Thoughts on Farming – Part 5, by Single Farmer

I often hear statistics that farmers receive 15 percent of a food dollar. That statistic really needs some examination in comparing it to previous generations. Back in 2016, we sold wheat in the $3.80 range and we were fortunate in that the official statistic for wheat for our area is $3.20 a bushel. I will be generous and use our $3.80 a bushel number: At that number, a pound of wheat is a little over 6 cents. Wheat is commonly used in bread, so an example that I often think about is how much of a loaf does the farmer get and that often demonstrates the difficulty in profitability.

For these purposes, I will say one pound or 1/60 of a bushel is the amount of how much wheat is used for the loaf of bread (although many bakeries use less than a pound of wheat flour per loaf, so they could bake more than 60 loaves to a bushel). In 1950, a loaf of bread was 12 cents and the family farmer would sell his wheat for 3.4 cents a pound receiving about 28 percent using that equation. Using the 2023 full year numbers as this is being written in late December 2024 before the complete numbers are available which likely are higher, the average price for a loaf of wheat bread was 2.54 dollars and we a family farm sold our wheat for under 9.5 cents a pound earlier this year receiving under 4 percent using that equation. The price we sold wheat actually declined in 2024, versus what we sold it for in 2023. There are a lot of people paying more than 2 dollars and 54 cents a loaf for bread further reducing a farmer’s percentage.

All of those are gross numbers before any expenses are paid. There are so many expenses which usually include routine and necessary expenses such as seeds, fertilizer, farm machinery, fuel, taxes, and transportation.  That takes the 9 and a half cents a pound and really reduces it significantly. If you have not sold a large agricultural commodity by the semi-truck load, you probably do not know that there are subtractions even when selling it.  After the net weight is calculated (subtracting off the truck), there is also a reduction if the moisture content is above certain established moisture thresholds. If it is higher, then subtractions will be made because they do not want to pay for wet grain which has to be dried out and this costs money. There are also subtractions for foreign material that is not grain as they equally do not want to pay for stones or dirt.

Transporting the crop to be sold is a gigantic undertaking.  For teh sake of efficiency (remember anything that is done on this scale is to be done as quickly as possible or you are not maximizing profit potential), a semi-truck is often used for transport. Some farmers will use grain haulers and this can cost more than a hundred dollars an hour depending on the distances involved. Most people reading this are not seeking to enter into the commercial farming business. There are several points that are very important to understand, since someone who wants to be prepared should consider the necessity of food storage at the family level and the complicated process being described to get food from the field to the first stop along a very long path to your table.

At these low levels for a bushel before subtracting everything required to raise that crop from seeds to cost of transportation to the grain elevator, there could easily be a loss, so not even a penny is made for all of that work. The farmer essentially not only worked for free, but he also has to pay many bills which could drive him further into the red and if this continues could drive him out of business. It was not always this way. There was a better time for farmers, a golden age of farming in the post-Second World War world.

The late 1940s was a time when America was expanding. Many returning veterans of the Second World War returned home, married, and began the “Baby Boom” which was an unprecedented expansion of both our population and the economy. The United States exited the war relatively unscathed with large demands of food from overseas to feed a population desperate for food after six years of world war. Wheat prices reflect the growing demand with 1.91 wheat in 1946 to 2.25 wheat in 1947 and even by 1950 it was still at 2.02 a bushel and through 1956 never went below 2 dollars a bushel in our area. The 1950 price is equivalent to 26.44 dollars a bushel using the latest data of November 2024 from the consumer price index. Using the equivalency in silver, it would be much higher. Those are gigantic numbers and gave the farmer enormous purchasing power. If you look at the historic records for family farms in this era in the Midwest, you will often see family farms producing an equivalent of three salaries compared to city jobs in this era. However, the post-war boom led to overproduction and that in turn led to eventual price declines.

