Structure and Finances of US Farms 2007 Report

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National Agricultural Library
Cataloging Record:
Structure and finances of U.S. farms : family farm report, 2007 edition.
(Economic information bulletin ; no. 24)
1. Family farms—United States—Statistics.
2. Farm income—United States—Statistics.
3. Farm management—United States—Statistics.
4. Farms—United States—Finance—Statistics.
I. Hoppe, Robert A.
II. United States. Dept. of Agriculture. Economic Research Service.
III. Title.
HD1417.U6

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A Report from the Economic Research Service
United States
Department
of Agriculture
Economic
Infomation
Bulletin
Number 24
June 2007

www.ers.usda.gov

Structure and Finances of
U.S. Farms
Family Farm Report, 2007 Edition
Robert A. Hoppe, Penni Korb, Erik J. O’Donoghue,
and David E. Banker

Abstract
U.S. farms are diverse, ranging from small retirement and residential farms to enterprises with annual sales in the millions. Nevertheless, most U.S. farms—98 percent in
2004—are family farms. Even the largest farms tend to be family farms. Large-scale
family farms and nonfamily farms account for 10 percent of U.S farms, but 75 percent
of the value of production. In contrast, small family farms make up most of the U.S.
farm count, produce a modest share of farm output, and receive substantial off-farm
income. Many farm households have a large net worth, reflecting the land-intensive
nature of farming.
Keywords: Contracting, family farms, farm businesses, farm financial performance, farm
operator household income, farm operators, farm structure, farm type, million-dollar
farms, small farms.
Recommended citation format for this publication:
Hoppe, Robert A., Penni Korb, Erik J. O’Donoghue, and David E. Banker. Structure
and Finances of U.S. Farms: Family Farm Report, 2007 Edition, EIB-24, U.S. Dept. of
Agriculture, Economic Research Service, June 2007.

See the companion brochure, America’s Diverse Family Farms, 2007
Edition (EIB-26)

Contents
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
U.S. Farms: Numbers, Size, and Ownership . . . . . . . . . . . . . . . . . . . . . .4
Share of Farms, Production, and Assets . . . . . . . . . . . . . . . . . . . . . . . . . .4
Farm Size and Tenure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Specialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Operator Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Principal Operators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Secondary Operators and Their Farms . . . . . . . . . . . . . . . . . . . . . . . . . .14
Farm Income and Financial Performance . . . . . . . . . . . . . . . . . . . . . . .17
Selected Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Loans and Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Sources and Levels of Operator Household Income . . . . . . . . . . . . . . .22
Off-Farm Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
Level of Principal Operator Household Income . . . . . . . . . . . . . . . . . . .22
Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Government Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Commodity-Related Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Conservation Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Special Feature: The Shift to Larger Farms . . . . . . . . . . . . . . . . . . . . .29
Distribution of Farms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Distribution of Agricultural Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Typical Enterprise Size . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Production Under Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Variation by Type of Farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Shifts to Larger Farms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
The Place of Family Farms in U.S. Agriculture . . . . . . . . . . . . . . . . . . .41
Financial Status of the Family Farm . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Different Farms, Different Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Appendix I: Measuring Operator Household
Income and Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Appendix II: Defining Limited-Resource Farms—Past,
Present, and Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

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Summary
U.S. farms are diverse, ranging from very small retirement and residential
farms to enterprises with annual sales in the millions of dollars. Farms are
operated by individuals on a full- and part-time basis, by multiple generations of a family, by multiple families, and by managers of nonfamily
corporations. Some specialize in a single product, while others produce a
wide variety of products. Some have full control over their farming
processes while others produce commodities under contract to strict specifications. But despite their diversity, most U.S. farms are family farms.

What Is the Issue?
Agricultural policymakers require information on how U.S. farming is
organized. USDA’s Economic Research Service (ERS) produces a periodic
report with that information. The Family Farm Report, 2007 Edition is the
most recent in the series, providing agricultural policymakers with an accurate, detailed, and unbiased source of information on how farming in the
United States is organized, including the relationship of farm size and type
to agricultural production, financial performance, sources of farm household
income, and the extent of off-farm work. The report provides a sense of the
financial position of family farms in general and for different types of
family farms.

What Are the Major Findings?
Most U.S. farms—98 percent in 2004—are family farms, defined as operations organized as proprietorships, partnerships, or family corporations that
do not have hired managers. Nonfamily corporations make up a small and
stable share of farm numbers and sales, accounting for less than 1 percent of
farms and 6-7 percent of farm product sales in each agricultural census
since 1978.
Distribution of farms, total production, and assets, 2004
Farm type

Farms

Value of
production

Farm
assets

Percent of U.S. total
Small family farms:1
Limited-resource
Retirement
Residential/lifestyle
Farming-occupation
Low-sales
Medium-sales
Large-scale family farms:1
Large family farms
Very large family farms
Nonfamily farms1, 2

9.4
16.1
39.7

1.0
2.0
5.3

5.5
11.3
23.7

18.8
6.3

5.5
10.8

16.9
10.3

4.1
3.4
2.2

14.8
45.4
15.2

9.1
16.1
7.1

1Small farms have sales less than $250,000; large-scale farms have sales of $250,000 or
more; no sales limit for nonfamily farms.
2Nonfamily

farms include those organized as nonfamily corporations or cooperatives, as well as
any other farms operated by hired managers. Also includes farms held in estates or trusts.

Source: USDA, ERS, 2004 Agricultural Resource Management Survey, Phase III.

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Small family farms account for most U.S. farms and farm assets. Small
family farms (sales less than $250,000) accounted for 90 percent of U.S.
farms in 2004. They also held about 68 percent of all farm assets, including
61 percent of the land owned by farms. As custodians of the bulk of farm
assets—including land—small farms have a large role in natural resource
and environmental policy. Small farms accounted for 82 percent of the land
enrolled by farmers in the Conservation Reserve and Wetlands Reserve
Programs (CRP and WRP).
Large-scale family farms and nonfamily farms produce the largest
share of agricultural output. Large-scale family farms, plus nonfamily
farms, made up only 10 percent of U.S. farms in 2004, but accounted for 75
percent of the value of production. Nevertheless, small farms made significant contributions to the production of specific commodities, including hay,
tobacco, wheat, corn, soybeans, and beef cattle.
The number of larger farms is growing. The number of farms with sales
of $250,000 or more grew steadily between the 1982 and 2002 Censuses of
Agriculture, with sales measured in constant 2002 dollars. The growth in the
number of these larger farms was accompanied by a shift in sales in the
same direction. The most rapid growth was for farms with sales of $1
million or more. By 2002, million-dollar farms alone accounted for 48
percent of sales, compared with 23 percent in 1982.
For the most part, large-scale farms are more viable businesses than
small family farms. The average operating profit margin and rates of return
on assets and equity for large and very large family farms were all positive
in 2004, and most of these farms had a positive operating profit margin.
Small farms were less viable as businesses. Their average operating profit
margin and rates of return on assets and equity were negative. Nevertheless,
some farms in each small farm group had an operating margin of at least 20
percent. In addition, a majority of each small farm type had a positive net
farm income, although the average net income for each small-farm type was
low compared with large-scale farms.
Small farm households rely on off-farm income. Small farm households
typically receive substantial off-farm income and do not rely primarily on
their farms for their livelihood. Most of their off-farm income is from wageand-salary jobs or self-employment. Because of their off-farm work, small
farm households are affected significantly by the nonfarm economy. Households operating retirement or limited-resource farms, however, receive well
over half of their income from such sources as Social Security, pensions,
dividends, interest, and rent, reflecting the ages of operators on such farms.
Payments from commodity-related programs and conservation
programs go to different types of farms. The distribution of commodityrelated program payments is roughly proportional to the harvested acres of
program commodities. As a result, medium-sales ($100,000-$249,999) and
large-scale farms received 78 percent of commodity-related government
payments in 2004. In contrast, CRP, which pays the bulk of environmental
payments, targets environmentally sensitive land rather than commodity
production. Retirement, residential/lifestyle, and low-sales small farms
received 62 percent of conservation program payments in 2004. However,
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most farms—61 percent in 2004—receive no government payments and are
not directly affected by farm program payments.
A growing number of farms operate under production and marketing
contracts to guarantee an outlet for their production. About two-fifths of
U.S. agricultural production is produced or marketed under contract,
although the share varies by commodity and type of farm. Relatively few
small family farms use production and marketing contracts, while 64
percent of very large family farms use contracts and, as a group, produce 61
percent of the value of production grown under contract.

How Was the Study Conducted?
The 2004 Agricultural Resource Management Survey (ARMS) is the main
source of data in the Family Farm Report, 2007 Edition. ARMS is an annual
survey designed and conducted by ERS and USDA’s National Agricultural
Statistics Service (NASS). Various censuses of agriculture, ERS estimates of
farm productivity, NASS estimates of the number of farms, and labor force
data from the Bureau of Labor Statistics are also used in this report, particularly for long-term trends. The report uses the farm classification system (see
table, p. iii) developed by ERS to examine farm structure in the United States.

