Study Shows Economy Of Scale In Farming

There is such a thing as economy of scale in farming, according to a USDA Economic Research Service report on the status of US farms as of late December.

Non-family farms only totaled 44,010 properties, or 2.2% of the total number of US farms.  But these farms produce about 12.6% of total annual farm output while working just 6.5% of total farmland.

The report, titled “America’s Diverse Family Farms: 2018 Edition,” and written by Economists Christopher Burns and James MacDonald, said 88.8% of farms were categorized as small by their annual gross income of less than $350,000.  These farms are made up of retirement farms, off-farm occupation farms and farming-occupation farms with low and moderate sales.  They accounted for 51.9% of the land operated by farms in 2017, and their contribution to the total value of US farm output 25.8%.

Midsize family farms, those with sales ranging from $350,000 to $999,999 a year, accounted for 127,862 farms, or 6.3%, of farms, but they worked 18.4% of the land producing 22.6% of the total value of farm output.

Large-scale family farms, those with sales from $1 million to $5 million, accounted for 50,598, or 2.5%, of farms, while very large family farms, those with annual incomes of $5 million or more, accounted for 5,872, or 0.3%, of US farms.  Together, the large family farms made up 2.8% of the total, operating 18.4% of the land and producing 39.0% of the total output value.




Small and large farms together accounted for 60% of beef production in 2017.  Small farms generally have cow-calf operations, while large-scale farms were more likely to operate feedlots.

Large family farms accounted for more than 2/3 of dairy production, and more than half of high-value crops like fruits and vegetables.

Midsize and large family farms dominated cotton production, with 85%, and large farms contributed more than half of production and midsize farms an additional third.  Midsize and large family farms accounted for more than 1/3 of total cash grain/soybean production for a combined total of 72%.

Small farms produced 60% of US poultry and 76% of hay.  Much of poultry production, however, is done under production contracts.




One-third of US farm output is done under contract, but the share differs by commodity.  They are used to manage price and production risks, to procure farm products with specified qualities and to provide farmers with assured outlets and buyers with assured product flows.

The production share of all commodities under contract in 2017 (34%) was close to the share in 1996/97 (32%).  However the share each year ranged from 31% to 41% over the last two decades with no discernible trend and averaged 37%.

There are two types of contracts: marketing and production, which vary in their contractor involvement in production.




Sixty-three head of fed cattle traded on the Fed Cattle Video Exchange Wednesday at $123 per cwt on a live basis.

Cash cattle traded last week at $122 to $123 per cwt on a live basis, down $2 from the previous week and at $197 on a dressed basis, steady to up $1.

The USDA choice cutout Tuesday was up $0.73 per cwt at $218.13, while select was up $0.96 at $212.57.  The choice/select spread narrowed to $5.56 from $5.79 with 87 loads of fabricated product sold into the spot market.

The CME Feeder Cattle index for the seven days ended Monday, was $143.09 per cwt, down $0.40.  This compares with Tuesday’s Jan settlement of $142.65, down $0.82, and the Mar contract settlement of $144.25, down $0.10.