Agriculture does not exist in a vacuum especially in an age of the ability of politicians to tax one group and give resources to another group. Farmers often become a group of people who is pandered to by various politicians promising to restore past glories or for stability in pricing as this allows long-term planning especially based on debt repayment. The concept of “parity” programs which all current subsidy programs trace their ancestral roots are one such example. The period of 1909 to 1914 has been termed the “Golden Age of Agriculture” and at averaging 87 cents a bushel wheat for this period was very good compared to years during the period starting with the Panic of 1893 lasting until 1897 with wheat prices in the first three years of the Panic averaging 43 cents a bushel. Back then unlike the 1950s when gold was unable to be used in commercial transactions inside of the United States, 87 cents for a bushel of wheat was very impressive: if you could sell 23 of these bushels you could put in your pocket a 20 dollar gold piece containing almost an ounce of gold (.9675 ounces of gold to be exact).

Today that equivalency would be $113 a bushel wheat at current gold prices as this is being written in December 2024. Using the more common consumer price index (which many observers say that it undervalues inflation by excluding and often redefining categories), the price of 87 cents a bushel in 1914 to today would be 27.45 dollars a bushel. At that price, farmers would be able to make a consistent return comparable to the level of a 1950 farmer discussed earlier. The wheat necessary to make a loaf of bread would be a little under 46 cents which is not completely absurd considering some restaurants in our largest cities are charging three dollars or more for a couple of slices of toast.

The same can be said about the “profit” that any number of people are making between a farm to your table. The more people who handle any commodity, the more it costs because each person needs to get paid. The grocery store has small margins with massive bills to pay include lots of “shrinkage” and restaurants have their own challenges which also can reduce profitability. Knowing people in both industries has allowed me a view to be able to say that no one is getting rich in feeding the average person.

The logic behind a “parity” programs is that the farmer would receive a payment if his income fell below a certain level tied to a certain time period based on what one party says is a “fair” amount. The issue is simple algebra meaning that if an “operation” is done to one side it also has to be done to the other for things to be equal: for a farmer to receive a payment from the government, someone needs to give it and eventually paying the bill every American or more specifically, the taxpayers. Fairness is not something that can be legislated or regulated.  A free market determines price with supply and demand working out toward an equilibrium continually adjusting depending on the trajectory free people choose for themselves. That is fair, but “fairness” to those who often advocate it means someone has to take from another person by force if necessary to create the playing field they determine is economically just.

Ignoring the free market and trying to institute quotas often results in negative results such as lower quality, lower production, destruction, or production that is not wanted. Examples of this include when the U.S. government during the Great Depression tried to increase the price for certain commodities so it paid for crops or animals to be destroyed in order to temporarily raise the price. This does not work because the producers were paid for the destruction and eventually everyone paid higher prices than the market price.

This little history lesson affects each American until this day because during this period of economic upheaval, the country shifted away from the free market and embarked upon quasi-governmental control of varying degrees of every facet of your life. With the election of Franklin Roosevelt, free market economics was replaced by economic theories which required regulation of free markets and coercive controls to be introduced. As you could imagine, there would be a conflict between men who wanted to carry out their role as men of being providers and government which wanted to control their ability to feed their families through central planning.

The story of Roscoe Filburn, an Ohio small farmer who was just trying to grow wheat to feed his family and cattle during the Great Depression year of 1940 is illustrative of the lengths a central planner must go to smash the initiative of small independent people. Roscoe successfully grew wheat mainly for his own use feeding his family and animals with some extra for his local community. He grew beyond the numbers he was allowed to grow by the government (back then in an effort to increase price, the government gave farmers a certain allotment and Roscoe was not allowed to plant wheat on half of his acres.) The wheat never left the state. It was not sold interstate (between states), but intrastate — in fact, in his very local area.  He was fined and this eventually found its way to the Supreme Court where in Wickard v. Filburn the court ruled that the government could regulate commerce that never left the state because if he did not grow the wheat, then he could have purchased it thus affecting interstate commerce. That was rather shaky logic, but it became the foundation of the modern interpretation of the interstate commerce clause which allows the government to potentially regulate anything it wants in your state even if you never leave it.