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Introduction
Farming in the United States is very diverse, ranging from very small
retirement and residential farms to enterprises with annual sales in the
millions of dollars. Farms are operated by individuals on a part-time
basis, by multiple generations of a family, and by managers of nonfamily
corporations. Some specialize in a single product; others produce a wide
variety of products.
The Family Farm Report, 2007 Edition presents comprehensive information
about the structure and finances of the various types of family farms in the
United States. This report covers the following aspects of farm structure:
●

The number, size distribution, and tenure of U.S. farms.

●

The specialization and diversification of farms.

●

Farm operator demographics, including age, education, gender, and
race/ethnic origin.

●

The sources and levels of operator household income and wealth.

●

The share of farms receiving government payments and the distribution of government payments by type of farm.

●

The business organization of farms—whether they are organized as
proprietorships, partnerships, or corporations.

ERS developed a farm classification (see box, “Farm Types, 2004”) to group
farms into more homogeneous categories, based primarily on annual gross
sales of the farm and major occupation of the operator. By using these
homogeneous groups in this report, a clearer picture emerges of the status of
farms in the United States today.
As in recent years, the Agricultural Resource Management Survey
(ARMS)—an annual survey—is the main source of data in the Family Farm
Report, 2007 Edition. The ARMS is jointly designed and conducted by
USDA’s Economic Research Service (ERS) and National Agricultural
Statistics Service (NASS).1 The report also draws on various censuses of
agriculture, ERS estimates of farm productivity, NASS annual estimates of
the number of farms, and Bureau of Labor Statistics (BLS) labor force data.
These additional sources of data are particularly useful when following
trends over long periods of time.

1Differences between ARMS-based
estimates are stressed in this report
only when the estimates are significantly different at the 95-percent confidence level or more.

This report depicts farm structure and financial status as of 2004, the
most recent year for which ARMS data were available at the time of
writing, and 2004 was atypical year for farming. Net farm income was
$83 billion in 2004 (fig. 1), much higher than in 2003 ($61 billion), the
annual average during the previous 10 years ($55 billion), and the
previous peak in 1996 ($69 billion). Net farm income is expressed in
2004 dollars here, using the GDP chain-type price index to adjust for
price changes.

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Farm Types, 2004
This farm classification focuses on the “family farm” or any farm organized as a sole proprietorship, partnership, or family corporation. Family
farms exclude farms organized as nonfamily corporations or cooperatives,
as well as farms with hired managers

Small family farms (gross sales less than $250,000)1
Limited-resource farms. Farms with gross sales less than $100,000 in
2003 and less than $105,000 in 2004.2 Operators of limited-resource
farms must also receive low household income in both 2003 and 2004.
Household income is considered low in a given year if it is less than the
poverty level for a family of four, or it is less than half the county
median household income. Operators may report any major occupation
except hired manager.
Retirement farms. Farms whose operators report they are retired.3
Residential/lifestyle farms. Farms whose operators report a major occupation other than farming.3
Farming-occupation farms. Farms whose operators report farming as
their major occupation.3


Low-sales farms. Gross sales less than $100,000.



Medium-sales farms.4 Gross sales between $100,000 and $249,999.

Large-scale family farms (gross sales of $250,000 or more)
Large family farms. Gross sales between $250,000 and $499,999.
Very large family farms. Gross sales of $500,000 or more.

Nonfamily farms
Nonfamily farms. Farms organized as nonfamily corporations or cooperatives, as well as farms operated by hired managers. Also includes farms
held in estates or trusts.

Note: A farm is defined as any place that produced and sold—or normally would have
produced and sold—$1,000 worth of agricultural products during a given year (USDA,
NASS, 2005, p. 3-1).
1The

National Commission on Small Farms selected $250,000 in gross sales as the
cutoff between small and large farms (U.S. Dept. Agr., Nat’l. Comm. on Small Farms,
1998, p. 28).
2The original gross sales cutoff was established at $100,000 for 2003. The cutoff for
subsequent years is adjusted by the index of prices paid by farmers.
3Excludes
4This

limited-resource farms whose operators report this occupation.

type was called “high-sales” farms in earlier publications.

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Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition / EIB-24
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The Family Farm Report series features a special topic each year, starting
with the previous edition of the report (Hoppe and Banker, 2006). The
special feature this year is “The Shift to Larger Farms,” which examines
changes in the distribution of farm and gross farm sales (by constant dollar
sales classes) between the 1982 and 2002 Censuses of Agriculture.
Figure 1

Real net farm income, 1994 to 2004
In 2004, net farm income was 50 percent higher than the average
for the previous 10 years
$ Billion (2004)1
100
80
60
40
20
0
1994
1Deflated

95

96

97

98

99

2000 01

02

03

Avg.
04
1994-2003

with the GDP chain-type price index.

Source: USDA, Economic Research Service, U.S. and State Farm Income Data.

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U.S. Farms:
Numbers, Size, and Ownership
In the 1930s, two important longrun trends began that affected the number of
U.S. farms. First, nonagricultural employment resumed growing after the 1933
low point of the Great Depression (fig. 2). Second, farm productivity began to
increase steadily (fig. 3), starting about 1937 (Cochrane, 1993, pp. 360-363).
Productivity growth led to excess capacity in agriculture, farm consolidation,
and farm operators and laborers leaving farming to work in the growing
nonfarm economy. The decline in farm numbers slowed in the 1980s and
nearly stopped in the 1990s. By 2005, about 2.1 million farms remained, and
less than 2 percent of U.S. workers were employed in agriculture. The
remaining farms, however, vary in size and their share of total production.

Share of Farms, Production, and Assets
Ninety-eight percent of U.S. farms are family farms. The remaining 2
percent are nonfamily farms, which produce 15 percent of the value of agricultural output (fig. 4).2 Two features of family farms stand out. First, there
are many small family farms (< $250,000 annual sales), making up 90
percent of all U.S. farms. Second, large-scale family farms account for 60
percent of all production.

2Nonfamily farms’ share of production increased by 1.5 percentage points
between 2003 and 2004 (from 13.7 percent to 15.2 percent). This change, however, was not statistically significant.

Nevertheless, small farms make significant contributions to the value of
production for specific commodities (fig. 5), including wheat, corn,
soybeans, hay, tobacco, beef, and “other livestock.” At the other extreme,
small farms contribute a minuscule share to the value of production for hogs
and poultry. The largest share of small farm production occurs among
medium-sales farms ($100,000-$249,999), which account for 11 percent of
total U.S. production.
Figure 2

Agricultural and nonagricultural employment, 1910 to 2005
Agriculture’s share of total U.S. ermployment has fallen to less than 2 percent
Million workers1

Percent

160

35

140

30

Nonagricultural employment (left axis)

120

25

100

20

80
15

60
40
Agricultural employment2 (left axis)

20
0
1910

10

Agricultural share of
total employment (right axis)

5
0

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2000

05

1Persons

at least 14 years old prior to 1947; persons at least 16 years old in 1947 and later years.
2000 onward, estimates of agricultural employment actually are for “agricultural and related industries.” For more information, see the
U.S. Department of Labor, Bureau of Labor Statistics (2003, p. 20).
2From

Source: USDA, Economic Research Service, compiled from Bureau of Labor Statistics data (U.S. Office of the President, 2006, pp. 324-325;
U.S. Department of Commerce, 1975, p. 126).

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Figure 3

Farm productivity1 and number of farms, 1910 to 2005
The number of farms declined as productivity increased
Million farms
8
7

Index (1977 = 100)
180
160

Number of farms (left axis)

140

6

120

5

100

4

80
3

60
Productivity2 (right axis)

2

40

1
0
1910

20
0
15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2000

1Farm

output per unit of total factor input (total factor productivity), available through 2004.
break in the productivity line reflects the introduction of new methodology beginning with the 1948 estimate. The new methods had
minor impacts on the estimates. For more information, see Ahearn et al. (1998, pp. 15-21).
2The

Source: USDA, Economic Research Service, compiled from National Agricultural Statistics Service annual estimates of the number of
farms from the June Agricultural Survey and from ERS estimates of farm productivity. ERS productivity indices prior to 1948 came from
Johnson (1990).

Figure 4

Share of total farms and value of production, 2004
Large-scale family farms account for 60 percent of production
Percent of U.S. farms or production

Small family farms
Large-scale family farms
Nonfamily farms
2.2
7.5

15.2
24.6

90.3

Farms

60.2

Value of production

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management
Survey, Phase III.

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05

Figure 5

Distribution of the value of production for selected commodities, 2004
Small farms produce a substantial share of several commodities
Percent of value of production
100
80
60
40
20
0
Other
Tobacco
livestock1

Hay

Wheat

Soybeans

Corn

Beef

High-value
crops2

Hogs

Poultry

All
commodities

Type of farm:
Small farms

Large family farms

Very large family farms

Nonfamily farms

1Sheep, lambs, wool, goats, goats’ milk, mohair, horses, ponies, mules, donkeys, bees, honey, aquaculture, mink, rabbits, other fur bearing
animals, bison, deer, elk, llamas, etc.
2Vegetables, fruits and tree nuts, and nursery and greenhouse products.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

The share of assets and land held by small farms is substantially more than
indicated by their 25-percent share of production. Small farms hold about
68 percent of all farm assets, including 61 percent of the land owned by
farms (fig. 6). Because of their large land holdings—in aggregate—small
farms are important in conservation efforts. Small farms account for 82
percent of the land farmers enrolled in the Conservation Reserve Program
(CRP) and Wetlands Reserve Program (WRP).

