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farmland investing

Fighting Misconceptions about Farming

Farmland remains an industry subject to many myths and misconceptions. In this post, we'll dispel one of the most popular farming myths: farming isn't profitable.

It is finally sunny here in San Francisco after what seems like an endless winter of rains. But the last thing us drought-scarred Californians should complain about is too much rain. Minnesota farmers, on the other hand, have every right.  

Common Farming Myth: Farmers never make money and always struggle

"Minnesota farm income hits historic low"

One common farming misconception out there that I tirelessly try to dispel is that farmers never make money and always struggle. That could not be further from the truth.

Farmers are endlessly resilient and are true entrepreneurs to the bone. They can thrive even in the most challenging environments. Below is a case in point.  

A few days ago I was reading an article on a study by the University of Minnesota. The headline was attention-grabbing.

First of all, it is important to always remember that farming is cyclical. You get great years (2011 - 2014 farm cash incomes were around $130 B) and you get more average years (2015 - 2019F incomes are around $90B). You also get big variations depending on the state and crop. A good farmer knows this and knows how to manage across the cycles.

This year was particularly bad for Minnesota, and the aforementioned rains played a role: local spring flooding forced many to replant fields more than once.

“We don’t have consistent numbers that go back that far, but it is very likely that 2018 was the lowest income year for Minnesota farms since the early 1980s,” said Dale Nordquist of the Center for Farm Financial Management at the University of Minnesota.

Worst year since the records go back, wow.

However, here is the good news and why we are in this business. Even in this very tough environment, the top 20% of farmers made an average income of $184,000! These are the kind of farmers we relentlessly seek out. Think of what these farmers can do in a good year...  

What's more, this performance wasn't necessarily size-dependent.

“There are still a lot of farms out there that are successful,” said Josh Tjosaas, Northland Community and Technical College farm business management instructor. “And it is not just larger farms that are profiting. We work with profitable farms of all sizes and types.”

So there you have it, still a very solid performance amidst the worst year in almost 40 years. Oh, and side note, something else that was just as resilient? Farmland prices in Minnesota.

"Still a relatively strong financial position largely supported by farmland that has maintained its value."

How farmland prices move and why they are not that dependent on short-term commodity prices (spoiler alert - it's about the long-term earning power) is a topic in one of our new posts - Cropland: What’s It Worth and How Is It Valued?

Be sure to check it out if you enjoyed this post on one of the most common farming myths.

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Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.

Artem Milinchuk