C4-Lancastar Fanning, Saturday, May 3,1986
t
Talk
A successful full-time farming
operation needs to gross $200,000 a
year. That’s not my idea. It’s one
that’s being discussed in economic
circles and it’s a concept that
“Successful Farming” magazine
feels is worthy of consideration. In
fact, the magazine has invited its
readers to comment.
A story in the May issue of
Successful Fanning illustrates the
$200,000 concept and why it’s
important to today’s farmers. The
article sites Tom and Jane Page
and Jim and Susan Johannsen, two
South Dakota farm couples who
are in the business full time and
are trying to make it go. The
Page’s are about half-way to their
goal. The Johannsen’s just a little
shy.
The Successful Farming story
also quotes Lloyd Ferguson, an
Oaklahoma financial consultant,
who also believes that $200,000 is a
minimum gross sales target for
full-time farmers. He talks about a
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gross profit on revenue or ufK.
That’s the farm’s total cash
revenue, minus total cash farm
expenses including interest ex
penses but excluding depreciation
and income taxes. That figure is
then divided by total revenue to
yield a GPR percentage.
If a farmer comes up with a 10
percent GPR on sales of $200,000
that means he has 20,000 left to pay
living expenses and taxes, to repay
n-mciple on any debt and to
. eplace machinery or other capital
items. Obviously, a 10 percent
GPR is not very good. With even
minimal taxes and subsistence
cost of living, the farm couple has
little or nothing left to repay debt
and replace machinery.
That’s where a lot of farmers are
in trouble these days. Whether
they know it or not their gross
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profit on revenue is even less than
10 percent. They may be selling
$lOO,OOO worth of produce with
expenses of $90,000. That’s not
enough total revenue and the GPR
percentage is not enough. So there
is nothing left for family living or
debt retirement. In fact what
happens in so many cases is that
operational expenses are left
unpaid just so the family can be fed
and cared for. Only those bills that
are absolutely essential are dealt
with because there just isn’t
enough money.
Ferguson and some other ex
perts feel that a $200,000 gross at
least offers the opportunity for a
full-time farm income. And
Ferguson thinks a 20 percent GPR
is much more comfortable on the
$200,000 revenue. That would mean
$40,000 of positive cash flow before
taxes. With a $5,000 tax burden and
much more acceptable $20,000
living expense that would still
leave $15,000 for debt repayment
and replacement of capital
equipment. Ferguson says even
$15,000 is a minimal figure. One
bad year and you are in serious
trouble.
The $200,000 gross revenue
figure is not a magic solution.
Plenty of farmers have grossed
that and more and have still gone
broke. And no doubt there are
farmers living comfortably on
much less than that. Obviously a 40
percent GPR on a $lOO,OOO gross
would yield that same $40,000. But
that may not be realistic with most
farm enterprises. In fact, the
national average is only 516 per
cent according to Successful
Farming.
Many farmers are finding ways
to improve their GPR whether
they call it that or not. They are
cutting expenses and locking in
more favorable prices. They are
boosting yields and eliminating
unnessary frills.
The Pages started farming at the
worst possible time 1979. They
don’t own any land, preferring to
keep their modest resources in
vested in something that pays
better. They don’t even own their
home. They rent 600 acres of
cropland and 500 acres of pasture
and hay ground and feel they can
rent for less than the interest costs
alone if they were buying that
same ground. In addition to crops,
their gross income includes sales
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of the yearlings from a 75-cow beef
herd and feeder pigs and finished
hogs from 35 sows. The Pages plan
to rent a few more acres of
cropland and add some more sows.
Eventually, they hope to buy some
land for a home base.
The Johannsen’s started in 1973.
They now own 400 acres and rent
another 1,500. They grow wheat,
oats, corn and barley and feed out
about 130 head of beef cattle each
year. Their future expansion in
cludes a farrow to finish operation
selling 700 hogs a year.
Both of these couples think a
$200,000 revenue goal is realistic in
today’s agriculture. That figure
won’t guarantee a comfortable
living or debt-free existence but it
does offer a shot at success.
It’s a concept that’s going to be
drawing some attention in the
months ahead.
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