Does That Make Sense?

At the end of every year we do a thorough review of all on-farm enterprises, to figure out what is making economic sense and what isn’t. A couple of years ago, for example, I had planned to increase the size of our laying flock, because we were consistently selling out of eggs. But when we ran the numbers we found that we were losing money on eggs, so adding more hens would only have increased our loss. Obviously it wouldn’t make sense to sell at a loss. That’s like paying someone to eat your food.

The USDA is projecting that in 2016 farmers growing corn, soybeans and wheat will lose money on all three. The projected losses range from about $57/acre on corn to over $90/acre on soybeans.

So why would anyone grow a crop, knowing it won’t be profitable? If those projections are correct commodity farmers will end 2016 with less money, more debt, or both, than they began the year with. Maybe it’s because they need cash flow to service debt. Maybe it’s because subsidized crop insurance and government subsidies will erase their loss. But still, wouldn’t the sensible course of action to be to take the year off, let the land rest, maybe take a vacation?

Instead industrial agriculture will produce mountains of commodity grain that will be dumped on the world market at less than the cost of production. That’s one of the primary ways our industrial machine  destroys indigenous agriculture throughout the rest of the world.

It makes no sense to encourage production at a loss, but lots of things about industrial agriculture make no sense to me.

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41 comments on “Does That Make Sense?

  1. DM says:

    It was a real eye opener when I crunched the numbers on what it was costing me for a dozen eggs (and raising chickens to eat) So when I see local farmers selling their eggs for $1.50 to $2.00 a dozen I scratch my head,.. I always pay my neighbor $.50 more per dozen than she charges because I appreciate what went into raising them. Same goes when it comes to the prices I charge to custom build a harvest table…My dad (who was a builder for 40 years has said repeatedly, if you get every job you are bidding on, your prices are too low,…about one in every 4 or 5 is where you want to be at.

    Liked by 1 person

    • shoreacres says:

      That advice your dad offered is exactly right, but it was one of the hardest lessons I had to learn. Let us just say that my mom and your dad would be in agreement on this one. Maybe if I’d had both of them nagging at me, I would have learned the lesson earlier.

      Liked by 1 person

      • Bill says:

        Back when I was transitioning from associate to partner there was a lot of pressure to raise my hourly rate. I resisted. Who would pay a rate that high, I wondered. And how could I justify it. But I went ahead, bit the bullet and raised the rate. I ended up with more business than ever. Kept raising it every year. By the time I quit my rate was double the rate I thought no one would pay. It turns out that the higher the rate, the more valuable (and expert) I was perceived to be. There was a lesson in that too.

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      • gatheringplaceseasonfour says:

        In an entirely different (lower) league – and from the viewpoint of employee – eight years after college graduation (almost) I got a job as “assistant – programmer – in training” (in NJ) at a “salary” higher than I could have imagined. I was being paid for weeks to learn (in-house training) and got a series of promotions about six months apart. Soon my pay was double. Then over the course of not much more than a decade, what had started as 8,500 and then 17,000 went up above 40,000 and somewhat beyond (45,000?). Then the next job was as a “consultant” which at least in my own eyes raised my “currency” even farther – although internally I knew “the real truth.” However, this encouraged my natural inclination to devour and apply as much technical “expertise” and knowledge and problem-solving ability possible for me.

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    • Bill says:

      I don’t think it’s possible to make money selling eggs, at a price folks are willing to pay. For most farms I think it’s either a loss-leader or they haven’t crunched the numbers.

      It’s really hard for us to figure out our costs on each vegetable we grow but there is a free program to help farmers do that. A session I attended at a conference last week was about that and the speaker said, for example, that broccoli is always a money loser. I’ve been looking with suspicion at our broccoli plants ever since.

      There’s an art/science to estimating, isn’t there? Back in the day I handled some “mistake in bid” cases. They begin when the bids are opened and the winning bid is way lower than all the others.

      Liked by 1 person

  2. gatheringplaceseasonfour says:

    such “loss” practice of working appears to me (as outsider) to be, historically, at least a third wave and type of enslavement: 1) blacks, 2) Jim Crow – sharecropper / mill worker “owe my soul to the company sto’ – and now 3) debt service – enslavement.

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    • And the country as a whole is heavily in debt: more than $18 trillion and rising.

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    • Bill says:

      I’m don’t think it’s as bad as the crop lien system. The price of farmland in the midwest has skyrocketed over the last 10 years so that the debt to asset ratio of these farms is actually at an historic low. But the value of the land doesn’t make the payments when they come due. Certainly the operators are the CAFOs are often slaves to debt too.

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  3. Would like to see more detail on your analysis of the layer flock. Flock size, costs, selling price, break even, etc. This is the very type of economic analysis that smaller growers need to learn how to accomplish and articulate. What would you need to do, e selling price, to make it a profitable layer venture for the farm? I’m always looking for this type of economic or break even analysis. Saw a real good example of it in the new Dec Mother Earth News, page 28 where Jean-Martin Fortier presented cost data for their operation. For each new venture for our farm, ex blueberries, raspberries, etc I’ve tried to do an up front estimate but I have been very poor at really validating it with our actual results. It was a good economic analysis out of Ohio State which prevented me from ever buying hay making equipment. Thanks.

