Edgington, Gail

Forster, D. Lynn

Schnitkey, Gary D.

Stout, Tom

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Ohio Farm Household Longitudinal Study* For the past five years, the Ohio Farm Household Longitudinal Study has been following the fmancial situation, farm production practices, off-f~m employment, and other characteristics of a representative panel of about 1000 Ohio farm operator households. This report, the third in a series summarizing information collected in 1991, deals with these households' farm production and management practices and emphasizes any changes in those practices in the past five years. Farm Size The average farm household operated 335 acres in 1990, which was basically unchanged from 1986 (Table 1), and had gross farm sales totaling $61,500, which ·was slightly less than 1986 sales (Table 2). However, these averages disguise some important changes that appear to be occurring. As earlier reports explain, farm households are quite varied in their commitment to farming. Nearly two-thirds of all Ohio farm households have small farm operations producing less than $40,000 in gross sales annually. Their household income is primarily from non-farm sources, and they account for a only small proportion of total agricultural production. The farming operations of these "rural residences" appear to have declined during the past five years, in terms of both acreage and gross sales (Tables 1 and 2). On the other hand, farm households with annual gross sales of $100,000 and more appear to have increased their farm size in the past five years. These households account for only 17 percent of all farm operations, but produce more than 60 percent of the agricultural output. Average acres farmed by these "commercial farm" households increased from 779 to 807 acres (Table 1), and annual gross sales increased from $213,800 to $232,900 (Table 2). Farm households with moderate size farm operations (annual gross sales of $40,000 to $100,000) also increased their acreage and annual gross sales. Like the "rural residence" farm households, these "part-time" farm households earned most of their household income from non-Department of Agricultural Economics and Rural Sociology The Ohio State University ESO 1879, August 27, 1991 farm sources, but they seem to have increased their commitments in farming in the past five years. The mix of gross farm income has not changed much during the last five years, although "other" income has increased as a proportion of gross income. This reflects a build up in grain inventories held by farm operators. Payments received for participation in federal farm programs have decreased and now comprise about 6 percent of gross sales. Cost of Production About one-half of the cost of production is attributable to pesticides, seed, feed, and interest on debt (Table 2). Pesticides are a major production expense, and their usage has increased over the past five years despite environmental concerns. One reason for this increase is the shift from conventional tillage to conservation tillage practices (Table 3). Another notable change in production costs is reduced interest expense, which largely reflects lower interest rates. Operators' reported depreciation is the same as that used for federal income tax purposes. Depreciation expenses decreased from 1986 to 1991 largely reflecting changes in federal income tax laws. The period of time over which machinery, buildings, and purchased breeding livestock are depreciated has been lengthened; therefore, annual depreciation rates on newly acquired depreciable assets have been reduced. Cost per dollar sales tends to decline as farm size increases (Table 2). Some of the causes might be that overhead costs are spread over more units, technical efficiency is improved, and price discounts are received for high volume purchases. Also, a larger farm operation enables the operator to be employed full-time on the farm and have time to be more aggressive in pursuing profit enhancing management strategies. For most Ohio farm enterprises, production technologies still enable moderately large · sized firms to be competitive with larger ones. For example, the 150 sow, farrow to fmish, pork * The analysis of the Ohio Farm Household Longitudinal Study is supported by the Ohio Agricultural Research and Development Center and the Ohio Cooperative Extension Service. Authors are Lynn Forster, Gail Edgington, Tom Stout and Gary Schnitkey. I J J . ..