You can to profit from farming/homesteading!

[unregistered168043]

Recently I have been exposed to a few here claiming that it is not possible to profit in any way from homesteading and or farming ( whatever you want to call it we'll consider it the same thing. ) I would like to take this opportunity to debunk this myth. Much like 'bigfoot' and the 'swamp donkey' the reasonable amongst us already know it isn't true as thousands of people are currently employing themselves profitably through farming, on both large and small scale. However, the myth persist, and needs to be confronted and exposed to the light of logic.

To begin, I'd like to clarify the concept of 'profit' and 'wealth' as it gets confused. When people talk about land and equipment they talk about the 'cost' but the term 'cost' gives the idea that you have lost something and this is wrong. Someone, I wont mention a name, talked about buying her hay equipment and she will never 'work off the cost' or something along those lines. This gives the idea that if you buy a piece of equipment, then you have 'lost' money and the only way to profit is by making enough hay to use or sell that will equal or surpass the price of the equipment within the life of that equipment ( and within your life ). This is absolutely incorrect.

All machinery, land, material, commodities, etc are forms of 'wealth'. Money i.e dollars bills are not wealth, they REPRESENT wealth. The only reason we have currency is to allow us to more efficiently trade GOODS. Nobody wants 'money' for its own sake, people want what the money can buy....goods. Worse, money ( currency ) loses value every year. The government's own estimates ( which are very understated IMO ) estimate inflation at about 2%. That means money in the bank has lost 20% of its value in ten years.

So keeping wealth in the bank in 'dollars' is not a good idea, long term. Wealthy people keep their 'wealth' in goods, capital, land, stocks, debt instruments, equipment, and etc. Things that go up or stay the same, or help generate more goods that also have value. The only reason to trade real goods for dollars is so that you can exchange them for other goods.

One of the most effective long term stores for wealth, historically, has been LAND. Land almost always goes UP in value, relative to inflation, over the long term. Even if you buy land, pay the taxes and sit on it, the odds are that it will appreciate in value. There is however, a cost associated with land that can eat into your profit.... the property tax. The good news is you can ameliorate the loss by having your land produce goods (wealth).

Now onto equipment....that 'cost' that isn't really a cost at all. All equipment is redeemable at resale...i.e you can exchange these 'goods' for money to trade for other 'goods'. There is, however, a true 'cost' associated with equipment it is called 'depreciation'. We must calculate the goods created by that machinery AGAINST the cost of depreciation. We can reduce depreciation costs by keeping our equipment well maintained. Using a baler as an example, studies show that a new baler loses 10% of its value the first year...then depreciates at a slower rate there onward. Any one who has been in the market for a used baler can testify to the high cost of this equipment. At 20 years old, a well maintained baler, with average use, is worth 60-70% of its original sale price. So, for ease of calculation, lets say a baler sells brandy new for 10,000 dollar bills. In twenty years, being well maintained ( BTW the cost of maintenance was included int he depreciation figures ) and seeing average use, the baler can expect to be resold for about 7,000 dollars ( but something closer to 4,000 in inflation adjusted value...remember dollars lost 40% of their value in that time!). Lets say you baled 500 bales per year ( which I consider light use, not sure what the study considered 'average' ), over twenty years that would be ten thousand bales of hay ( goods, i.e WEALTH ). Whether those bales are exchanged for dollar bills or used to satisfy one's own needs the profit is the same. We calculate profit in terms of WEALTH ( goods ) not dollar bills ( which only represent goods ). Still, in dollar terms ( because we have been trained to understand value that way ) we have created something like 40,000 dollars worth of hay ( $4 per bale a rough estimate ).

So, at the end of our twenty year affair with our baler, we sell it for 7,000 but receive 4,000 in inflation adjusted spending power and created 40,000 dollars worth of hay ( no inflation adjustment needed )...40,000 - 6,000 ( depreciation and inflation loss )= $34,000 profit in dollar terms.

You haven't 'lost' anything in terms of wealth by buying the equipment, you have GAINED. Where that ten thousand sitting in the bank, receiving .01% interest but losing some 2% a year + to inflation results in a guaranteed loss of (conservatively ) 4,000 dollars.