Farm Size and Tenure
Variation in size—measured in sales, acres, and labor use—helps explain
the distribution of agricultural production. The 1.4 million limited-resource,
retirement, and residential/lifestyle farms account for only 8 percent of
production because most of these farms are very small (table 1). Roughly
three-fourths of the farms in each of the three groups have annual gross
sales of less than $10,000. The average acreage operated for farms in these
three groups is also small, ranging from 163 to 212 acres.
Median acres operated. Average (or mean) acreage operated may not best
indicate the size of a typical farm in a group because a few high-acreage
farms may raise the average well above the acreage operated on most farms.
Median acreage operated—the midpoint of the distribution of farms by
acres operated—is a better indicator. Median acreage operated ranges from
60 to 80 acres for limited-resource, retirement, and residential/lifestyle

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Figure 6

Share of farm business assets, acres owned, and acres enrolled in the
Conservation Reserve Program and Wetlands Reserve Program, 2004
Small farms account for most farm assets
Percent of U.S. farm assets,
acres owned, or program acres
Assets

Small family farms
Large-scale family farms

7.1

Land owned
by farms

Nonfamily farms

7.7

25.2

31.0
67.6

61.3

4.5
13.7

81.8

CRP and WRP
acres
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management
Survey, Phase III.

farms, which means the typical farm in each of these groups is even smaller
than suggested by the group’s average acreage.
Although only half of low-sales farms (< $100,000) have gross sales of less
than $10,000, three-fourths have gross sales of less than $50,000. Median
acres operated was 145 acres per low-sales farm, roughly double the
medians for limited-resource, retirement, or residential/lifestyle farms.
Median acreage is much larger for medium-sales small farms and largescale farms, ranging from 530 to 1,055 acres.
The high average acreage for nonfamily farms, more than 1,200 acres,
reflects a small share of farms in the group with very large acreages. In
contrast, the median is just 173 acres, which is more consistent with the 40percent share of nonfamily farms with gross sales less than $10,000. Most
of these very small nonfamily farms (77 percent) are classified in the
“other” category of business organization, which includes farms in estates or
trusts and farms organized as cooperatives. Very small nonfamily farms in
the other organization category are more likely to be in estates and trusts
than to be cooperatives. (Business organization is discussed in more detail
later in this report.)
Million-dollar farms. Forty-two percent of very large family farms
($500,000 or more annual sales) and 9 percent of nonfamily farms have
gross sales of at least $1 million. These “million-dollar” farms make up less
than 2 percent of all U.S. farms, but they account for 45 percent of the value
of production. The number of million-dollar farms increased by 22 percent

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Structure and Finances of U.S. Farms: Family Farm Report, 2007 Edition / EIB-24
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Table 1

Farm size, tenure, and labor, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Large-scale
family farms

Mediumsales

Large

Very
large

Nonfamily
farms

All
farms

Number
Total farms

197,734

338,671

837,542

395,781 133,299

86,087

71,708

47,103 2,107,925

Percent of U.S. total
Distribution of:
Farms
Value of production

9.4
1.0

16.1
2.0

39.7
5.3

18.8
5.5

6.3
10.8

4.1
14.8

3.4
45.4

2.2
15.2

100.0
100.0

na
na
na
na
na
100.0
na
na

na
na
na
na
na
na
57.8
42.2

39.5
18.1
*9.6
*6.8
*4.1
5.9
7.0
8.9

57.0
19.0
8.1
5.0
3.0
4.2
2.1
1.6

1,700
834

*3,138
1,055

1,232
173

470
100

8.156

5.385

1.529

47.5
10.9
21.8

19.2
4.5
55.5

19.1
*2.1
61.6

51.4
12.4
19.8

19.1
66.5
14.3

26.1
60.3
13.6

72.1
18.4
9.5

61.8
32.1
6.1

Percent of group
Sales class:
Less than $10,000
$10,000 to $49,999
$50,000 to $99,999
$100,000 to $174,999
$175,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1,000,000 or more

76.2
19.2
4.0
d
na
na
na
na

72.6
18.6
6.3
*1.9
*0.6
na
na
na

71.6
20.9
5.2
1.8
0.6
na
na
na

47.1
29.4
23.5
na
na
na
na
na

na
na
na
59.4
40.6
na
na
na

Acres per farm
Acres operated:
Mean (average)
Median1

167
60

212
80

163
67

413
145

*1,170
530

Annual person equivalents of labor per farm
Average person
equivalents of labor2, 3

0.997

0.928

0.782

1.500

2.580

3.265

Percent of total hours
Share of hours worked
Principal operator3
Spouse3
Hired labor

by:4
71.7
12.2
2.5

67.0
17.2
2.2

63.5
18.6
2.5

65.4
16.1
5.1

59.7
12.2
#10.8

Percent of group
Tenure:
Full owner
Part owner
Tenant5

68.3
25.7
*6.0

79.5
*19.1
*1.3

67.2
27.6
5.2

60.3
32.8
6.9

20.5
68.1
#11.4

d = Data suppressed due to insufficient observations.
na = Not applicable.
* = Standard error is between 25 percent and 50 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1Midpoint of the distribution of farms by acres operated. Half the farms in a group operate more acres than the median, while the other half
operate fewer acres than the median.
2One annual person equivalent equals 2,000 hours of labor, or 50 weeks per year times 40 hours per week.
3Includes paid and unpaid hours.
4Shares worked by other operators, unpaid workers, and contract labor are not shown separately.
5Farms that rent all the land they operate. Also includes farms owning less than 1 percent of the land they operate.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Economic Research Service/USDA

between 2003 and 2004, from 28,300 to 34,500, as 2004 was a very good
year for the farm sector.
Labor hours.3 One measure of annual labor use is the “person equivalent,”
defined as 2,000 hours, or 40 hours of work per week for 50 weeks per year.
Residential/lifestyle, retirement, and limited-resource farms use the least
labor of all the farm types, 1 person equivalent or less. Labor use jumps to
1.5 person equivalents for low-sales farms and increases with sales to 8.2
person equivalents for very large farms. Nonfamily farms use 5.4 person
equivalents, on average. This estimate, however, reflects heavy labor use by
relatively few farms. Only 20 percent of nonfamily farms use more than 5
person equivalents of labor, while 46 percent use less than 1.

3ARMS collects the number of
hours worked on farm by the principal
operator, the spouse of the principal
operator, other operators, and unpaid
workers. The survey does not collect
hours worked by hired or contract
labor, however. Hours of hired and
contract labor are estimated by dividing hired labor and contract labor
expense by the State-specific wage
rate for farm labor.

The labor used on farms can come from a variety of sources: operators and
their spouses, secondary operators, unpaid workers, hired labor, and contract
labor. Nevertheless, operators are a significant source of labor for most farm
types. The operator provides 60 to 70 percent of the labor for each type of
small farm, and nearly 50 percent for large family farms ($250,000$499,999 annual sales). Operators supply only 19 percent of labor on very
large family farms and nonfamily farms.
Tenure. Renting land is a way to expand by controlling additional land
without the debt and commitment of capital associated with ownership
(Reimund and Gale, 1992, pp. 7-8). About two-thirds of medium-sales
and large-scale farms are part owners, meaning that they own part of the
land they operate and rent the rest. In addition, 14 percent of large-scale
farms—versus 6 percent of all farms—are tenants that own none of the land
they farm. About three-quarters of large-scale tenants specialize in crops,
compared with two-fifths of farms in general.

Specialization
Specialization varies by farm size. Small farms tend to specialize in raising
beef cattle, other grazing livestock, or a variety of field crops (table 2).
Poultry, hogs, and high-value crops tend to be produced on large-scale
farms. Medium-sales farms and large family farms are most likely to
specialize in grain.
Beef cattle. Beef cattle are a common specialization among small farms,
accounting for 34 to 41 percent of limited-resource, retirement,
residential/lifestyle, and low-sales farms. Beef cattle—commonly cow-calf
enterprises in the case of small farms—offer three advantages to operators of
small farms. First, cattle are less labor-intensive than many other enterprises,
which may be attractive to an operator who is retired or holds a full-time job
off the farm (Cash, 2002, p. 21). Second, cattle enterprises tend to be low-cost,
which limits cash requirements. Third, under the existing tax code, losses from
farming can be written off against income from other sources (Freshwater and
Reimer, 1995, p. 220). Producing calves allows farmers to group their expenses
and sales in different years to generate small profits in some years and large
losses in others (Hoppe and Banker, 2006, p. 14).
Other specializations. Two other specializations were common among
limited-resource, retirement, residential/lifestyle, and low-sales farms. About
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Table 2

Farm specialization and diversification, by farm type, 2004
Small family farms
Farming-occupation
Item