-. ......, production unit has. average cost per pound which are similar to the 500 sow unit. The 100 cow dairy herd can compete effectively with the 300 cow herd. Thus, farm businesses in Ohio remain largely sole proprietorships or partnerships owned by a few family members. A few large poultry and swine . farms are corporate owned, but these are exceptions to the family farm structure seen over most of the state. Tenure and Land Use As households are more heavily engaged in farming, they tend to own a smaller proportion of their acreage, and to leverage their capital, equipment, and labor by leasing farm land (Table 1). Corn and soybeans dominate land use, especially on larger farm operations (Table 1). On "rural residence" operations, corn and soybean acreage has diminished somewhat in .the past five years, but these continue to be important crops. Production Practices Although conventional tillage (moldboard plow followed by secondary tillage operations) is still the major tillage system, there has been a shift to less erosive tillage practices, especially on larger farm operations (Table 3). Conservation tillage practices are now the predominant tillage system on almost two-thirds of the "commercial farm" operations. Little change occurred in the adoption of conservation tillage practices on "rural residence" operations. Crop rotations that include small grains or pasture with row crops predominate (Table 3). However, a notable change in production practices in the past five years has been a movement away from continuous row crops on larger farm operations (Table 3). This change is consistent with the increased wheat and hay acreage reported by these same operations (Table 1). These two important changes in production practices - more use of conservation tillage and less use of continuous row crop rotations - should have reduced soil erosion and nonpoint water pollution from Ohio farms. Table 1. Distribution of Acres Operated , by Farm Size, 1986 and 1990 1986, by Gross Sales 1990, by Gross Sales Less than $40- $100,000 All Less than $40- $100,000 All $40,000 $100,000 and more Farms $40,000 $100,000 and more Farms Acres Operated 245 427 . 779 336 187 465 807 335 Percent of acres -owned 56 41 40 50 70 40 41 52 -rented 44 59 60 50 30 60 59 48 Percent of acres in selected crops -corn 23 30 36 28 19 25 35 27 -soybeans 25 31 25 25 19 29 28 25 -wheat 7 8 6 6. 7 12 11 10 -hay 11 9 9 10 10 9· 7 9 -other 34 22 24 31 44 26 19 30 Management Services and Marketing Tools Information and managerial assistance are sought from a variety of sources including accountants, attorneys, and fmancial and marketing consultants (Table 4). Over the past five years, little change has occurred in the use of these professionals. As expected, the larger farm operators are more likely to hire these services than are the "rural residents," whose use of these services probably parallels that of non-farm households. The use of computers has n~arly doubled for all three groups of farm households (Table 4). Table 2. Distribution of Gross Farm Product Sales 1986, By Gross Sales Less than $40,000 $100,000 $40,000 ~$100,000 or more Gross Sales ($000) 18.6 70.6• 213.8 Percent of Gross Sales from -crops 40 42 35 -livestock 34 39 49 -government payments 7 9 9 -othera 19 10 7 Cost per $ Sales 1.43 0.88 0.86 Percent of Cost From -Pesticides & Fertilizers 12 19 15 -Interest 10 11 13 -Depreciation 16 18 14 -Hired Labor 2 3 3 -Seed & Feed 10 15 18 -Livestock 2 6 12 -Other 48 28 25 aOther includes imputed rental value of residence, rentals, and inventory change. Over one-third of the "commercial farm" households have computers and use them in managing their farm operations. Marketing tools such as forward contacting, delayed pricing, hedging, and options enable operators to develop marketing strategies that assert some control over price risk and terms of sale. Forward contracting and delayed pricing are the most used marketing tools, and their use has increased slightly in the past five years. Again, commercial farm operators are more likely to use these tools than are operators of smaller farms. 