How do farmers make any money?

[Hay Dude]

Some good stuff there, but looks to be upside down on the prioritization, compared to what has worked for my family. Our kids are the 8th generation, who have lived on our farm. It was first homesteaded by my great great great great grandfather.

He was born in Europe, in the year 1790, according to his headstone over at the local cemetery. That cemetery belongs to the church, down on the corner, and that is about a mile to our east.

That is the oldest legible date, on any of the headstones or monuments, at that cemetery. One of the largest monuments there is his grandson’s (also my great great grandfather). It has a big marble sphere on top of it. I still remember when local nitwits knocked that off back in the 1970’s. Grandpa and I drove our Allis Chalmers D-14 loader tractor over there and used it to lift that big marble sphere back up in place.

The Church there is a Christian Church and it has mostly been very strict in the literal interpretation of the Bible. Based on the dates visible in the cemetery, it’s a pretty safe assumption that my oldest known family member was one of the founding members. I am the current “chair elder” there.

It certainly appears that keeping our Lord and Savior Jesus Christ in that top spot, has worked for many generations, as far as keeping the taxes paid on this farm and keeping it in the family.

There’s something to be said for marrying well. One of my old “long gone” farmer buddies, from over in the next town, always told me: “If I had it to do it over again, I’d have married a rich woman”. He also told me, back before I met my wife, to “check their teeth, and look out for student loans”.

“Off farm income” is also important and more so almost every year it seems. This here farm by itself likely only supported our family on this continent for the first generation or two. I know that my great grandfather took a factory job, as did the next three generations and myself.

“Resisting the temptation to own too much new equipment and keeping overhead low” also makes some sense. That said, I’m pretty thankful right now, that I followed the lead of my grandfather. When the added income of his factory job allowed him to save up enough money to replace his team of horses with a tractor, he bought a brand new 1950 John Deere model M.

That tractor is now parked in a barn on my parents farm, over in the next town. It hasn’t run in about 10 years (dad’s been long retired), but probably would fire right up if I put some gas and a 6 volt battery in it.

I got by a lot of years running various grey, red, blue, and orange tractors. I can’t say that any of those ever made me much money but all of them kept me busy with maintenance and repairs.

Only my green John Deere, that I saved up enough money to buy new back in 2005, is running right now. My old grey Ford and red Farmall are both broken down in the barn, waiting for me to have the free time to fix them.

Thanks. Sounds a bit “judgy”, but if you go back and read, I didn’t put them in any order of priority.
Enjoy the Day.

 

[hayden]

My income for years when I took over the farm after dad passed was -$xxxx.xx for years. It's depreciation for the most part. This year I'm going to show huge profits but no money.

How can you show huge profits and no money? I don't understand.

And so are many other farmers as told by the accountant. Why, because of the economy, we kept our heads down not buying things we need, trying to spend as little money as possible and now that tax time is here we are hit with profits and a tax bill all because we tried to do the right thing.

A tax bill isn't all bad because it shows you made a profit. Sure, you only get to keep say 75% of it, but it's better than no profit.

It's great when your debt free but most farmers are not. Our supplies, and overhead increased this year eating away at our cash. Our debt payments we do not get to claim as expenses, just the interest.

It's always been true that only interest is deductible, so nothing new there. Everything else would be take as depreciation over some number of years.

So while we all were being good and paying our bills, we were not buying equipment to depreciate out or extra supplies for expenses. End result on our Schedule F is huge profits that we now have to pay taxes on.

But if you made huge profits, that's great, isn't it?

Again it is all about cash flow. I tried to quit. 5 years after dad passed I hung it about and auctioned off most of the equipment and went to work in a factory. All was good until I had to plow snow a month later. Drove the tractor up the road and thought to myself this isn't going to work. 2 months later bought a brand new baler, used tedder and rake and never missed a season with my custom fieldwork business.

 

[Hay Dude]

I’m not speaking for LHF2019, but it’s easy to have big (gross) profits and no money if your expenses were really high.
If I make 200K gross profits, but equipment payments, inputs, expenses (repairs, fuel, insurance, etc) were abnormally high, like $150,000, you could have little “money” left.