Land, even left alone and adjusting for taxes, APPRECIATES in value over time. Good, well used and maintained equipment depreciated slowly but generates wealth ( goods ) which if used properly, will offset the loss of that depreciation and surpass it.

Farmers who claim they 'don't make much money' often are excluding the value of their land and equipment which can be enormous...but is only redeemable for 'dollars' at resale.

[geo in mi]

Total family income(from all sources) minus total dollars spent for the year(for ALL things, including a baler) equals profit.

Your net worth, (the total estimated value of all the things you own, less what you still owe for them), is your wealth.

Your business is neither wealthy or bankrupt on your consolidated balance sheet. Your assets will always match your liabilities.

You are bankrupt when your cash flow from sale of product or outside capitalization is no longer able to meet the payment plan as specified by your bank, your stockholders, or your wife..........

geo

[Terri]

It is hard to say if our 1 acre homestead has ever made us a profit because we live on it.

It was slightly more expensive than a comparable house in town, but then we got fruit and vegetables and I sold some berries at the farmers market. So this little 'stead might or might not have saved us money.

The homestead lifestyle has saved us a bundle! Cooking from scratch, doing minor repairs myself, not fertilizing the lawn but instead letting the clover grow in it to provide nitrogen..... That saves us quite a bit!

As far as making a profit instead of breaking even? That would require raising and selling more produce than I have the time and energy for. If I were larger and if I did not melt in the August sun I really could, but I am what I am. I can only work outside for an hour a day in midsummer.I netted $7 an hour when I was selling things at the farmers market, but that was for just part of the year.

Those people at the Farmers MArket are not there breaking even, by the way. They are there making a profit!!!!!!!! Very few are making a LIVING, mind you, but the most active seller at the market was netting perhaps $15,000 a year!

[Old Vet]

Originally Posted by Darntootin

Recently I have been exposed to a few here claiming that it is not possible to profit in any way from homesteading and or farming ( whatever you want to call it we'll consider it the same thing. ) I would like to take this opportunity to debunk this myth. Much like 'bigfoot' and the 'swamp donkey' the reasonable amongst us already know it isn't true as thousands of people are currently employing themselves profitably through farming, on both large and small scale. However, the myth persist, and needs to be confronted and exposed to the light of logic.

To begin, I'd like to clarify the concept of 'profit' and 'wealth' as it gets confused. When people talk about land and equipment they talk about the 'cost' but the term 'cost' gives the idea that you have lost something and this is wrong. Someone, I wont mention a name, talked about buying her hay equipment and she will never 'work off the cost' or something along those lines. This gives the idea that if you buy a piece of equipment, then you have 'lost' money and the only way to profit is by making enough hay to use or sell that will equal or surpass the price of the equipment within the life of that equipment ( and within your life ). This is absolutely incorrect.

All machinery, land, material, commodities, etc are forms of 'wealth'. Money i.e dollars bills are not wealth, they REPRESENT wealth. The only reason we have currency is to allow us to more efficiently trade GOODS. Nobody wants 'money' for its own sake, people want what the money can buy....goods. Worse, money ( currency ) loses value every year. The government's own estimates ( which are very understated IMO ) estimate inflation at about 2%. That means money in the bank has lost 20% of its value in ten years.

So keeping wealth in the bank in 'dollars' is not a good idea, long term. Wealthy people keep their 'wealth' in goods, capital, land, stocks, debt instruments, equipment, and etc. Things that go up or stay the same, or help generate more goods that also have value. The only reason to trade real goods for dollars is so that you can exchange them for other goods.

One of the most effective long term stores for wealth, historically, has been LAND. Land almost always goes UP in value, relative to inflation, over the long term. Even if you buy land, pay the taxes and sit on it, the odds are that it will appreciate in value. There is however, a cost associated with land that can eat into your profit.... the property tax. The good news is you can ameliorate the loss by having your land produce goods (wealth).