1990, By Gross Sales All Less than $40,000 $100,000 All Fanns $40,000 -$100,000 or more Farms 62.3 16.1 73.3 232.9 61.5 37 40 44 30 35 43 33 31 50 44 8 8 5 5 6 u 19 20 15 15 0.98 1.26 0.90 0.81 0.91 15 18 20 16 18 u 8 9 9 9 16 17 14 11 13 3 2 3 5 4 15 12 17 20 17 8 2 3 6 4 31 41 34 33 35 Financing the Farm Operation Farms are capital intensive. The average value of farm household assets was over $400,000 on December 31, 1990, and most of these assets were committed to the farming operation. Operators must fmance these assets by using either equity capital or debt, and equity is the principle source of capital. Farm households face enormous risk due to price instability, weather, pests, disease, and changing macroeconomic forces such as foreign exchange rates and interest rates, and international political events. Financing a business in this risky climate with debt capital heightens risk. Thus the degree of debt fmancing in farming is relatively modest. For example, while the average debt-to-asset ratio was 0.11 for Ohio farm households at the end of 1990, it averaged about 0.60 fo~ all U.S. industrial corporations. At the end of 1986, 7 % of all farm households and 15 % of commercial farm households had debt-to-asset ratios above 0.7, which placed them in the "severe fmancial stress" category. Now, five years later, only 2 % of all farm households and 7 % of commercial farm households are in this category. Some fmancial "healing" has occurred in the industry. In general, farm households are in a strong fmancial position. Over 80 % of commercial farm households and 90 % of ·all farm households have debt-to-asset ratios of 0.4 or less and are relatively conservative in their approach to fmancing their farm businesses. Summary When examining the array of production, marketing, and fmancing practices used on Ohio farms, it is apparent that commercial farm operations are quick to respond to changing conditions. Larger farm operations tend to be the ones that adopt conservation tillage, use innovative marketing tools, aggressively seek information, and fmd uses for computers in their operations.· They are also mpre likely to lever their own resources by renting farm real estate and acquiring debt. In the fmal analysis, this aggressive management style help lower their cost of production and improve their profitability. Table 3. Distribution of Cropping Practices, by Farm Size, 1986 and 1990. 1986, by Gross Sales 1990, by Gross Sales Less than $40- $100,000 All Less than $40- $100,000 All $40,000 $100,000 and more fanns $40,000 $100,000 and more farms Percent of Farms by Predominant Tillage Systems Used -Conventional 63 58 43 59 57 50 37 S3 -Conservation 34 39 55 38 34 46 62 40 -Other 3 3 2 3 9 4 1 7 Percent of Farms by Predominant Crop Rotation Used -Continuous Row Crop 15 20 27 17 16 11 15 15 -Row Crop/Small Grain 31 38 27 31 34 48 43 38 -Other, Including Rotation with Pasture or Hay 54 42 46 S2 50 41 42 47 ' Table 4. Percent of Ohio Farm Operators Using Selected Management Services and Marketing Tools, by Farm Size, 1986 and 1990. 1986, by Gross Sales 1990, by Gross Sales Less than $40- $100,000 All Farms Less than $40- $100,000 All $40,000 $100,000 and more $40,000 $100,000 . and more Farms Management Services (Percent of Operators Using) -Bookkeepers and Accountants 43 52 61 46 40 49 59 45 -Attorneys 19 26 30 21 18 25 35 22 -Consultants 7 13 25 11 6 9 22 9 -Computers 5 9 15 7 10 16 37 16 Marketing Tools (Percent of Operators Using) -Forward Contracting 16 36 39 20 10 41 49 22 -Delayed Pricing 18 27 28 20 18 32 35 23 -Hedging 2 5 12 4 1 5 11 3 -Options 1 4 6 2 1 7 12 4 Table 5. Use of Debt Financing: Percentage 'of Farm Operator Households, by Debt/Asset Ratio and Farm Size, December 31, 1986 and December 31, 1990. 1986, by Gross Sales 1990, by Gross Sales Less than $40- $100,000 All Less than $40- $100,000 All $40,000 $100,000 and more Farms $40,000 $100,000 and more Farms Debt/Asset Ratio No debt 48 27 15 42 47 21 14 38 0.01-0.10 17 23 13 17 25 30 23 26 0.11-0.40 21 34 37 24 21 37 45 28 0.41-0.70 8 9 20 10 5 11 14 8 0.71 and above 6 7 15 7 2 2 3 2 100 100 100 100 100 100 100 100 Ohio Farm Household Longitudinal Study Dept. of Agricultural Economics and Rural Sociology The Ohio State University 2120 Fyffe Road, Room 238 Columbus, Ohio 43210-1099 } 1114·;210525-361 Non Profit Org. U.S. Postage PAl D Columbus, Ohio Permit No. 711 

Ohio Farm Household Longitudinal Study

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Ohio Farm Household Longitudinal Study

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