What does farm family net worth mean?


Farmers’ net worth could reach historic highs, with commodity prices high and land prices likely higher than ever. However, everything is relative. A recent Yahoo Finance article got me wondering how the average net worth of farmers compares to the net worth of the average American.

The article highlighted findings from a Federal Reserve survey of consumer finances released in September 2020. The survey found that the average US household net worth was around $748,800. At first glance, this number seems shockingly high. However, the richest 10% of households own about 70% of the wealth, which greatly skews the average (mathematical average) upwards.

If you look at the average (median) net worth of all US households, you only get $121,700. This seems reasonable given that many families have mortgages on their homes and loans on their vehicles. When looking at averages, you also need to consider the disparity between the net worth of older people, who have had time to accumulate assets and pay off debts, and younger people with few investments. Some young people come out of college with a car, a small bank account and $100,000 in student debt; i.e. a negative net worth.

What does the net worth of American farmers look like? According to the USDA Economic Research Service (ERS), “In 2020, the average U.S. farm household had wealth of $1,714,559.” ERS adds that households operating commercial farms had total wealth of $2.8 million at the median. Of course, that’s a lot more than non-farm families. For commercial farmers, their median family net worth is 23 times the US median family net worth.

How did it come to this?

In 1900, about one-third of the American population fed the other two-thirds. Today, less than 2% of the population farms. Massive consolidation for more than a century means fewer families operating larger farms. This requires more capital per family. Also influencing the difference is the time value of money. Some farm families have had four or more generations to acquire and pay for farmland, which was only $20 an acre in 1900, according to the USDA’s National Agricultural Statistics Service.

Farm income does not compare as favorably. According to the ERS article, “In 2020, the median income of farm business households was $62,402, compared to $89,492 for self-employed households.” The $2 million in farm capital does not generate the kind of net income one would expect — only about 3%. If you take a long-term perspective, generational farm families probably earn more through asset growth than annual net farm income. That $20 an acre farmland has turned into over $4,100 today, representing a return on investment of about 4.5% over a holding period of 121 years.

Do farmers currently have a lot of debt on their farm assets? Not really. According to February 2022 data from the ERS, farm debt to farm assets is still only around 14%, even though it has been slowly increasing for the past 10 years.

The bottom line is, if you don’t have capital in the 21st century, you can’t afford large-scale agriculture. It takes a lot of money to acquire cultivable land, agricultural equipment and even the annual inputs necessary for a harvest. These capital needs are currently growing faster (via inflation) than they have over the past 40 years. The good news is that productive assets, especially those needed for subsistence, tend to perform well historically during periods of high inflation.


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