richald oswald's son drinking from irrigation pipe
Brandon Oswald gets a drink from the irrigation pipe on his family’s farm
Langdon, Missouri, 1976
Photo: Courtesy of Richard Oswald

How does a farmer begin?

If and when the human genome is finally mapped and the secrets of creation are revealed, one of the things I know they will find is a genetic predisposition toward agriculture. Just as some of us have it in our genes, thanks to our northern European heritage, to digest cow’s milk, many of us feel the urge to herd animals or grow crops. After being separated from the farm by 2 or 3 generations of city living, we may lose the name for that itch we feel to grow things, but the itch itself never quite goes away.

Adam and Eve in the garden may well have been the first farmers. Every year, hundreds, if not thousands of young people leave their rural garden even though they feel they are turning their backs on the very thing they were created for: a life on the land.

So what does it take to be a farmer these days? In a word, the primary requirement for any farmer is Capital. To be a farmer takes money. It also takes land, labor, investment, and time.

Forget about cheap interest rates like those we’ve seen in the home mortgage market. Operating loans for farmers generally carry much higher interest rates, because unlike nationwide mortgage lending, commercial lending to agriculture is a much smaller market. When home mortgages traded at 5% interest rates, most agricultural loan rates were well above 8%. Today it is difficult to secure an agricultural production loan for much less than 9%. For farms that have little in the way of equity or collateral, rates may be higher. That still may not sound like much, but in a business like farming, known for earning 5 % returns, interest rates often exceed profit percentages

Ralph Oswald and son truck

The farm pickup, 1957
‘Ralph Oswald & Son’
Langdon, Missouri

Photo: Courtesy of Richard Oswald

There are other ways to farm, other crops to grow, and livestock. Each one has its own set of difficulties, but for the sake of simplicity and because of the present demand, I’m going to focus on corn. With the current high price of land, the only way for young farmers to secure the fields they need to grow their produce is through rent. Some landowners still rent land for a portion of the crop (crop share), but most rented land today is secured through cash rent. Cash rent is a direct out of pocket expense. Most landowners expect a minimum of 50% of the rent in the spring with the remainder due the following fall. Cash rent varies from area to area and state to state, depending on the productivity of the land and the crops grown. The normal range in the Corn Belt this year is probably from $85 to $200 per acre.

The average size of farms in the Corn Belt is about 750 acres. Operating 750 acres requires about a $250,000 investment in machinery, $150 per acre for rent, and about $170 total per acre for fertilizer, seed, and pesticides. Today, with living costs on the rise, a farm family of 4 probably requires $40,000 for family living. For farmers, especially young farmers, borrowing additional funds for living costs is not unusual.

So total cash needs for a young farmer for one year amount to around $530,000.

If the corn crop yields the projected national average of about 155 bushels per acre and the farmer sells it for a cash price of $3 per bushel, he’ll have gross income of somewhere near $350,000. Lenders nearly always take liens on the crop to secure farm operating loans, so the first thing that happens when the crop is sold is that the bank has to be paid. Our young farmer is cash poor, so he borrowed all his cash inputs totaling about $240,000. Being a young farmer he also was charged a fairly high rate of interest at 9.5%. That bill is due when the loan is paid, for an additional $10,000 interest cost.

Total borrowing costs for operating: $250,000. We’re down to about $100,000. So now you’re thinking this is just another rich farmer, right?

Not really. He still has his machinery payment to make. Our young farmer gets a better interest rate this time because machinery is easier to secure. $250,000 borrowed at 8% interest amortized over 7 years is about $42,000. We’re down to $58,000. With living expenses of only $40,000, he’s way ahead. But we forgot fuel expenses of $8,000. And crop insurance at $22 per acre. And our young farmer bought used equipment, so he has repair expenses of about $7000. He also has to pay personal property tax of $2200. Those four things total $33,700.

Now our farmer has $24,000 left, provided his crop is this good, the price is this good, there are no catastrophic machinery breakdowns, and no serious family illnesses.

Under the current farm program, he would likely collect about $17,000 in Direct Cyclical Payments (DCP). There would be no other subsidies because of the current high price of corn. After spending $533,000 for inputs and machinery, our farm family has a net farm income of $41,000.

Richard Oswald's father on a tractor
Ralph Oswald, the author’s father, loading the tractor with seed corn
Langdon, Missouri, 1956
Photo: Courtesy of Richard Oswald

If you made it through all these figures, it’s easy to see why we need Federal programs designed to help young families stay on the farm. Many farm parents assist their children as best they can, but more and more, the sheer cost of farming is forcing parents to advise their children to look elsewhere for opportunity.

A farm bill that offers such small things as tax credits for landlords who rent to beginning farmers and loans with lower interest rates may be all it takes, because young farmers aren’t looking for handouts or expanded payment limits. Most of them are simply focused on making it to next year.

All they really ask for is a chance.

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