Everyone in our nation actually lost some of their liberty with that decision. It led to a growth in the size of government which never acts as efficiently as free people making decisions in their own area. The first large scale programs to control and subsidize agriculture began in this era and they continue to this day.  Some of the quotas have been suspended for years such as wheat quotas that Roscoe was fined for violating.  All of these programs had a goal of “saving the family farm” by trying to raise prices and consequently incomes for family farmers. None of these programs have been successful when looking at overall numbers.

In 1960, John F. Kennedy was campaigning across the country and he gave a critical speech on the future of agriculture at the National Plowing Contest. At the time, there was a debate on how to save the family farm through a parity program to guarantee an income at which candidate and later President Kennedy gave a pledge:

“First, we pledge ourselves to securing full parity of income for the American farmer. By ‘parity of income’ I do not mean a vague target or a high-sounding goal. I mean a clear, easily defined concept which can be mathematically ascertained and computed. Parity of income is that income which gives average producers a return on their invested capital, labor, and management equal to that which similar, or comparable, resources earn in nonfarm employment…Here is a concept which strikes to the heart of the farmer’s problem. It does not concern itself directly or solely with prices – with what the farmer receives – but with his net income, his return, the only figure which is meaningful in determining his standard of living, particularly in this age of the cost-price squeeze. For the farmer, is the only man in our economy who has to buy everything he buys at retail – sell everything he sells at wholesale – and pay the freight both ways.”

None of this was successful and the almost 4 million farms in 1960 became the under 3 million farms by 1970. Many farms during this period of high inflation and lowered prices were forced to take on debt especially after the inflation starting in the mid-1960s.  As you may already know, silver was removed from dimes and quarters in 1965, being reduced and then removed from half dollars starting in 1971. If you purchase farm ground and go back far enough in examining the history of the property through the deed records, you will sometimes see mortgages in this time period of people trying to borrow their way out of rising prices and declining incomes.

By the 1970s, farm policy took an interesting turn when Earl Butz, the Secretary of Agriculture, told farmers to plant from “fencerow to fencerow” (rejecting the previous policy of trying to increase price through decreasing amounts of planted acreage of commodities) and told farmers “to get big or get out.” All of this encouraged monoculture emphasizing a single crop to maximize time and resources which has created soil depletion and also subjected farmers to dependence on the fortunes of a single crop. Family farms in the 1970s had to contend with high prices of the inputs required to produce a crop and getting bigger was very difficult as land values continued to climb in the 1970s along with every other tangible item being squeezed higher in inflationary pressure. The number of farms declined by almost another 500,000 during the 1970s. However, the worst crisis was actually just on the horizon.

The decade of the 1970s was a period of high inflation where people were willing to pay more for tangible items as these were seen as a hedge against further inflation. People rushed into buying land, houses, cars, and almost anything of value as waiting often meant that the price would be higher. I have interviewed people from this period who were trying to purchase homes and they commented that if they delayed prices were increasing much faster than they could save, so many would try to use credit in order to borrow to stay ahead.

All of this inflation was largely a result of the decision of the United States government to move the dollar away from being pegged to gold which increased the price of gold from 35 dollars an ounce to 850 dollars an ounce by 1980. Interest rates skyrocketed reaching over 18 percent by 1981. Farmers were not immune to this decade of price increases and many decided to follow the advice of Earl Butz both moving toward monoculture of commodities instead of diversification as was more common on earlier family farms and also to purchase more land to increase the efficient use of the equipment which was rising in price.

All economic bubbles eventually pop and this one resulted in an economic destruction in the farming sector which could be argued was worse than the Great Depression as measured by bankruptcy filings. The crisis actually peaked in 1985 and the price for 1986 wheat in our area was actually even lower in 1986 than 1985 bottoming out to 2.25 a bushel, a level first seen in 1947.

Farm bill after farm bill has tried to save the idea of the family farm. Our nation has been living under farm bills since the 1930s with each multi-year act (bills that are signed into law are called acts) trying to “help” farmers starting with the “Agricultural Adjustment Act” of 1933. I am writing this in the time of an expired “farm bill” where there is an interesting debate going on about how to “help” farmers. Farms growing specific commodities that are broadly consumed in the country such as wheat, soybeans, and corn are usually eligible for various financial assistance depending on the provisions in the act.