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    • Bill says:

      We have the Fortier book but I haven’t read it yet, but my wife (who has read it) keeps tell me I need to. It’s encouraging to see what farmers like he and Joel Salatin have been able to accomplish, but very few farms are able to replicate that kind of success.

      I recently learned about Veggie Compass (http://www.veggiecompass.com/), which is a free program that helps calculate profitability on a per crop basis. We haven’t tried it yet, but it might be helpful.

      Farm expenses are our biggest issue, even though in our case we don’t use hired labor and we don’t factor anything in for our own labor.

      With the layers, we were using feed costs only. We factored in nothing for labor, the cost of the birds, the coops, the fencing, etc. All we did was take total egg revenue and subtract feed costs. It wasn’t a pretty sight. We bumped our price $1/dozen so that now we should be slightly profitable. We’ll be doing our year end number crunching in about a month. In our case we use a relatively expensive GMO-free feed and we don’t slaughter the hens after they peak on egg production. Those two things put us at a cost disadvantage but they’re important to our values. I may have done a blog post in the past about the economics of small farm egg production. I’ll look for it. If not, it’s a good subject for a future post.

      We sold our hay equipment last year. Wish I’d figured out sooner what a money-loser that was compared to buying the hay we need.

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  4. nebraskadave says:

    Bill, we are preaching to the choir here but the whole government subsidies thing just drives me crazy. Yes food would cost more without it but you have consistently said that the U.S. , income percentage wise, spends less on food than any where else. There’s a new advertisement showing up on the radio that encourages farmers to make a contract with Syngenta to grow Enogen corn for maximizing throughput and efficiency when used for ethanol production. Growing corn for fuel production is becoming a big thing here in the Midwest. If ethanol production was not heavily subsidized by the government, it wouldn’t be surviving. So we are heading into an era when we are subsidizing farmers to grow corn that won’t even be used for food. We literally are burning our food.

    Have a great nonsensical day on the White Flint Farm.

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    • Bill says:

      Oh good grief. And even while Big Ag continues to divert a huge amount of corn production to ethanol (which as you say is not viable without government subsidies) they keep insisting that they’re “feeding the world.”

      Separating the price of food from the cost of production is doing a lot of damage to the world.

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  5. It makes no sense to me that the middle man makes the most money and the farmer and end user are ripped off. That’s the way I see it anyway.. 🙂
    Diana xo

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  6. BeeHappee says:

    With average farm size about 500 acres it makes $45,000 annual loss. Sure it sounds better to take a vacation and save yourself 45k. The worst part of all is that the above quoted loss doe not include the immeasurable losses in health of the farmer, community and future generations when crops are sprayed, it does not include the effects of irreversible and costly climate change from monoculture crops and millions other such losses.
    Bill, if you are losing money on eggs, and sell out, what is your reasoning for not raising the price?

    Liked by 1 person

    • shoreacres says:

      That question about egg price is a good one. I’ll be picking up a dozen at the farmers’ market this morning, and the going price is $5/dozen. I’m willing to pay it because of the difference in size and taste.

      Liked by 3 people

    • Bill says:

      We did raise our price that year–from $4 to $5/dozen. I worried that no one would buy the eggs at that price. But we keep selling out. At that price we’re covering our feed cost and making a very small profit (and we’re the highest priced eggs in the community). But eggs are still the least profitable enterprise on the farm. We do it because we want eggs for ourselves and because most of our customers who buy eggs also buy other things. The quality is vastly superior to grocery-store eggs, no matter what claims they make on the carton.

      Liked by 1 person

      • BeeHappee says:

        Yes, I believe it, and I would buy at $5 anytime, that is a killer price for true free range eggs if you ask me, hard to find in Chicago market, unless you have friends with chickens.

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  7. shoreacres says:

    Speaking of industrial agriculture destroying indigenous farming, I suspect you’d find this article about rice production in Liberia of interest. Certain issues, like infrastructure, don’t apply here, but the role of subsidized rice as an impediment to development of Liberian farming is clear.

    One of the biggest issues in Liberia has been the slash-and-burn practices used with upland rice. But, as the article notes, the kind of paddy rice that would be more environmentally friendly, and more sustainable, depends on a number of changes that don’t yet seem possible.

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    • Bill says:

      US rice dumped on Haiti destroyed agriculture there. Farmers couldn’t compete with the price. Haiti quickly went from being a net food exporter (just a couple of decades ago) to being almost totally dependent upon food imported from the U.S.

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  8. avwalters says:

    Rest the Land. And there’s a huge issue in American agriculture. Small farmers know that you need to let fields go fallow–and that crops should be rotated so that the soil is not exhausted by the year-in-year-out needs of one crop. Studies show that responsible crop rotation can minimize the need for chemical inputs. A five to seven year cycle of crop rotation can eliminate the need for chemical inputs. Crop rotation and letting land rest is just smart farming.
    Not so the corporate farms. When the land itself is not accepted as a living organism, when it is treated merely as an extractive means of production, soil health and fertility is threatened. We’ve all seen those monster farms–corn or soy–planted year in and year out with the same crop. They are sustained by chemical fertilizers, but the damage is still done to the soil. Dead soil, depleted soil, cannot absorb carbon. Dead soil does nothing to help in climate change; dead soil cannot grow food, without chemical inputs; dead soil is an invitation to dustbowl; essentially, dead soil is a waste of a precious resource.