Limitedresource

Retirement

Total farms

197,734

338,671

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
837,542

395,781 133,299

86,087

71,708

47,103 2,107,925

42.0
11.2
9.6
11.9
4.2
13.0
6.5
1.7

24.5
9.9
12.6
12.1
9.2
11.3
18.1
*2.2

*9.9
33.9
23.4
23.9
1.1
2.1
#1.2
*4.4

14.8
22.0
6.5
33.9
1.6
2.9
**1.6
16.7

3.4

3.2

1.4

1.8

0.0
13.7
22.7
22.4
41.2

d
20.4
19.1
23.1
37.4

*23.2
41.1
*22.4
*5.9
7.4

14.4
35.6
28.8
9.9
*11.4

Percent
Commodity specialization:1
Cash grain2
Other field crops3
High-value crops4
Beef
Hogs
Dairy
Poultry
Other livestock5

11.4
23.2
*9.5
34.3
d
d
d
18.5

8.2
27.8
5.7
40.5
d
d
d
15.9

11.3
23.8
**3.3
37.9
*1.1
d
**0.9
*21.3

14.3
19.6
9.1
34.0
*0.6
3.0
d
19.1

38.7
10.9
5.9
20.0
*3.5
16.2
*2.2
#2.6

Number
Average number of
commodities6

1.6

1.4

*1.4

1.9

3.5

Percent
Number of commodities:6
None7
One
Two
Three
Four or more

14.8
42.4
25.4
*9.9
7.4

18.6
38.0
33.8
*6.9
#2.7

17.7
40.5
28.9
#7.8
#5.1

13.0
33.5
31.4
10.0
12.1

0.0
14.2
24.4
17.2
44.2

d = Data suppressed due to insufficient observations.
* = Standard error is between 25 percent and 50 percent of the estimate.
** = Standard error is between 51 percent and 75 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1Commodity that accounts for at least half of the farm's value of production.
2Includes wheat, corn, soybeans, grain sorghum, rice, and general cash grains, where no single cash grain accounts for the majority of
production.
3Tobacco, peanuts, cotton, sugar beets, sugar cane, corn for silage, sorghum for silage, hay, canola, and general crops, where no single crop
accounts for the majority of production. Also includes farms with all cropland in the Conservation Reserve or Wetlands Reserve Programs
(CRP or WRP).
4Vegetables,

fruits and tree nuts, and nursery and greenhouse products.

5Includes

sheep, lambs, wool, goats, goats' milk, mohair, horses, ponies, mules, donkeys, bees, honey, aquaculture, mink, rabbits, other
fur-bearing animals, bison, deer, elk, llamas, etc. Also includes farms where no single livestock species accounts for the majority of production.
6Based on 26 commodities or commodity groups: barley, oats, wheat, corn for grain, corn silage, soybeans, sorghum for grain, sorghum silage,
canola, fruits, vegetables, nursery products, peanuts, sugar cane, sugar beets, rice, potatoes, cotton, tobacco, hay, other crops, cattle, hogs,
dairy, poultry, and other livestock.
7Includes

farms with no production due to drought, other adverse weather, crop and livestock disease, etc. Also includes farms with all cropland
in CRP and WRP.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Economic Research Service/USDA

one-quarter of the four groups specialized in “other field crops,” which also
includes farms with all their crop acres in the CRP and WRP. Another fifth
of each group specialize in “other livestock,” which includes grazing livestock other than cattle (namely horses, sheep, and goats.)
Some specializations are more common among family farms with gross
sales greater than $100,000 (medium-sales and large-scale farms). Farms
specializing in cash grains account for about 40 percent of medium-sales
and large family farms, while 11-16 percent of medium-sales and largescale farms specialize in dairy (versus 3 percent of farms in general). Very
large family farms are at least twice as likely as any other type to specialize
in poultry or hogs, accounting for three-fourths of poultry production and
two-thirds of hog production (fig. 5).
High-value crops. Production of high-value crops is heavily concentrated
among very large family farms and nonfamily farms, which together
account for 78 percent of the total. No more than 10 percent of any small
farm type specializes in these crops (table 2). High-value crops can generate
large sales per acre, but they can require much more labor than cattle and
they may require more marketing expertise.

Diversification
Family farms become more diversified as their size increases. Many small
family farms specialize in a single commodity or produce nothing at all.
Farms with no production include those with all their cropland in the CRP
or WRP, as well as farms experiencing crop failure or loss of livestock from
disease or other causes. Medium-sales and large-scale farms are more likely
to produce multiple commodities: three-fifths of farms in these groups
produce three or more commodities.

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Economic Research Service/USDA

Operator Demographics
Every farm has at least one operator, or a farmer who makes day-to-day
decisions about the farm business. However, some farms—particularly the
larger ones—have more than one operator who makes decisions. In such
cases, one operator is designated as the principal operator, the one who is
most responsible for running the farm. The others are designated as
secondary operators.4

Principal Operators
Principal farm operators are largely White and male. Minorities account for
5 percent of all principal operators, and a similar percentage for each farm
type except for limited-resource farms (table 3). About 12 percent of
limited-resource farms had a minority operator, more than double the rate
for all farms. Women make up 16 percent of operators on limited-resource
farms, nearly double their 9-percent share of all farms.5 Men operate virtually all family farms with sales of $100,000 or more (medium-sales, large,
and very large farms).
Education. Educational attainment varies sharply by type of farm. Onefourth of principal operators of limited-resource farms attended or
completed college, compared with half the operators of residential/lifestyle
or medium-sales farms. Educational attainment also increases with farm
size. About 38 percent of low-sales operators attended or completed college,
a number that jumps to 60 percent for operators of very large farms. Thirtyfive percent of limited-resource farmers had less than a high-school education, about three times the percentage for all operators.

4Traditionally, farm data sources in
the United States assumed each farm
had only one operator. The “one farm,
one operator” assumption was dropped
when the census of agriculture and
ARMS collected data for 2002. Both
the census and ARMS now count all
operators—principal and secondary—
and ask for detailed information on up
to three operators.
5Approximately 17 percent of the
operators of nonfamily farms were
women, but the difference between that
estimate and the 9-percent estimate for
all farms is not statistically significant.

Operator age. One of the most striking characteristics of U.S. agriculture is
the advanced age of principal farm operators compared with other selfemployed workers. About 27 percent of farm operators reported their age as
65 or older in 2004. In contrast, the Bureau of Labor Statistics (BLS) estimates that only 8 percent of self-employed workers in nonagricultural
industries were that old (U.S. Dept. of Labor, 2005, p. 220). Each farm
type—except residential/lifestyle farms—had a larger share of operators
who were at least 65 than was true for the nonfarm self-employed. Retired
operators were most likely to be 65 or more, as one would expect, but
nearly 60 percent of limited-resource operators were also that old.
The age gap between farm operators and other self-employed workers has
increased in recent decades (fig. 7). In 1969, 17 percent of farm operators
were at least 65 years old, or 6 percentage points more than the estimate for
the nonagricultural self-employed. By 2002, the difference had increased to
19 percentage points, largely due to a growing share of older farm operators.
The advanced age of farm operators is understandable, given that the farm is
the home for most farmers and that farmers can phase out of farming gradually over a decade or more (Ahearn et al., 1993, p. 7). Younger farmers enter
the business at a very slow rate, which tends to increase the average age for
farmers as a whole. Improved health and advances in farm equipment have

12
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Table 3

Selected characteristics of principal operators, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total principal operators

197,734

338,671

837,542

395,781 133,299

86,087

71,708

47,103 2,107,925

Percent of group
Race or ethnic origin of
principal operator:
White, not Hispanic
Minority1

88.2
11.8

95.5
4.5

95.7
4.3

95.8
*4.2

98.0
*2.0

96.7
#3.3

96.4
3.6

96.1
#3.9

95.2
4.8

Gender of principal operator:
Male
Female

83.6
16.4

90.4
9.6

91.3
**8.7

89.0
11.0

97.9
2.1

98.4
1.6

97.5
2.5

83.1
*16.9

90.7
*9.3

Education of principal operator:
Some high school
or less
Completed high school
Some college
Completed college

35.5
40.6
17.5
*6.4

14.0
38.1
24.0
24.0

5.9
39.1
26.5
28.6

11.2
50.6
18.9
19.3

7.1
42.3
29.2
*21.3

8.9
38.3
29.2
23.6

5.3
35.2
28.5
31.1

*2.2
32.4
21.6
43.7

11.1
41.1
24.0
23.8

52

52

56

56

6.5
17.9
35.3
26.9
13.4

4.9
18.9
37.6
26.5
12.1

2.6
15.0
21.2
38.1
23.1

4.4
13.0
26.3
29.9
26.5

Years
Average age of principal
operator

65

68

51

57

52

Percent of group
Age of principal operator:
Younger than 35 years
35 to 44 years
45 to 54 years
55 to 64 years
65 years or older

*2.6
*4.7
15.4
19.3
58.3

d
d
5.5
24.8
68.7

6.0
19.3
37.0
30.7
7.0

4.1
9.7
20.5
40.5
25.3

7.3
18.9
34.4
*24.0
15.5

d = Data suppressed due to insufficient observations.
* = Standard error is between 25 percent and 50 percent of the estimate.
**Standard error is between 51 percent and 75 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1Includes American Indians or Alaska Natives, Asians, Blacks or African Americans, Hispanics or Latins, and Native Hawaiians
and other Pacific Islanders. Also includes operators who reported more than one racial or ethnic group. Small sample size for
individual minority groups prevents separate estimates for each group.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

13
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Economic Research Service/USDA

Figure 7

Principal farm operators and self-employed workers in nonagricultural
industries who were at least 65 years old, selected census years,
1969-2002
Principal farm operators are increasingly likely to be at least 65 years old
Percent 65 or older
35
30

Principal farm operators
Nonagricultural self-employed workers

25
20
15
10
5
0
1969

1978

1987

1997

2002

Census year
Source: USDA, Economic Research Service, compiled from agricultural census data and
from Bureau of Labor Statistics data published in various January issues of Employment
and Earnings.

also allowed farmers to farm later in life than in previous generations
(Mishra et al., 2005, p. 14).
The advanced age of farmers raises concerns about a mass exit of farmers
from agriculture in the near future (Gale, 2002, p. 30) and finding younger
farmers to replace them. Finding replacement operators, however, may not
be as hard as it seems (Hoppe and Banker, 2006, p. 36). Older farmers can
be replaced with younger farmers producing more on larger farms, and
some replacement farmers already work as secondary operators on their
families’ farms. In addition, about one-fifth of farm operators report they are
retired. Any replacement of these operators by younger operators has
already occurred.

