and capital consumption.”
— USDA ERS
Each industry has a metric for evaluating projected revenue:
Medicine- work relative value units = if you do this amount of work (surgery/office visits, procedures) this year then you will make this amount of money
Real estate- cap rate, cash on cash return, total return on equity = if you invest this amount of money, in this property, at this interest rate, then you will make this amount of money
Hourly employee- if I work this number hours then I will make this amount of money
Stock/bond/options market- if I invest this amount of money then I “hope” to make this return
Farming- if I invest this amount of time and money (seed, land, animals, infrastructure) then I “hope” to make this return