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    • Bill says:

      You are absolutely right. We rotate our crops and rest our soil and we have great yields with zero chemical inputs. I couldn’t agree with you more about the foolishness of killing the soil. And it’s absolutely unnecessary.

      Liked by 1 person

    • avwalters says:

      What a great article–and in the mainstream press, no less. I’ve shared it to Facebook. Hopefully, if we all speak up, these ideas will begin to get traction–and results. Thank you for the link.

      Like

    • Bill says:

      Thanks for sharing that. There is hope. I’m convinced people by and large want to do the right thing. It would help if farmers weren’t economically pressured into bad decisions. Because what we’re doing now is unsustainable, in my opinion it’s not a question of if we’ll change our ways, but rather a question of how much damage we’ll do before we change our ways.

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  9. ain't for city gals says:

    My dad always said “If you are looking for something to do go dig a hole and fill it back up again. It doesn’t cost anything and you get exercise” I used to think that was the silliest thing but maybe not so much anymore…

    Liked by 1 person

    • Bill says:

      These days there’s a word for that: stimulus.

      But seriously, farmers are often trapped in the cycle that requires them to produce a crop even when they know it’s going to lose money. And historically when prices are low and farmers lose money, they respond by increasing production the next year, to try to make up for their losses. But that just floods the market even more, driving prices even lower.

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  10. I’d love to hear Gabe Brown’s take on this dilemma for commodity growers. Not only has he been there done that, he’s such a pragmatic, down to earth thinker, I’m sure he’d bring some clarity to the way forward for his conventional friends, if they had open minds to hear him.

    I think the subsidy system has created a catch-22 because those who benefit from it are probably locked into it by debt. Those huge tractors, combines, sprayers, etc cost a heck of a lot of money – hundreds of thousands of dollars. The farmer is trapped – take the year off? How could he or she do that with a huge loan payment to meet, possibly a mortgage as well, plus all the regular family and household expenses. Even if that farmer has a modest lifestyle (and many of them do), they don’t have much in the bank, despite the huge figures that represent their crop at the end of harvest.

    The defunct cod fishery off Newfoundland draws some parallels, but they’re not heartening. The cod stocks died out there despite moratoriums on cod fishing for Canadian fishermen, partly because the moratoriums were too little too late, but mainly because international fishing continued, while Newfie fishermen were stuck on the Rock, watching their bank balances disappear while they continued to pay their mortgages, feed their families and cross their fingers for their luck to change.

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    • Bill says:

      It is like a trap, much of it created by well-intentioned but ultimately counterproductive policies. I’ve just started reading Raising Less Corn, More Hell by George Pyle. Great book (so far) that looks at these issues and their causes.

      Liked by 1 person

      • I read that quite a few years ago, and yes, it definitely changed my understanding of that side of agriculture. The book deserved more attention back when it was published, but it came out when a plethora of lighter, less corn specific books came out and it got lost in the clutter. It’s on many well known authors reading lists, though.

        Liked by 1 person

  11. Dearest Bill,
    Having been born as the daughter of a market gardener I know about all these pains and disappointments and above all, not understanding the WHY!
    We too had chickens and I do remember how Mom and Dad had to clean up those eggs with a cloth dipped in vinegar before they were brought by bike (on a special trailer that went behind the bike!) to the collection center. It always was hard work for ‘cents’ and seldom profit could be made.
    It still does not make sense if we compare some people’s posh incomes, those that create the laws, for the lesser gods to obey… If we would not believe, it would at times be very hard to cope with and to stay positive. A hard working, honest person and especially working the fields, will never become rich. Guess in all literature and all novels we can find the same story over and over again…
    We only can pray that the 1% that rule the entire world will use common sense!
    Hugs and happy weekend.
    Mariette

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    • Bill says:

      Someone once wrote, “A farmer does not grow rich, a farmer grows corn.”

      I’m sure most farmers just want to make a decent living, not get rich. But just making a living is very difficult. The vast majority of farmers these days have to have an off-farm income to make ends meet and to get “benefits” like health insurance. Most farms operate at a loss. Meanwhile, fortunes are made doing things that are of no real benefit to society, while most farmers, who feed us, struggle to survive.

      Liked by 1 person

  12. EllaDee says:

    Which is why I never complain or quibble over prices at the farmers market. I despair when farmers have to destroy crops because the market doesn’t support them.

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    • Bill says:

      Cherie and I were just talking yesterday about how customers at the market rarely try to negotiate our prices down any more. It used to be common. The demographics at the market has changed and the perceived value of what we have to sell has changed. Consumers these days are more informed about what it takes to produce quality food and they’re more willing to pay it. The prices for good food are still bargains by historical standards.

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