Secondary Operators and Their Farms
In addition to principal farm operators, there are secondary operators on
967,730 multiple-operator farms (table 4). Because farms are generally
family businesses, one would expect family members to serve as secondary
operators. In fact, 65 percent of the secondary operators—720,000 out of
1.1 million—are spouses.
The number of operators per farm tends to increase with size. Commercial-sized farms often require more management and labor than an individual can provide. The number of operators per farm reaches 1.9
operators—on average—for very large family farms. Sixty-five percent of
farms that size have two or more operators, versus 46 percent for all U.S.
farms. About 16 percent of all multiple-operator farms are multiplegeneration farms, with at least 20 years’ difference between the ages of
the oldest and youngest operators.

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Economic Research Service/USDA

Table 4

Multiple-operator farms, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total operators
Principal operators1
Secondary operators
Spouses
Other
Operators (principal and
secondary) per farm
Multi-operator farms2

273,308
197,734

511,094 *1,268,612
338,671
837,542

590,099 204,683
395,781 133,299

146,199 136,763
86,087 71,708

89,290 3,220,048
47,103 2,107,925

75,574

172,423

*431,070

194,318

71,384

60,112

65,055

53,754

110,054

*314,752

134,549

45,415

26,804

23,946 *10,542

42,187 1,112,123
719,816

*21,820

*62,369

*116,318

59,769

25,968

33,308

41,109

31,645

392,307

1.4

1.5

1.5

1.5

1.5

1.7

1.9

1.9

1.5

71,347

142,740

*392,904

176,010

62,327

48,332

46,841

27,230

967,730

56.1

65.3

57.8

45.9

13,447

12,487

*5,936

*152,025

27.8

26.7

21.8

15.7

Percent of group
Multiple-operator farms
as share of all farms

36.1

42.1

46.9

44.5

46.8

Number
Multi-generation

farms3

*13,524

**33,892

*41,879

19,004

11,855

Percent of group
Multiple-generation farms
as share of multipleoperator farms

*19.0

*23.7

10.7

10.8

19.0

Note: ARMS counts all operators—principal and secondary—and asks for detailed information on up to three operators.
* = Standard error is between 25 percent and 50 percent of the estimate.
** = Standard error is between 51 percent and 75 percent of the estimate.
1The

number of principal operators equals the number of farms. Each farm has one principal operator.

2Mulitiple-operator
3Farms

farms report more than one operator.

reporting a difference of at least 20 years between the ages of the youngest and oldest operators.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Economic Research Service/USDA

The tasks that principal operators perform—like buying inputs, marketing,
and maintaining equipment—change as the number of operators increases
(fig. 8). When there is only one operator on large-scale farms, that operator
is the main performer of each activity for 89 to 99 percent of the farms. As
the number of operators increases, the percentages fall. For farms with three
operators, the principal operator is the main performer for only 58 to 84
percent of the farms, depending on the activity.
As more operators are added, individual operators can specialize in different
activities. Or, older operators can scale back and allow younger operators to
assume more responsibilities. This appears to be the case on large-scale
farms with three operators. The average age of the principal operator on
these farms is 59, and 74 percent of the farms are multiple-generation.
Figure 8

Principal farm operators’ responsibility for selected activities on large-scale family farms, by number of
operators, 2004
Principal operators’ responsibilities lessen on multiple-operator farms
Principal farm operator is main
performer of activity

Percent of farms
100
80
60
40
20
0
Planning and
record keeping
Farms with:
One operator

Purchasing
inputs

Crop
production1

Marketing and
contracting

Supervising
labor2

Reparing and
maintaining
equipment

Multiple-operator farms
Two operators

Three operators

Note: The Agricultural Resource Management Survey collects detailed information on up to three farm operators for each farm.
1Estimated

only for farms producing crops.
only for farms hiring labor.
3Estimated only for farms receiving government payments.
2Estimated

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III, version 1.

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Participating in
government
programs3

Farm Income and
Financial Performance
Profitability measures are strongly associated with farm size. The average
operating profit margin and average rates of return on assets and equity are
negative for small farms, but positive for large-scale and nonfamily farms
(table 5). These ratios are higher for very large farms than for large farms,
reflecting very large farms’ higher level of sales.
Average profit measures, however, obscure the wide variation in financial
performance among farms, including small farms. Although nearly half or
more of the farms in each small farm type had a negative operating profit
margin in 2004, other small farms were much more profitable (fig. 9). For
example, between 15 percent and 28 percent of each small farm type had an
operating profit margin of at least 20 percent. Nevertheless, an even greater
share of large-scale family farms had profit margins that high—36 percent
for large family farms and 42 percent for very large family farms. In addition, most of the farms in both of these groups had a positive operating
profit margin.
A large majority of each small farm type generated a positive net farm
income, although average net farm income was low compared with large
and very large family farms (table 5). Overall, net farm income averaged
$25,000 per farm in 2004—up 37 percent from the previous year—
reflecting a good year for the farm sector. Seventy percent of farms in 2004
earned positive net farm income, and these profitable farms accounted for
the bulk of agricultural activity. They generated 81 percent of the total value
of production and operated 66 percent of the land in farms.

Selected Financial Ratios
On average, both limited-resource and residential/lifestyle farms had an operating expense ratio greater than 100 percent in 2004. In other words, operating
expenses exceeded gross cash farm income. The remaining categories of small
farms—retirement, low-sales, and medium-sales—generated enough income to
cover expenses. Large-scale family farms and nonfamily farms each had an
operating expense ratio of about 70 percent, similar to that of medium-sales
farms. Such a ratio provides a more comfortable margin between expenses and
income than that experienced by smaller farms.
Family farms with annual gross sales of at least $100,000—medium-sales,
large, and very large farms—have a higher debt/asset ratio than smaller
family farms. As a result, they are also more likely to be marginally solvent
(positive net farm income, but with a debt/asset ratio above 40 percent).6 In
contrast, limited-resource, residential, and low-sales small farms are more
likely to fall in the marginal-income category (negative net farm income, but
with a debt/asset level of no more than 40 percent). This reflects their higher
operating expense ratios, which means they are more likely to generate
negative net income. Vulnerable farms—with negative net income and a
debt/asset ratio above 40 percent—are rare in all farm types, and amount to
less than 3 percent of all farms. Residential/lifestyle farms make up 56

6In the late 1980s, ERS developed a
measure of financial position that considered both income and solvency.
Under this classification system, farms
were classified as being in one of four
financial categories: favorable, marginal-income, marginal-solvency, or
vulnerable. For definitions of the four
categories, see footnote 6 in table 5.

