In a February survey of US farmers, Purdue University found that about 50% of farmers had either no plans to grow (33%) or plans to exit or retire (16%).
The results were from a monthly survey of farmer sentiment to watch for changes, and while the survey results were reported earlier, Purdue Agricultural Economists Michael Langemeier and James Mintert dug deeper into the numbers indicating future sentiment.
EXPANSION REASONS
There are many reasons a farm may want to expand including the following: reduce costs, improve profit margins, improve asset utilization, bring in new family members, invest retained earnings and more fully utilize the skills of key managers, the economists said.
The first three reasons are related to economies of size. In general, larger businesses have lower per-unit costs, higher profit margins, and are able to more fully utilize assets such as machinery and buildings, which improves the asset turnover ratio.
Larger businesses also tend to retain more of their retained earnings (net farm income minus owner withdrawals). Investing these retained earnings back into the business is a common strategy in family owned businesses like farms.
In addition to those factors, it seems logical that producers that are more optimistic about the future are more likely to expand their businesses, the pair said.
WHY NOT
Given that most of the survey respondents were full-time farmers, it may be surprising that about 50% of the respondents have no plans to expand their operations, they said. It is important to remember, however, that at any given time, there are farms that do not have a successor identified.
Those farms often are starting to wind down their operations and have little or no interest in expansion. Barometer surveys have included the farm growth question annually starting in February 2016.
Interestingly, the percentage of farms with no plans to expand has stayed relatively constant over the years. For example, in 2019, the year before COVID-19, 50% of the survey respondents expressed no plans to expand their farms (38% had no plans to grow, and 12% planned to reduce their farm size).
What explains the wide differences in farm growth prospects among respondents to the Ag Economy Barometer survey? It’s hard to tell, but it is clear that the farm operations who expect to expand are much more optimistic than operators who expect their farm’s size to hold steady or decline.
Compared to an average index of 125, the Ag Economy Barometer index calculation for the group expecting to expand their operations was 136. This was not statistically higher than the index computed for the group planning to stay the same size.
The Index of Future Expectations was similar for farms that expect to remain the same size and farms that plan to expand.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $169.94 per cwt to $177.58, compared with last week’s range of $171.00 to $179.10 per cwt. FOB dressed steers, and heifers went for $269.94 per cwt to $274.36, compared with $271.48 to $278.17.
The USDA choice cutout Thursday was up $0.16 per cwt at $298.31 while select was up $0.72 at $283.61. The choice/select spread narrowed to $14.70 from $15.26 with 74 loads of fabricated product and nine loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.73 to $1.88 a bushel over the Jul corn contract, which settled at $5.52 1/4 a bushel, down $0.03.
The CME Feeder Cattle Index for the seven days ended Wednesday was $202.61 per cwt, up $0.43. This compares with Thursday’s May contract settlement of $206.10 per cwt, up $1.55.