Where's the Farm Size Sweet Spot?
Juggernaut farms may beat their peers on scale, but they aren't necessarily top of class in production cost.
In fact, an analysis of more than 300 commercial producers in the AgriSolutions database from 2008 to 2011 found corn farms over 8,000 acres actually registered the highest average cost of all farm sizes studied. On average, they spent $637 per acre to grow an acre of corn during this four-year time period, more than $50 an acre above some of their smaller competitors. That's a factor that could be problematic should commodity prices tumble and cash rents stay stuck at lofty levels, cautions AgriSolutions Sam Bachman.
"It's not a foregone conclusion that the largest farms are the most competitive," added Bachman. "No matter what your size, you have advantages, whether they be in equipment, family labor or low land costs. You just need to understand your exposure and learn how to manage it."
Corn farms in the 4,000- to 7,999-acre category seemed to have the most consistent cost advantage, generating average costs of about $589 an acre. That category really shined in 2008, however, when it averaged costs of $394 an acre versus $731 for the highest-cost operators. Farms in the 1,000- to 1,999-acre size averaged $585 an acre over this period.
In corn, there seems to be a "right-size" machinery advantage around the most efficient combine size, Bachman added, something other benchmark analysis at land grant universities confirms. "What's new is that we're finding that the largest growers aren't gaining enough economies with cheaper seed or kickbacks from chemical dealers to offset their higher costs in other areas. The input efficiencies aren't adding up."
High cash rents likely are offsetting their natural advantages in machinery costs, Bachman said. Since juggernauts lease a higher percentage of the acres they farm at market rates, they are much more sensitive to the post-2005 land price rally. Small owner operators, or those with a high percentage of family-owned land, haven't felt the same kind of pressure generated by cash rent auctions.
In this case, AgriSolutions' managerial accounting program measured all costs by crop acres on an accrual basis, so the corn growers here could be as much as twice the indicated farm size when all their rotation acres are counted. The analysis did not include interest or salary draws, but did measure all costs associated with planting, harvesting and storing the crop.
When you benchmark the numbers and compare farm financials on an apples-to-apples basis, "you can challenge the notion that big farms have all the advantages of production cost," Bachman says. "There's really no clear-cut advantage size wise."