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Table 5

Selected performance measures, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total farms

197,734

338,671

837,542

395,781 133,299

86,087

71,708

2.5
*1.8
10.8

6.8
6.7
18.3

47,103 2,107,925

Percent
Profitability measures:
Rate of return on assets1
Rate of return on equity2
Operating profit margin3

-4.0
-4.4
-86.7

*-1.5
-1.7
*-27.8

-2.0
-2.8
-35.5

-2.7
-3.2
-36.1

#-0.4
**-1.3
#-2.4

7.1
7.1
23.8

**0.5
#-0.1
**3.0

87,499 287,921 175,795

25,003

Dollars per farm
Income measures:
Net farm income

**1,812

9,655

4,544

9,098

39,084

Percent
Farms with positive
net farm income

66.7

79.5

62.8

68.7

76.9

82.2

83.8

72.2

69.6

143.3

83.7

106.8

89.8

74.0

69.1

70.2

70.4

75.3

Solvency measure:
Debt/asset ratio5

*3.9

2.5

8.0

*5.4

10.8

13.1

16.7

7.2

8.8

Solvency and income measure:
Financial position—6
Favorable
Marginal income
Marginal solvency

65.9
32.3
d

79.1
19.4
d

60.0
33.1
*2.8

67.0
28.9
*1.7

71.6
19.8
5.3

71.8
15.3
10.4

69.2
11.3
14.6

69.4
26.1
*2.8

66.7
27.6
2.9

d

d

4.0

#2.4

*3.3

2.5

4.9

*1.7

2.8

Financial efficiency measure:
Operating expense ratio4

Vulnerable

d = Data suppressed due to insufficient observations.
* = Standard error is between 25 percent and 50 percent of the estimate.
** = Standard error is between 51 percent and 75 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1Return on assets = 100% X (net farm income + interest paid - charge for unpaid operators’ labor and management ) / total assets.
2Return on equity = 100% X (net farm income - charge for unpaid operators’ labor and management ) / net worth.
3Operating profit margin = 100% X (net farm income + interest paid - charge for unpaid operators’ labor and management ) / gross farm income.
4Operating expense ratio = 100% X total cash operating expenses / gross cash farm income.
5Debt/asset ratio = 100% X total liabilities/total assets.
6Financial performance classification based on farm income and debt/asset ratio:
• Favorable: positive net farm income and debt/asset ratio no more than 40 percent.
• Marginal-income: negative net farm income and debt/asset ratio no more than 40 percent
• Marginal-solvency: positive net farm income and debt/asset ratio greater than 40 percent.
• Vulnerable: negative net farm income and debt/asset ratio greater than 40 percent.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Figure 9

Farms by operating profit margin, 2004
Small family farms are more likely to have a negative operating profit margin
Percent of group
100
80
#

60
40

*

20
0
Limitedresource

Retirement

Residential Low-sales Medium-sales
Farming-occupation
Small family farms
(sales less than $250,000)

Large

Very large

Nonfamily

All farms

Large-scale
family farms

Operating profit margin:
Less than 0%

0 to 9.9%

10 to 19.9%

20% or more

Note: Operating profit margin = 100% X (net farm income + interest paid – charge for unpaid operators’ labor and management)/gross
farm income.

* = Standard error is between 25 percent and 50 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

percent of the vulnerable group, but their operators are unlikely to depend
on the farm for their livelihood.
Most U.S. farms have a favorable financial position, which means they
generate positive returns and have a debt/asset ratio no more than 40
percent. Two out of three U.S. farms and at least 60 percent of each farm
type were classified as such in 2004.

Loans and Lenders
Many farmers operate with seasonal production loans that are taken out and
repaid within the same calendar year, but 41 percent of farms reported
outstanding loans as of December 31, 2004 (table 6). This relatively low
incidence of debt contributes to the small share of farms with a vulnerable
or marginally solvent financial position. Operations with year-end loan
balances ranged from one-fifth for retirement farms to three-fourths or more
for medium-sales, large, and very large farms. This suggests that the farms
most likely to be in debt are larger and most likely to benefit from using
credit as a source of capital.
Average debt levels also varied with size, ranging from just over $200,000 for
medium-sales farms to nearly $600,000 for very large farms. Smaller family
farms averaged less than $100,000 in outstanding debt. Regardless of farm
type, real estate and other long-term loans accounted for most debt. Real estate
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Table 6

Farms reporting outstanding loans, by lender and farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total

farms1

#178,433

322,856

824,579

#419,662 138,390

100,870

82,585

73.0

82.3

40,004**2,107,377

Percent
Share of farms reporting
outstanding loans2

#26.2

17.0

41.4

#41.0

74.4

*32.9

**41.4

Dollars per farm
For farms with
outstanding loans:
Average debt3

#50,551

63,154

82,030

#84,908 210,957 *265,223 594,084 *364,334 **153,557
Percent

Type of debt:3
Short-term debt
Real estate
Other long-term debt

#9.7
**63.3
#27.0

**17.9
68.8
*13.3

*5.9
83.6
10.4

*14.4
65.4
*20.2

21.9
55.7
22.4

*19.0
54.1
*26.9

26.1
51.7
22.2

*16.8
60.4
*22.7

*18.0
62.0
20.0

Debt-asset ratio3

#10.6

11.1

17.5

**12.8

18.7

20.6

**21.2

16.5

*17.8

*18.0

39.2

*4.7

*131.6

*29.6
*48.0
*2.0
#0.7
*19.6

37.1
43.2
**2.3
**1.9
*15.5

*32.7
41.4
**1.0
#2.4
*22.5

*24.6
*49.0
*3.1
*1.1
#22.2

16.4
*13.4
8.9
d
*12.1
13.7

44.7
26.3
22.5
53.1
*20.7
29.8

4.8
3.0
*1.2
*7.9
*3.6
3.6

100.0
100.0
100.0
100.0
100.0
100.0

Billion dollars
Outstanding loan
balances2

#2.3

*3.3

30.5

#14.3

19.2

Percent of group
lender:2

Outstanding loans, by
Farm Credit System
Commercial banks
Farm Service Agency
Life insurance companies
Other4

#27.0
#37.0
#2.2
d
#33.8

**6.6
66.1
d
d
22.2

11.4
57.4
*2.4
#0.1
*28.7

**10.3
**54.3
#6.1
#1.8
#27.5

*27.1
*44.7
*5.4
#0.1
22.7

Percent of U.S. total
Outstanding loans, by lender:2
Farm Credit System
Commercial banks
Farm Service Agency
Life insurance companies
Other4
All lenders

1.9
1.3
1.3
d
#2.7
#1.8

*0.7
3.4
d
d
*2.5
*2.5

10.8
27.2
17.9
d
*30.0
23.2

4.6
12.1
21.5
d
**13.4
*10.9

16.1
13.3
25.7
d
*14.9
14.6

d = Data suppressed due to insufficient observations.
* = Standard error is between 25 percent and 50 percent of the estimate.
** = Standard error is between 51 percent and 75 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1The

number of farms differs from that in previous tables because this table is based only on version 1 of the survey.

2Based

on the outstanding loan balances for up to five loans that were reported on the survey. Information collected about individual loans
included the interest rate, purpose of the loan, and lender (identified from a list of 17 potential lenders).
3Includes all debt, not just the balances of the five reported outstanding loans. Note that debt/asset ratios in table 6 are higher than those
in table 5, because table 6 excludes farms with no outstanding debt.
4Loans from the Small Business Administration, State and county government lending agencies, savings and loan associations, implement
dealers, financing corporations, input suppliers, cooperatives and other merchants, contractors, other lenders, individuals, and credit cards.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III, version 1.

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debt accounted for 84 percent of total debt for residential/lifestyle farms,
compared with just over half of total debt on medium-sales and large-scale
farms. This high share of real estate debt for residential/lifestyle farms likely
reflects substantial mortgages on farm dwellings.
Farm loans originate from a variety of sources. Commercial banks accounted
for about 49 percent of the total outstanding loan balances reported by farm
operators at the end of 2004. Banks also accounted for a substantial portion of
loan balances (37 to 66 percent) for each farm type. The Farm Credit System
(FCS) supplied another 25 percent of loan balances.
The Farm Service Agency (FSA) accounts for only 3 percent of all reported
balances. Although it makes loans directly to farmers, FSA also guarantees
loans made by other lenders. These loans are excluded from estimates of
loans held by FSA, but are included in the estimates of debt held by the
lenders who made the loan. FSA’s direct loans are targeted at beginning
farms and farms with smaller credit needs. FSA appears to be serving
smaller farms, with 47 percent of its loans going to small farms where the
operators report farming as their major occupation. In contrast, only 21
percent of FCS loans and 25 percent of bank loans go to these operations.

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Sources and Levels of Operator
Household Income
Given their negative operating profit margins and low net farm income—on
average—how do so many small farms continue to exist? Households operating
small farms typically receive substantial off-farm income. Average off-farm
income in 2004 ranged from $13,600 for limited-resource households to $96,900
for households operating residential/lifestyle farms (table 7). Most off-farm
income is from earned sources, either a wage-and-salary job or self-employment.
However, households operating limited-resource or retirement farms receive well
over half their off-farm income from unearned sources—such as Social Security,
pensions, dividends, interest, and rent—reflecting the advanced age of operators
on those farms. (See “Appendix I: Measuring Operator Household Income and
Net Worth” for information on how operator household income is defined.)

Off-Farm Work
Participation in off-farm work varies by farm type. At one extreme, neither
the operator nor spouse worked off-farm on 73 percent of limited-resource
and 65 percent of retirement farms. At the other extreme, both the operator
and a spouse worked off-farm on 64 percent of residential/lifestyle farms. In
the remaining farm types, the operator, a spouse, or both worked off-farm in
49 to 62 percent of farm households.
In other words, many farm households are dual-career, holding off-farm jobs
as well as farming (Hoppe, 2001, pp. 45 and 49). About 46 percent of all
farm households were dual-career, with a spouse working off the farm and
the principal operator engaged in farming (with or without off-farm work).
According to the Current Population Survey, about 42 percent of all U.S.
households had two or more workers in 2004, so farm households are about
as likely to be dual-career as U.S. households in general.
Off-farm work is not a recent phenomenon. About 30 percent of principal operators reported off-farm work in the 1930 and 1935 Censuses of Agriculture, generally for fewer than 100 days (fig. 10), with considerable variation by State. For
example, in the 1935 Census, the share ranged from 18 percent in Iowa and 21
percent in New Jersey to 57 percent in Utah and 60 percent in South Dakota. The
percentage working off farm was only 19 percent for South Dakota in the
previous (1930) census, with the 5-year jump in off-farm work reflecting “relief
work” taken on during drought (Jenkins and Robison, 1937, pp. 8 and 10).
Since 1969, the share of primary operators working off-farm has stabilized
at just over 50 percent nationally. However, the share reporting working 200
days or more—essentially working full-time off the farm—increased
steadily from 32 percent in 1969 to 39 percent in 2002.