Now onto equipment....that 'cost' that isn't really a cost at all. All equipment is redeemable at resale...i.e you can exchange these 'goods' for money to trade for other 'goods'. There is, however, a true 'cost' associated with equipment it is called 'depreciation'. We must calculate the goods created by that machinery AGAINST the cost of depreciation. We can reduce depreciation costs by keeping our equipment well maintained. Using a baler as an example, studies show that a new baler loses 10% of its value the first year...then depreciates at a slower rate there onward. Any one who has been in the market for a used baler can testify to the high cost of this equipment. At 20 years old, a well maintained baler, with average use, is worth 60-70% of its original sale price. So, for ease of calculation, lets say a baler sells brandy new for 10,000 dollar bills. In twenty years, being well maintained ( BTW the cost of maintenance was included int he depreciation figures ) and seeing average use, the baler can expect to be resold for about 7,000 dollars ( but something closer to 4,000 in inflation adjusted value...remember dollars lost 40% of their value in that time!). Lets say you baled 500 bales per year ( which I consider light use, not sure what the study considered 'average' ), over twenty years that would be ten thousand bales of hay ( goods, i.e WEALTH ). Whether those bales are exchanged for dollar bills or used to satisfy one's own needs the profit is the same. We calculate profit in terms of WEALTH ( goods ) not dollar bills ( which only represent goods ). Still, in dollar terms ( because we have been trained to understand value that way ) we have created something like 40,000 dollars worth of hay ( $4 per bale a rough estimate ).

So, at the end of our twenty year affair with our baler, we sell it for 7,000 but receive 4,000 in inflation adjusted spending power and created 40,000 dollars worth of hay ( no inflation adjustment needed )...40,000 - 6,000 ( depreciation and inflation loss )= $34,000 profit in dollar terms.

You haven't 'lost' anything in terms of wealth by buying the equipment, you have GAINED. Where that ten thousand sitting in the bank, receiving .01% interest but losing some 2% a year + to inflation results in a guaranteed loss of (conservatively ) 4,000 dollars.

Land, even left alone and adjusting for taxes, APPRECIATES in value over time. Good, well used and maintained equipment depreciated slowly but generates wealth ( goods ) which if used properly, will offset the loss of that depreciation and surpass it.

Farmers who claim they 'don't make much money' often are excluding the value of their land and equipment which can be enormous...but is only redeemable for 'dollars' at resale.

Yep you are right after 10 years of farming I sold everything and had $4500 profit.I could have kept the truck and had only $500 but I got greedy.

[highlands]

Well said. I don't keep money in the bank, or elsewhere, because money simply decreases in value over time - that's inflation, bank fees and government fees and taxes. It is far better to squander my money on land, tools and other assets which we then use to produce goods to sell and those assets are also appreciating. When I have money I spend it to pay off any debts and by the means of production. That is a safe use of money. Leaving it in the bank just makes it evaporate. Have just enough money in the bank to cover operating expenses.

And yes, our family farm and forestry are both profitable and make us a living, paying the mortgage, covering all our expenses and giving us enough extra that we can gradually expand.

[plowjockey]

Your math is too simplistic, IMO,

In your example, you don't just bale hay with a hay baler.

You need tractors, wind-rower, rakes, wagons, fuel, labor, repair parts, etc. Every last bit of that, comes out of of that $40,000 worth of hay. What about the drought years, or when the hay gets wet? How much land at $5-8,000 per acre, is needed, for exclusive use on a hay field?

There is little argument, IMO, that those that farm medium to large farms, could make a living and most of of us are aware what "profit" really means?

I'm raising sheep and laying hens on 3.5 acres, using $9 hay and $12 corn. Sure wish somebody could tell me how to make it break even, let alone a profit or living off of it.

I'm all ears.

[Alice In TX/MO]

Highlands, didn't you also get a big influx of cash from Kickstarter? Just sayin'.

[Terri]

On 3.5 acres?

I would want to raise vegetables, Though, I have heard of people selling chicks or hatching eggs off of that amount of land.

