After Much Resistance, Fixed Farm Expenses Turn Lower in 2016

by David Widmar

Fixed farm expenses play an important but often overlooked role in crop budgets and producer returns. A look at Purdue University crop budgets from 1990 to 2014 found that, on average, variable expenses accounted for 40% of total budgeted expenses while fixed expenses (family labor, land, and machinery) accounted for 60%.

Lowering costs of production are a critical step for managing in the current environment of low commodity prices and tight-margins. Fixed expenses, as we noted last year, have been slow to adjust. This week’s post takes an updated look at fixed expenses. Continue reading

Are Fixed Farm Expenses Coming Down Yet?

 

Fixed Expenses coming down. Photo by Johnny Klemme

by David A. Widmar

As production agriculture in the U.S. transitions out of the boom-era, producers face a margin squeeze resulting from declining output prices and stubbornly high input costs. In most cases, producers are facing 2015 and 2016 crop production budgets with negative returns.

We are often asked when things on the farm will improve. In an earlier post and paper, we outlined that in the long-run it is likely that a combination of three scenarios will take place to stabilize farm profitability: 1. variable costs moderate through eventual reduction in farmer demand for inputs 2. Fixed costs decline through reduction in fixed assets demands and values, and/or 3) output price may improve.

In this post, we take a look at fixed costs from the most recent data (2014) provided by the USDA and Kansas Farm Management Association (KFMA). Keep in mind that net farm incomes across the country were lower in 2014, but still well above average.

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