Level of Principal Operator
Household Income
Average principal operator household income was $81,600 in 2004 (table
7), up from $68,500 in 2003, with farming and off-farm income each
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Table 7

Income and wealth of principal operator households, by farm type, 2004
Small family farms
Limitedresource

Item

Retirement

Residential/
lifestyle

Farming-occupation

Large-scale
family farms

Lowsales

Large

Mediumsales

Very
large

All
farms

Number
Total households

197,734

338,671

837,542

395,781

133,299

86,087

71,708 2,060,822

Dollars per household
Mean household income
Farm earnings1
Off-farm income
Earned2
Unearned2

7,680
-5,902
13,582
3,463
10,118

62,468
*4,128
58,339
20,252
38,087

96,515
#-365
96,879
83,548
13,331

63,043
**4,925
58,118
36,950
21,168

70,365
*34,354
36,011
26,241
9,769

125,120
80,250
44,870
33,238
11,633

272,527
225,094
47,434
29,320
*18,114

81,596
14,317
67,279
48,818
18,461

Percent
Share of income from
off-farm3

176.8

93.4

100.4

92.2

51.2

35.9

17.4

82.5

Off-farm work—principal operator and spouse:
Only operator4
18.6
**10.7
Only spouse
*7.2
16.7
Neither5
72.6
64.8
Both
d
7.8

35.9
0.0
0.0
64.1

12.3
22.5
48.0
17.2

6.8
38.5
38.5
16.1

8.9
33.4
45.9
11.8

7.3
31.8
51.1
9.8

21.5
12.8
33.0
32.7

Households with:
Negative farm earnings
Negative household income

64.4
*0.5

44.4
#5.0

24.6
13.0

16.8
10.5

16.3
12.1

52.8
5.0

1,023,428 1,413,494
910,361 1,237,765
113,067
175,729

2,234,670
1,975,385
259,286

739,953
546,788
193,165

72.1
19.6

50.8
*1.2

Dollars per household
Mean household net worth
Farm net worth
Nonfarm net worth

462,555
389,024
73,531

685,957
464,673
221,284

587,960
368,200
219,760

733,600
542,217
191,383

Percent
Share of net worth from
the farm

84.1

67.7

62.6

73.9

89.0

87.6

88.4

73.9

Real estate share of
farm assets6

84.8

87.1

83.9

80.0

70.8

68.9

67.8

77.9

Note: Household income and net worth are calculated only for family farms. d = Data suppressed due to insufficient observations.
*=Standard error is between 25 percent and 50 percent of the estimate. **Standard error is between 51 percent and 75 percent of
the estimate. # = Standard error is greater than 75 percent of the estimate.
1Farm earnings in this table and net farm income in table 5 are not directly comparable. Net farm income includes cash and noncash items,
is based on accrual accounting, and is calculated for the farm business. Farm earnings—in contrast—are based on cash items only, with the
exception of a deduction for depreciation. Farm earnings also exclude the share of net income generated by the farm paid to other households,
such as the households of partners. For more information about the definition of farm earnings, see Appendix I.
2Earned income comes from off-farm self-employment or wage/salary jobs. Unearned income includes interest and dividends, benefits from
Social Security and other public programs, alimony, annuities, net income of estates or trusts, private pensions, regular contributions of persons
not living in the household, net rental income from nonfarm properties, and royalties for mineral leases.
3Income

from off-farm sources can be more than 100 percent of total household income if farm earnings are negative.

4Includes

households were the operator works off-farm and there is no spouse.

5Includes

households where the operator does not work off-farm and there is no spouse.

6Includes

farm business assets held by the principal operator's household and other households.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Figure 10

Principal farm operators reporting off-farm work, selected census years, 1930 to 2002
Principal farm operators have worked off-farm since at least the 1930s
Percent
60
50

Days per year of off-farm work:
1 to 99
100 to 199
200 or more

40
30
20
10
0
19301

351

40

50

59
69
Census year

78

87

Note: Includes any day the principal operator worked at least 4 hours off the farm.
1Excludes Alaska and Hawaii.
2Beginning with the 2002 census, days of off-farm work are imputed if not reported.
Source: USDA, Economic Research Service, compiled from census of agriculture data.

contributing about half of the $13,100 increase. Households operating large
and very large farms experienced substantial increases—$22,700 and
$58,300, respectively—mostly from farming. Average farm household
income was about 35 percent higher than the average for all U.S. households in 2004, as measured by the Current Population Survey.
Mean income may not be the best choice for comparison, because a few very
high-income households can raise the mean well above the income received by
most households. Nevertheless, using medians still results in higher income for
farm households (fig. 11). Median farm-operator household income in 2004
was $53,700, 21 percent higher than the median for all U.S. households.
Households operating residential/lifestyle, large, or very large farms had a
median household income above the median for all U.S. households. The
median for retirement and medium-sales households, in contrast, did not differ
from the U.S. median by a statistically significant amount. Only two types of
farm households—those operating limited-resource or low-sales farms—
received median household income below the U.S. median.

Net Worth
The income that farm operator households receive from farming does not
reflect the large net worth of many farm households. For example, for
households on farms with gross sales of at least $100,000, average net worth
ranged from $1 million for medium-sales farms to $2.2 million for very
large family farms in 2004 (table 7). Virtually all farm households had a net
worth greater than the median net worth for all U.S. households, and nearly
two-thirds had a net worth greater than the median for U.S. households with
a self-employed head (table 8).

24
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Economic Research Service/USDA

97

20022

Figure 11

Median income of principal-operator households, 2004
Farm households tend to have higher income than U.S. households in general
$1,000
175
150
125

Median income,
all U.S. households ($44,400)

100
75
50
25
0

Limitedresource

Retirement

Residential

Small family farms
(sales less than $250,000)

Low-sales Medium-sales
Farming-occupation

Large

Very large

Large-scale
family farms

All operator
households

Note: Median income falls at the midpoint of the distribution of households ranked by income. Half of the households have income above
the median, while the other half have income below that level.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III, for farm households. U.S. Bureau
of the Census, 2005 Current Population Survey for all U.S. households.
Table 8

Net worth for farm households versus all U.S. households, 2004
Farm households with
a net worth greater than—

All farm
households

Limitedresource
households

Percent
Median for all U.S.
households ($93,100)

95.1

85.7

Median for all U.S. households
with self-employed head ($335,600)

64.8

42.8

Source: USDA, ERS, 2004 ARMS for farm households. Federal Reserve Board, 2004 Survey
of Consumer Finances (Bucks et al., 2006, p. A8) for net worth of all U.S. households and
households with a self-employed head.

Even limited-resource households have a relatively high net worth. Eightysix percent have a net worth higher than the median for all U.S. households,
and 43 percent have a net worth greater than the median for households with
a self-employed head. The current limited-resource definition has no
constraint on farm assets, instead focusing on low household income and
low farm sales over a 2-year period. An earlier definition constrained assets,
which resulted in a much lower net worth for limited-resource households.
For more information, see “Appendix II: Defining Limited-Resource
Farms—Past, Present, and Future”.7
Unlike income, most of which comes from off-farm sources, net worth from
the farm makes up most of the wealth of farm households, regardless of farm
type. The farm accounts for 63 to 89 percent of operator household net worth,
reflecting the land-intensive nature of farming (table 7). However, much of the
net worth of farm households is illiquid—and not available to spend for
consumption—because it is largely based on assets necessary to continue
farming. Real estate alone amounted to 78 percent of total farm assets.

7ERS plans to explore alternate limited-resource definitions to identify different types of limited-resource farms
and farmers. It will continue to provide
information about limited-resource
farms as defined under the current definition, because that definition is used by
USDA agencies to administer programs.
To facilitate comparing the current and
alternate definitions, the limited-resource
category will be dropped from the ERS
farm classification system. However,
there will be more information on counts
and characteristics of limited-resource
farmers under different definitions.

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Government Payments
Farm program payments can be sorted into two groups—commodity-related
and conservation (see box, “Types of Farm Program Payments”).
Commodity-related payments in total are much larger than conservation
payments, accounting for more than four-fifths of all payments made to
farmers in the 2004 ARMS data.8 About 39 percent of farms received
government payments of some type in 2004, but the relative shares of
government programs varies widely by farm type (fig. 12). Medium-sales,
large, and very large farms were more likely to receive government
payments—especially commodity-related payments—than smaller farms.

8ARMS data rely entirely on the
respondent for program-related information. As a result, the survey shows different levels and composition of
government payments than do administrative data, which are based on payment records kept by the agencies
involved. In addition, ARMS records
only the payments received by farmers,
while the administrative data include
payments received by persons who do
not farm, mainly nonoperator landlords.