[canadiangirl]

So...I don't necessarily agree with the idea that the tools are wealth (at least on the books), as any large purchases I depreciate. However I will say that I am a profitable farm business and I don't believe it's impossible to make $ farming. I know many farmers who are quite profitable. I have kept large purchase items to a minimum and rent when I can. When I choose to buy it's because it looks like I may have to hire someone to help, so instead I investigate equipment upgrades. I sell a value added product as well as straight agricultural products, and do minimum 2 to several farmer's markets a week depending on the time of year. All animal housing repairs, fencing, animal purchases and upgrades etc are written off in the year they occur even though some of these items last many years. Anyway, I'm just adding my 2 cents basically to say that it is not impossible to be a profitable farm, so if it is something you want to do go for it. What I do suggest though is treat it as a business not a hobby, work out your numbers.

[mnn2501]

Originally Posted by Old Vet

Yep you are right after 10 years of farming I sold everything and had $4500 profit.I could have kept the truck and had only $500 but I got greedy.

And what did you live on for those 10 years?

[Callieslamb]

Machinery is only valuable is someone else wants to buy it. Or as long as there is fuel to run it. I think we could all find out the value of farm equipment just like we found how fluid the value of homes can be. Investing in land or hard items doesn't always mean you invested wisely. Maybe equipment is asset. Or maybe it's wealth. Who really cares except a banker that I want to get a loan from - or the tax man? They are the only ones interested in my worth.

I spent $8 on hay making equipment. I need 250 bales a year. I have 3 acres to produce it from. If hay is $4 a bale, it will take 8 years to pay for the equipment. I'm not sure if it will all be running in 8 years. I might have to replace a piece or two. Who knows? And if you figure in droughts - I only produced 100 bales this year, so I'm already off my targeted date. I know that my bank account is minus $8000. I won't have to spent $1000 this year for hay. I'm still missing $7000 from that account.

[FarmboyBill]

I said that I cant remember ever making what I would call a profit off of farming. I was wrong
I have learned tremdous amounts of knowledge that is extremely valuable.
Making money, and/OR not making it farming didnt effect me so much as I was working out all the time, and had money coming in off farm, So, Whatever happened on the farm didnt ruin me.

ID like to say, after 45yrs farming that I know just what to do to make money. I DONT
I think raising chickens from chicks and selling them at the sale I go to should work, BUT I couldnt make enough to really alleavate , or live off of them. I think raising bottle calveshould make money, BUT again, same thing. I know I could make money raising vegetables, but the same thing applies, That in itself for all 3 I couldnt make all that money. NOW< with all 3, assuming all 3 worked well, I could live pretty well with SS helping. BUT, Although Ive got every machine and tool id need to do any farming/gardening/homesteading. I, at 654, am drying up. EVEN IF I hit the road running NOW, Theres going to come a time when im in my 70s that doing gardening will have to pass. AT LEAST, a commercial garden. There will come a time in my 80s when calves will have to pass, and in my 90s when chickens will have to pass. Likely, with medical expenses, my living expenses will be consecutively more, and my income will be consecutively less.
There will come a point when im put in a nursing home, and the farming is over. Regardless that I have finally got all the things to do things with. I am losing the strength, and will, and determination to do them, that I took for granted less than 5yrs ago.

Someone said that I couldnt have farmed all those years cause, out of the army I worked from 65 to 2010
Well, I always had a job, AND I ALWAYS farmed, except for the last 2 yrs. I heard we was going to have a drouth bad 2 yrs ago, so I held off, AND I figured wed have another one this year, which WAS worse than last years.
AND I thought id be buying a new place this spring sometime and so didnt think it was worth farming this place IF I was going to be moving. Hasnt happened yet.

DT, U say that I have riches in the cost, and in selling my equipment. Yes, thats so. I will make bunches more money when my equipment is sold than when I bought it
BUT. What gfood is that money. IF I sell the equipment, my farming is done. I have a fist full of dollars that are no good for farming cause I have nothing to farm a farm with. Anyone who would sell out their equipment is close to selling out the farm as they now have nothing left to farm the farm with.
Its not like, Well i could sell some of my equipment and be able to buy my seed and fertilizer, ect for the next year. I COULD DO THAT, But I wouldnt have that equipment to plow/plant harvest the crop, so it wouldnt get put in, and the seed/fertilizer, ect would just set here unused.

