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Economic Research Service July 2010 U.S. Department of Agriculture

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UnitedStatesDepartmentofAgriculture

EconomicResearchService

EconomicInformationBulletinNumber66

July 2010

RobertA.HoppeandDavid E.Banker

Structure and Financesof U.S. Family FarmsFamily Farm Report, 2010 Edition

Broad descriptions o arms based on U.S. averages can mask variation among dierent sizesand types o arms. Small amily arms dominate the arm count and hold most arm assets,including armland. But large-scale amily arms and nonamily arms account or the bulk o 

arm production. Averages such as sales per arm, thereore, can be misleading. Inormation onthe dierent kinds o arms—and the armers who operate them—is important or understandingthe economic well-being o arm households and the impact o arm policy.

What Is the Issue?

Agricultural policymakers require inormation on how U.S. arming is organized. USDA’sEconomic Research Service (ERS) produces a periodic report with that inormation. The Family

Farm Report, 2010 Edition, is the most recent in the series, providing agricultural policymakerswith an accurate, detailed, and unbiased source o inormation on the structure and fnances o U.S. arms, including the relationship o arm size and type to agricultural production, fnancialperormance, sources o arm household income, and the extent o operators’ o-arm work. The

report provides a sense o the fnancial position o amily arms in general and or dierent typeso amily arms.

What Are the Major Findings?

Small amily arms—annual sales less than $250,000—made up 88 percent o U.S. arms in2007. They also held about 64 percent o all arm assets, including 63 percent o the land ownedby arms. As custodians o the bulk o arm assets—including land—small arms have a largerole in natural resource and environmental policy. Small arms accounted or 76 percent o theland enrolled by armers in USDA land-retirement programs, largely in the Conservation ReserveProgram.

Nevertheless, very large family farms and nonfamily farms produce the largest share of 

agricultural output. Large-scale amily arms (annual sales o $250,000 or more), plus nonamilyarms, made up only 12 percent o U.S. arms in 2007 but accounted or 84 percent o the valueo U.S. production. Although small amily arms produced only 16 percent o agricultural output,they made more signifcant contributions to the production o specifc commodities: hay, tobacco,cash grains and soybeans, and bee cattle.

For the most part, large-scale farms are more viable businesses than small family farms. Theaverage operating proft margin and rates o return on assets and equity or large arms (annualsales o $250,000 to $499,999) and very large arms (annual sales o $500,000 or more) were all

Structure and Finances of U.S. Farms

Family Farm Report, 2010 Edition

Robert A. Hoppe and David E. Banker 

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positive in 2007, and most o thesearms had a positive operatingproft margin. Small arms wereless viable as businesses. Averageoperating proft margin and rateso return on assets and equity werenegative or most small-arm types.Nevertheless, some arms within

each small-arm type (see tableor arm types) had relatively highoperating margins o at least 20percent.

Small-farm households rely on

off-farm income. Given smallarms’ poor fnancial perormance,why do so many continue to exist?Small-arm households typicallyreceive substantial o-arm incomeand do not rely primarily on their arms or their livelihood. Most o their o-arm income is rom wage-and-salary  jobs or sel-employment. Households operating retirement arms, however, receive most o their o-arm incomerom such sources as Social Security, pensions, dividends, interest, and rent.

Farm operator households, generally speaking, cannot be considered low-income, but limited-resource farms

persist. Median household income or only two types o arm households—those operating retirement arms or low-sales arms (annual sales less than $100,000)—was below the U.S. median in 2007. Limited-resource arms, however,make up between 3 and 12 percent o all arms, depending on how “limited-resource” is defned. (The defnitions arebased on dierent—but low—levels o arm sales, operator household income, and arm assets or operator householdnet worth.)

Different types of Government payments go to different types of farms. The distribution o commodity-relatedprogram payments is roughly proportional to the production o program commodities. Medium-sales (annual saleso $100,000 to $249,999) and large-scale arms received 76 percent o commodity-related Government payments in2007. Likewise, large-scale arms received 60 percent o the payments rom working-land programs, which targetproduction indirectly by ocusing on land in production. In contrast, land-retirement programs target environmentallysensitive land rather than production. The bulk o land-retirement payments (73 percent) went to retirement, residen-tial/liestyle, and low-sales small arms. However, most arms (61 percent) received no Government payments at alland were not directly aected by arm program payments.

How Was the Study Conducted?

The 2007 Agricultural Resource Management Survey (ARMS) is the main source o data in the Family Farm Report,

2010 Edition. ARMS is an annual survey designed and conducted by ERS and the National Agricultural StatisticsService (NASS), another USDA agency. In addition to ARMS, various censuses o agriculture and ERS arm sector

income estimates are used in this report, particularly in the analysis o long-term trends. The report uses the armclassifcation system developed by ERS to examine arm structure in the United States.

Distribution of farms, total production, and assets by farm type, 2007

Farm type Farms Value of production Farm assets

  Percent of U.S. total 

Small family farms:1 Retirement 18.4 1.6 12.9Residential/lifestyle 45.1 4.2 26.0Farming-occupation

Low-sales 19.8 4.0 17.3

Medium-sales 5.1 6.6 7.9Large-scale family farms:1 

Large family farms 4.3 12.2 9.3Very large family farms 5.0 53.7 20.1

Nonfamily farms1,2 2.4 17.7 6.6

1Small farms have sales less than $250,000; large-scale farms have sales of $250,000 or more;no sales limit for nonfamily farms.2Nonfamily farms include any farm where the majority of the business is not owned by theoperator and individuals related to the operator.

Source: USDA, National Agricultural Statistics Service and Economic Research Service, 2007Agricultural Resource Management Survey, Phase III.