 

[Hay Dude]

I’d rather have a down year, with abnormally low expenses, than work my tail off make record crop, and have it all wiped out by repairs & expenses.

Say what you want about all the farming platitudes (doing the Lord’s work, keeping the family farm going, etc.) to me, it’s about doing the right thing and making a living and profits.

The only thing that high GP’s do is make the banks think you are doing better. My “pusher” (bank officer) keeps reminding me that if my GP’s drop, that will not be viewed favorably if I need a loan.

 

[LHF2019]

A tax bill isn't all bad because it shows you made a profit. Sure, you only get to keep say 75% of it, but it's better than no profit.

Correct. Some years when accountant is done with taxes I’ll be asked do you want to show a profit or loss. Some years you don't have a choice. All depends how the year go.

The one point I did not make was the business shows profit on paper. however I still have living expenses and a wife. We don’t get to write those off. So let’s say my business shows $10,000 profit. That’s huge to me but maybe not to an outsider. Now there is my living expenses to make it through 365 days of the year.

Again comes to cash flow

For the most part people understand simple profit/loss scenarios however as your quote back to me shows it is the in-depth part that is hard for people to comprehend. I am not the person to try to explain. I understand how it works because I live it but as I have said. I have an accountant.

 

[wolc123]

I didn’t put them in any order of priority.

So long as you get that top one in the right spot, the others don’t matter much, come judgement day. How’s that for judgy ?

 

[Hay Dude]

So long as you get that top one in the right spot, the others don’t matter much, come judgement day. How’s that for judgy ?

Coming from the Lord, it works best for me.
Coming from anyone else I know, I’d view it as advice.
Coming from someone who I don’t know, I kind of shrug it off.

Let’s move on to how do farmers make money, shall we?

 

[Hay Dude]

Correct. Some years when accountant is done with taxes I’ll be asked do you want to show a profit or loss. Some years you don't have a choice. All depends how the year go.

The one point I did not make was the business shows profit on paper. however I still have living expenses and a wife. We don’t get to write those off. So let’s say my business shows $10,000 profit. That’s huge to me but maybe not to an outsider. Now there is my living expenses to make it through 365 days of the year.

Again comes to cash flow

For the most part people understand simple profit/loss scenarios however as your quote back to me shows it is the in-depth part that is hard for people to comprehend. I am not the person to try to explain. I understand how it works because I live it but as I have said. I have an accountant.

Yep. $10,000 left in the account is susceptible to taxation.

 

[Mtsoxfan]

I have been reading with interest. I understand "conventional" workers taxes, for lack of a better word, but can't wrap my head around farmers taxes. Not that I need to, but being an information junkie, I am intrigued. Are they being taxed in a similar way that a non farming business is?

Still watching...

 

[Yander]

My FIL farmed his entire life except for a short stent when he served in the AF during the Vietnam era. He worked in a factory in Marion OH (Whirlpool) and farmed for several years until he could farm full-time.

He was the hardest working, best planner, and most intelligent man I knew. He passed away in 2020 from the way he was treated for Covid.

By the time he died, he was paying cash for everything. He worked until he was 78, though. He was looking forward to combining wheat for a friend and still wanted to climb in a tractor.

He was very poor when he started out and didn't spend a dime on something he couldn't make money from. He didn't inherit anything from his parents, he had to gut it out and buy every piece of land and equipment he owned. Farming tested his faith every year and my wife said she remembers her dad telling her mom, I don't know how, but we made some money this year. Gave all the credit to God.

The day he auctioned off his equipment he had the area around his house and barns surrounded by very nice equipment, wish I had taken a pic of it. He told my wife (his daughter) I worked my whole life to get this nice equipment and it is gone in one day. He made out very well in the auction. He had guys who knew his reputation for maintaining his stuff. He was an AF jet engine mechanic. I had guys coming up to me on the day of his auction and telling me how much they respected him as a farmer and that he was known for being a great farmer.

His key to success was, in part, that he had a great financial accountant and he listened to what he told him to do.