[unregistered168043]

Originally Posted by Callieslamb

I spent $8 on hay making equipment. I know that my bank account is minus $8000. I won't have to spent $1000 this year for hay. I'm still missing $7000 from that account.

You're missing 7000 from the account but you have machinery worth 8000. You are making the error of only defining wealth in dollar terms. Assuming you made a wise purchase and paid close to the market value for your equipment then you are up 1,000 minus depreciation.

You know how much equipment costs because you just bought some, nobody is giving away good haying equipment and neither will you when/if you decide to redeem your equipment for dollars.

[unregistered168043]

Originally Posted by FarmboyBill

DT, U say that I have riches in the cost, and in selling my equipment. Yes, thats so. I will make bunches more money when my equipment is sold than when I bought it
BUT. What gfood is that money. IF I sell the equipment, my farming is done. I have a fist full of dollars that are no good for farming cause I have nothing to farm a farm with. Anyone who would sell out their equipment is close to selling out the farm as they now have nothing left to farm the farm with.
Its not like, Well i could sell some of my equipment and be able to buy my seed and fertilizer, ect for the next year. I COULD DO THAT, But I wouldnt have that equipment to plow/plant harvest the crop, so it wouldnt get put in, and the seed/fertilizer, ect would just set here unused.

FBB, thats right. Your value is still there in the machines and the land, whether you choose to redeem that value for dollars or keep the value in those goods it doesn't really matter...that is personal preference depending on your needs. Like I say, the only reason to sell goods for money is when you want to exchange them for OTHER goods.

By saying 'what good is a fist full of money if I can't farm with it' you are making the point that dollars only have value as an exchange for goods. What you are saying is that you have more use for the wealth in the form of land and equipment than in the form of paper dollars. Either way the wealth is there, its just not in dollar form.

Wealth exists to meet our wants and needs, whether you cut a cord of wood to heat your home or use an equal value of money to buy oil you are using an equal value of wealth to meet a need.

[Alice In TX/MO]

Talking about profit/loss and talking about the philosophy and practice of homesteading .... two different things.

[farmerDale]

I farm for my living. While it can be profitable, weather is always the biggest factor, followed on the heels of price of commodities. You must always be prepared for the peaks and valleys in farming. I use modern, but used machinery. It has already partially depreciated. To me, with a new combine worth 400 000 dollars, I see no good investment there. But a 15 or 20 year old machine may be worth about 20 or 30 000, not be as technologically advanced, but still thresh the grain very well. Tractors are even longer lasting. 10 000 hours is minimal if well cared for. In all my experience, I would say your depreciation values are grossly underestimated. Most machinery depreciates more than 10% on paper its first year, and by the end of 20 years, it often only has 10% to 25% of its original cash value.

Land values fluctuate depending on commodity prices. From 1976 to 2010, land prices here dropped almost every year, as low grain prices, and high interest rates weeded out a lot of farmers. Recently land has rebounded somewhat, as grain prices have increased.

As others have said, you are missing various costs. Unless you plan to mine the soil, you will need to be replacing nutrients somehow. fertilizer is not cheap, and in fact has followed commodity prices up. Fuel, oil, grease, parts, rent, insurance, feed, fencing, twine, seed, replacement stock, vet bills, office supplies, building upkeep, the list is larger than simple machinery depreciation.

A tractor pulls the baler. The baler uses twine. The baler breaks. I replaced the needles on mine last year, for a cost of 700 dollars. I had a 12 000 dollar combine repair bill last year. I need to rebuild the cummins engine in my big tractor this winter, probably cost 10 000. Insurance for crops is 20 000 bucks. farm insurance for fire, liability etc, is 4 000. My air drill got the openers replaced this spring at 12 000 bucks. I mean there is so much to this racket, just when you think you are ahead, a bearing calves, a hunk of steel breaks.

Just pointing out there are costs that have been omitted. whether larger scale, or smaller scale, there are many costs to be factored in.

