What are the 5 largest expense categories, when running a small family farm?

Question

here are some choices: fuel, electricity, water, seed, labor costs, maitenance of equipment, top soil, purchase of equipment, etc.

Answer 1

Land purchase, interest or land rental, initial monetary outlay for livestock, machinery or structures, inputs such as feed for livestock or seed and fertilizer for crops, hired labor if needed for the operation, opportunity cost on monetary investments, i.e. you pay $50,000 cash for a tractor, how much interest income could that money have made had you invested it in the stock market, cd, interest, etc.

Answer 2

With a very small farm, your daily living costs can be your largest expense, particularly if you are accustomed to a better life style.

Your expense for many things depends very much on what you are doing, and how fast you have to pay down your mortgage. While interest on a mortgage, or rental of someone else's land is an expense, we do not call payment that lowers the mortgage an expense. Yet balloon payment, even required yearly payments can be big enough to sink the ship in a bad year.

A non-expense that can kill the operation can be a drop in local farm land valuations. Your banker will keep tabs on your debt/equity ratio and close you out if it gets too bad. SO if local land prices drop it can mean that your equity will go negative.

Risk is an expense we often fail to include. We do cover insurance for many events if we actually buy the premium, but perhaps not when we are carrying the risk ourselves. How will loss of a very valuable cow hit you in a dairy herd? Not just the value of the cow, but the disruption of milk sales contracts. The risk if a cow escapes onto a highway and hit by a car puts a high earning person in a wheelchair for life.

Many new farmers will spend decades nursing very old equipment  through repeated repairs, often in prime season. Those who do not often go bankrupt primarily because they tie up too much capital, and too much expense in  interest, commit to too fast repayment on the enormous cost of equipment.

One can start a breeding herd by buying calves, raising them to maturity. That cuts expenses over the first couple years, but it delays onset of income.

Getting your farm 'Certified Organic'  does not cost a lot, and it can make a lot of money if you plan your product lines appropriately, get sales contracts starting 4 years out. Your cash outlays during that first 4 years are likely to be lower but because you are getting reduced production you have to start looking for enthusiasts eager to buy from you just because you are going organic. Otherwise it could restrict your revenues if not your profits.

Typically the terms small and family imply that labour will be a minor cost, until we pay the kids for what they do.

Buying soil will usually be cost zero to negative.

Seed could be significant if you are buying your seeds. That is not a necessary assumption.

If you must buy water for irrigation, that could become a very major cost... worth while spending to reduce usage as far as practical.

Some poultry and other livestock operations do have significant electrical costs, It is rarely as great as the facilities that use the power.

Where cropping land without minimum tillage practises, fuel costs can be significant. They can be as great as the cost of living during the planting season.

Answer 3

Fertiliser is usually the biggest single expense (on an owned farm).  Labour is usually second.  And from there it really depends on the type of farming operation, and whether you are talking about capital expenditure or operational costs.

Answer 4

small or large doesnt matter land or land rent is number one even if the land is paid for if someone will pay $200 an acre to rent your land you have to count that as if you were paying rent for example if you cleared $210 per acre from crops you raised and could have rented the land to someone else for $200 and done nothing except cash a check you actually only made $10 for your time crop inputs (fertilizer,seed, and chemicals) are number two equipment cost own or lease is number three labor is number four and fuel is number five electric doesnt amount to much water can be a major expense in some areas