The Department of Agriculture (USDA) is the best source of information and they routinely send communication periodically to farmers both electronically and through the mail informing farm families about these various programs. Deciding on the merits of each program in the current farm “bill” and how they apply to your operation is outside of the scope of this article.

The Biblical foundation of individual economic wealth creation is to exchange your time and skills in the form of labor for money and this becomes your capital. You can then take that capital that you earned and further invest it by saving it for a “rainy day,” further invest in yourself building up your business or skills to give yourself further competitive advantages in the marketplace or investing in the business of another individual with the expectation of further profit. All of this is hard work often requiring a lot of “sweat equity.” The opposite of this is to make a loan and get the capital today instead of taking the time and learning slowly using compounded knowledge instead of interest gradually growing your business. Like all easy roads, the road of borrowing has a unique toll of compounding interest that must be paid or you could end up losing more including any collateral.

Loans and other direct subsidies are keeping afloat many farmers today. Going from one debt payment to the next loan is unfortunately the case for many farmers in our country. “Beginning farmers” are offered loans and farmers are offered operating loans. There is no shortage of people offering loans, but it is often very difficult to pay these back as I have mentioned many times. Without the farmer, there is no food. Governments have many times tried to figure out ways to encourage agriculture making it a cabinet-level office in 1862, but instead agriculture has grown from self-supporting to extremely dependent on government for funding especially since the 1930s.

During the major famine prior to the Bubonic plague that was discussed in Part 1, prices increased by more than 300 percent in an area that was heavily affected in France. Back in the Middle Ages, it ranged from very difficult to impossible to afford food at the peak of a famine except for the wealthiest, so people would starve. Tripling of food prices now to Americans in 2025 would be difficult, but it would be closer to historical norms in the early 1900s where Americans spent over 40 percent of their income on food. This was a different time where many Americans had gardens, hunted, and fished for food and almost all of this food was consumed at home (restaurants were not as plentiful). In 2019, Americans were spending a little over 10 percent of their income on food and this has increased with the recent inflation over the last few years to over 12 percent.

We are not benefiting much and usually not at all from higher prices as the increased prices you pay usually means farmers are paying higher prices for the seeds, machinery, fuel, fertilizer, and everything it takes to produce a crop. Back in 2022, we sold wheat for over 8 dollars a bushel, but instead of us singing “Happy Days are Here Again” (a song people sang during the Great Depression to lift their spirits), the price was more of a mirage than some new level because everything also went up in price. Futures actually spiked to over 13 dollars a bushel for wheat at one point.

Nitrogen fertilizer based on local prices in 2022 was almost $1,000 dollars a ton compared to in the $300 a ton range back in 2016. Remember the wheat price in 2016 was 3.80 a bushel (using the fertilizer comparison we would need to sell a bushel at over 11 dollars for the same equivalency). Whenever you see higher food prices, farmers are unlikely to be making more “real” money and often are losing money on a “real” basis as the higher prices often do not adjust for the higher input costs. Prices usually go up either because of a shortage due to a crop failure that the crops do not produce at normal levels or sometimes there is an international incident such as what prompted the higher wheat price as there was uncertainty in how much wheat would be produced in another area of the world which is also considered a breadbasket like farms in the Heartland. Prices can rise and fall very fast in an international crisis. I noticed in 2023 the price of wheat dropped from 7 dollars to 5 dollars a bushel in 3 months as more inventory became available.

The good news is that food is more available at a lower price with fewer people having any involvement in agriculture than for the majority of history. Currently, Americans are able to purchase wheat at 10 percent of the price of someone in the Middle Ages and chicken at just 4 percent of the price meaning that chicken is 25 times more available to you. You may be asking yourself:  Why is Single Farmer talking about chicken? Chickens both broilers for meat production and layers for egg production consume wheat or other cereal crops as a large percentage of their diet, so large increases in grain prices show up in chicken, egg, and milk prices along with any other animal that consumes grain for its caloric needs.

(To be concluded tomorrow, in Part 6.)