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| What does the net worth of the farm family mean? |
With commodity prices at record highs and likely record-high land values, farmer net worth may be at levels never before seen. All things are relative, though. After reading a recent Yahoo Finance article, I was curious about how the average farmer's net worth compares to the average American's net worth.
The article highlighted the findings of a Federal Reserve Consumer Financial Survey published in September 2020. According to the poll, an American household's average net worth is roughly $748,800. That amount appears to be alarmingly high at first look. Yet, the top 10% of households own around 70% of the wealth, significantly inflating the average (mathematical mean).
Only $121,700 is obtained if you look at all American households' middle (median) net worth. This seems sensible, given that many families have loans for their autos and homes. The difference between the net worth of older persons, who have had time to amass assets and pay off debt, and younger people with limited investments must be considered when examining averages. Some young people are graduating from college with a car, a meager bank account, and $100,000 in student loan debt; they are therefore considered to have a negative net worth.
What does the net worth of American farmers look like? The average U.S. farm household had $1,714,559 in wealth in 2020, according to the USDA Economic Research Service (ERS). According to ERS, the median wealth of homes with commercial farms was $2.8 million. This represents a significant increase among non-farming families. Commercial farmers' typical family net worth is 23 times that of the average American family.
How did it come to be like that?
About one-third of Americans were responsible for feeding the other two-thirds in 1900. Less than 2% of people in the population farm now. Fewer households are cultivating more significant operations due to the extensive consolidation during the past century. More money is needed for each family as a result. The temporal worth of money has an impact on the differential as well. According to the USDA National Agricultural Statistics Service, some farming families had four or more generations to buy and pay off farmland, barely $20 an acre, in 1900.
Contrasting farm income is less favorable. In contrast to self-employed households, farm business households had a median income of $62,402 in 2020, according to an ERS report. The $2 million in farm capital only produces around 3% of the expected net revenue. In the long run, generational farm families will likely profit more from asset expansion than net farm income. Over a 121-year holding period, that $20 per acre farmland has grown to more than $4,100, representing a 4.5% return on investment.
In the 21st century, large-scale farming is only affordable if you have some money. The cost of purchasing tillable farmland, farming tools, and even the yearly inputs needed to grow a crop is very high. These capital requirements are rising (through inflation) faster than they have over the previous 40 years. The good news is that historically speaking, times of high inflation have been favorable for productive assets, especially those required for maintaining life.
Contrasting farm income is less favorable. In contrast to self-employed households, farm business households had a median income of $62,402 in 2020, according to an ERS report. The $2 million in farm capital only produces around 3% of the expected net revenue. In the long run, generational farm families will likely profit more from asset expansion than net farm income. Over a 121-year holding period, that $20 per acre farmland has grown to more than $4,100, representing a 4.5% return on investment.
Do farmers currently have a lot of debt secured by their farmland?
Actually, no. Despite slowly increasing over the previous ten years, agricultural debt as a percentage of farm assets is still only approximately 14%, according to statistics from the ERS dated February 2022.In the 21st century, large-scale farming is only affordable if you have some money. The cost of purchasing tillable farmland, farming tools, and even the yearly inputs needed to grow a crop is very high. These capital requirements are rising (through inflation) faster than they have over the previous 40 years. The good news is that historically speaking, times of high inflation have been favorable for productive assets, especially those required for maintaining life.