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Farm size study

[JUNE 30, 2003]  URBANA -- A recent study by University of Illinois Extension answers the often-asked question: Do large grain farms have lower per acre costs than smaller grain farms? The answer, according to Gary Schnitkey, the study's co-author, is yes, up to about 1,000 acres.

"We used 2002 data from farms enrolled in the Farm Business Farm Management Association record-keeping program," explained Schnitkey. "These reports give yields, revenues and costs on a per-operator-acre basis. Farms have to pass screening procedures to ensure that the data are correct. And the farms also had to receive the majority of their farm income from grain operations."


Schnitkey and co-author Dale Lattz, both U of I Extension farm management specialists, found that per acre costs for farm sizes in categories less than 800 to 1,200 acres are higher than for larger farm size categories.

"Average total costs are the same for farm sizes over 1,200 acres," said Schnitkey. "Once farms reach 1,200 acres, we find no evidence that per acre costs decrease with increases in farm sizes. We have few observations for farms greater than 6,000 acres. Additional observations may suggest that large farms have cost advantages. However, in our opinion, it is unlikely that farms between 4,000 and 10,000 acres have significant per acre cost advantages over farms between 1,200 and 4,000 acres."


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The data does not support one commonly held belief -- that large farms have better purchasing power than smaller farms.

"Our data does not support this contention, because costs are relatively constant across farm sizes," said Schnitkey. "In particular, crop costs remain constant across larger farm sizes, suggesting that farmers do not have purchasing power with fertilizer, seed or pesticide inputs."

Farms do have incentives to expand, but these are not due to cost advantages, said Schnitkey.

"The incentives are due to volume considerations," he said. "As long as revenue is below total costs and per acre costs do not increase, farms have an incentive to expand. The only way expansion will stop is if costs increase as farm size increases."

The report is available on U of I Extension's farmdoc website under "Farm Economics: Facts & Opinions": http://www.farmdoc.uiuc.edu/manage/

[University of Illinois news release]

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