Finally, at what do you value your time? rather than baling your own hay, would it make sense to have it custom done, and free yourself up to do something that may pay better. I have never met someone whose time is free. There is always some kind of labor cost, whether you like it or not.

Yes farming can be a great living. And scale matters not; it is the bottom line that counts. I think to be effective though, we need to include ALL costs involved in producing each egg, each lamb, each bushel of grain, each bale of hay. Otherwise, we do not get the whole picture, and end up making mistakes. I have made many! I have farmed for 20 years now. I wish I would stop making mistakes already!

But being my own boss, making my own life, and knowing the sky really is the limit in this business, is so rewarding.

Now if I could only control the weather and prices. lol

[CesumPec]

You can try to analyze this from a pure financial return perspective, but then like Plowjockey said above, you need to include all costs. A couple of universities have done studies on hay making and determined that if you don't already have the land and equipment, that it costs more to make hay than to buy it.

You also need to consider opportunity costs. If you work 90 hours a week to keep your farm barely in the black, what did you give up? Could you have worked a min wage job in town and made lots more money? is that even important to you?

That leads to lifestyle choices. How many of us bought land because we were convinced it was the way to untold riches? Perhaps a pure financial decision to farm is a moot question in the eyes of many of us. I'm far happier losing money on my farm and working all day in the sun than making good money in the big city, risking my life in a daily commute of 17 miles that takes anywhere from 1 to 2 hours each way, and being stuck in an office.

[CesumPec]

Originally Posted by Alice In TX/MO

Talking about profit/loss and talking about the philosophy and practice of homesteading .... two different things.

you said that so much better than me.

[arnie]

profits from the homestead for me can only be figgered in as money not spent.i can sell enough eggs to afford to cover the cost of mt chicken scratch but by eating my home produced free range eggs I did not get samanolla poisoning .I suppose the milk cow's grain cost me more than if I boughtthat homignized garbage in the store but I just buchard the calf she had from a angus bull returning over 300 pounds of organic extra gormiet quality beef not the 1.99 a pound garbage fr0m wallmart but the 28 a pound real meat from the custom butcher shop not to forget no ecoli posining or hospital bills to run up I'll just say ditto for the hog never who never even had to be wormed after it came here as a shoat being faised on good pasture ,garden scraps and corn . then how can we compare the produce from the garden no pesticides and canned here at home with my own pure spring water[should I charge 2 $ a pint for the sparkling clear spring water with no chemicals that I get to drink and shower in or just not having to pass kidney stones is pay enough] ;not picked with dirty hands in Californiaor china filled with preservitaves and shipped around to walmart.then theres the rabbits I raise to eat sell and give away .As I go through the chores every day the peacefull tme milking the quiet tme as the rabbis rare up on the cage anticipateing a treat or how the honey bees don't raise much of a fuss when I work with them feeling the comrodery of silent communication ;instead of charging myself the wage of a farm hand maybe i'll gain the cost of not having to pay a sicietrist to tell me the pressure of the rat race has made me a stressed out nut who may need a fourtune in meds to cope or a high priced ticket to some form of over hyped entertainment to be able to smile . or more meds to fall asleap at night i'm still broke sometimes but then I can't remember even having a cold or stomach flu in 6 years .i'm hoping the IRS doesn't get wind of this as they will decide to tax me on my debit colom and that may send me to the poor farm which is where i'm at I suppose anyway. just sayini wish I would have figgered this out 35 years ago

[unregistered168043]

Yes of course my example was only an example of how profit, wealth, and depreciation should be considered. I can't possibly touch on every facet of every farming endeavor in existence as I am limited to making a reasonably concise post, not a treatise on the entire enterprise of farming! lol. You'll note that before discussing the depreciation/value of the baler I emphasized that it was an example. Other machinery have different depreciation rates but you will note that most farm machinery, when kept in good shape seems to hold its value well.

As to my estimates on the depreciation of the baler ( my example ) it was based on a well researched study ( I'll post it if I can find it again ). My own checking, through different online sources for machinery has been consistent with the findings in the study.