Commodity-Related Programs
Commodity programs target specific commodities, largely feed and food
grains, cotton, and oilseeds. Payments are tied to the amount of cropland
enrolled in programs and yield histories. Specialty crops (except dry peas,
lentils, and small chickpeas) and livestock (except dairy, wool, mohair, and
honey) are not supported by traditional commodity programs. Producers of
nonprogram commodities—as well as producers of program commodities—
may also receive disaster assistance and occasional ad hoc payments. Farms
producing nonprogram commodities may receive substantial payments, if
they also produce program commodities or did so in the past.
Most medium-sales and large-scale farms—70 to 80 percent—receive
commodity-related payments. These farms collectively received 78 percent
of commodity program benefits paid to farmers in 2004, roughly propor-

Figure 12

Farms receiving payments from conservation or commodity programs, 2004
Most medium-sales and large-scale farms receive payments from commodity programs
Percent of farms in group
100
Conservation program payments1
Commodity-related payments1
Any payment2

80
60
40
20
0

Limitedresource

Retirement

Residential Low-sales Medium-sales
Farming-occupation
Small family farms
(sales less than $250,000)

Large

Very large

Nonfamily

All farms

Large-scale
family farms

1For

definitions of conservation program payments and commodity-related payments, see box, “Types of Farm Program Payments.”
payments from the conservation programs and/or commodity-related programs. Because some farms receive both types of payments,
the percentage of farms receiving commodity-related payments plus the percentage of farms receiving conservation payments sums to more
than the percentage of farms receiving any government payment.

2Receives

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Types of Farm Program Payments
The payments covered by the 2004 ARMS are listed below, sorted into two
major categories.
Commodity-related: Direct payments, countercyclical payments, loan
deficiency payments, marketing loan gains, net value of commodity certificates, peanut quota buyout, milk income loss contract payments, agricultural disaster payments, and any other State, Federal, and local payments.
Conservation: Payments from the Conservation Reserve Program (CRP),
Wetlands Reserve Program (WRP), and Environmental Quality Incentives
Program (EQIP).
tional to their share of harvested acres of program crops (fig. 13). Very large
family farms alone received 35 percent of commodity-related payments.

Conservation Programs
Nearly 90 percent of conservation payments going to farmers were paid by
CRP. The Environmental Quality Incentives Program (EQIP) has expanded
since the 2002 Farm Act (Claassen and Ribaudo, 2006), but it still
accounted for only 10 percent of conservation payments in the 2004 ARMS.
Medium-sales farms received the largest share of EQIP payments, about 46
percent. WRP contributed about 1 percent of conservation payments.
The target of CRP (and WRP) is environmentally sensitive land, rather than
the production of specific commodities, so the distribution of conservation
payments differs from that of commodity-related payments. Retirement,
residential/lifestyle, and low-sales farms received 62 percent of conservation
payments in 2004, reflecting their large numbers (75 percent of all farms),
their large share of farmland (43 percent of the land owned by farms), and
their tendency to enroll large shares of their land in CRP and WRP when
they do participate. CRP and WRP enrollments account for 47 percent of
the land operated on participating retirement farms, 35 percent on participating residential/lifestyle farms, and 25 percent on participating low-sales
farms. In contrast, enrollment ranges from 6 percent to 11 percent for participating medium-sales farms and large-scale farms.
Residential/lifestyle operators’ main reported occupation is off the farm,
which limits the amount of time they spend farming. Since land enrolled
in CRP and WRP requires little labor or capital investment and provides a
guaranteed income stream, residential/lifestyle farmers may find the
programs financially attractive, particularly if their farms are not highly
profitable. Given their age, many retired farmers and older low-sales
farmers have land available to put into conservation uses (Lambert et al.,
2006, pp. 20-26).

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Figure 13

Distribution of payments from conservation and commodity programs, 2004
Acres of program commodities explain the distribution of commodity program payments
Percent of U.S. payments or harvested acres
40
35
30

Commodity-related payments1
Acres harvested, selected crops2
Conservation program payments1

25
20
15
10

*

5
0
Limitedresource

Retirement

Residential

Small family farms
(sales less than $250,000)

Low-sales
Medium-sales
Farming-occupation

Large

Very large

Nonfamily

Large-scale
family farms

* = Standard error is between 25 percent and 50 percent of the estimate.
1For definitions of commodity-related payments and conservation program payments, see box “Types of Farm Program Payments.”
2Food and feed grains, soybeans, other oilseeds, cotton, and peanuts.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Special Feature:
The Shift to Large Farms
During the past two decades, data from the census of agriculture show a
marked increase in the number of farms selling at least $250,000 in farm
products. The growth in the number of these large farms was accompanied
by a similar shift in production. We sort farms in each of the five censuses
of agriculture—1982, 1987, 1992, 1997, and 2002—into sales classes in
order to track these changes.
When using agricultural sales to measure trends in farm size over time, it is
important to adjust for changes in agricultural prices, which will change
revenue without any changes in the physical volume of production. Accordingly, we adjust sales of agricultural products for price changes using the
Producer Price Index (PPI) for farm products, which is also the
USDA/NASS index of prices received by farmers. Sales classes from the
various censuses of agriculture presented here are expressed in 2002
constant dollars.

Distribution of Farms
The number of farms with sales of at least $250,000 grew steadily from
1982 to 2002 (table 9), increasing from 85,000 to 152,000. The share of all
farms in this group grew from 4 percent to 7 percent. Most of these farms
had sales between $250,000 and $499,999—even by the end of the period—
but the number of farms with sales of at least $500,000 grew more rapidly.
The number of farms with sales between $500,000 and $999,999 more than
doubled, while the number of million-dollar farms more than tripled.
The number of farms in the other sales classes declined in each of the four
intercensus periods, with the exception of farms selling less than $10,000.
Farms with sales that low declined during the first two intercensus periods,
but increased during the last two periods. The increase during the last two
periods was due to growth in “point farms,” or farms with sales less than
$1,000 that might normally have sales that high and satisfy the criteria
necessary to be considered a farm.9 Because of the growth in point farms,
farms with sales less than $10,000 now account for 59 percent of all U.S.
farms, up from 49 percent in 1982.

9If

a place does not have $1,000 in
sales, a “point system” assigns values
for acres of various crops and head of
livestock to estimate normal sales.
“Point farms” are farms with less than
$1,000 in sales but points worth at
least $1,000. See “What is the
Definition of a Farm?” on the NASS
website (http://www.nass.usda.gov/
Census_of_Agriculture/Frequently_
Asked_Questions/index.asp#1).
10Enrollment

Most of the increase in point farms, however, was due to a minor change in
the census farm definition and an adjustment for undercoverage in the
census farm count. Beginning in 1997, establishments that enrolled all their
cropland in CRP or WRP were counted as farms, even if they did not sell at
least $1,000 in farm products (Hoppe and Korb, 2002, p. 25).10 With the
2002 census, NASS adjusted the census farm count to compensate for
undercoverage (Allen, 2004), which had the largest effect on farms near the
$1,000 cutoff in the farm definition (USDA, NASS, 2004, p. C-11).11

Distribution of Agricultural Sales
In addition to the shift in the number of farms in the various sales classes,
even more dramatic shifts occurred in the distribution of total agricultural

in the CRP began in
1986 and enrollment in the WRP
began in 1992 (Hellerstein, 2006).
Since neither program existed in 1982,
the farm count from the 1982 census
and the farm counts from the 1997 and
2002 censuses are comparable, as far
as the treatment of CRP/WRP farms is
concerned.
11Undercoverage is much less an
issue for sales than for the farm count.
The five censuses prior to 2002
included an average of 92 percent of
farms but 98 percent of production
(USDA, NASS, 1999, p. C-5).

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Table 9

Number of farms by constant-dollar sales class (2002 dollars), 1982 to 2002
Constant-dollar sales
class (2002 dollars)1

1982

Census year
1992

1987

1997

2002

1982 to
1987

Number of farms

Intercensus period
1987 to 1992 to
1992
1997

1997 to
2002

Percent change

Total farms

2,240,976

2,087,759 1,925,300

1,911,859 2,128,982

-6.8

-7.8

-0.7

11.4

Less than $10,000

1,009,084 1,263,052

-8.1

-8.8

8.8

25.2

1,106,092

1,016,863

927,234

farms2

254,097

235,562

212,580

277,248

570,919

-7.3

-9.8

30.4

105.9

Other farms

851,995

781,301

714,654

731,836

692,133

-8.3

-8.5

2.4

-5.4

Point

$10,000 to $49,999

586,007

547,150

490,530

430,065

414,063

-6.6

-10.3

-12.3

-3.7

$10,000 to $19,999

257,391

251,361

228,504

204,384

197,967

-2.3

-9.1

-10.6

-3.1

$20,000 to $24,999

79,954

76,069

68,069

58,444

58,190

-4.9

-10.5

-14.1

-0.4

$25,000 to $39,999

167,510

149,905

133,059

115,582

109,310 -10.5

-11.2

-13.1

-5.4

$40,000 to $49,999

81,152

69,815

60,898

51,655

48,596 -14.0

-12.8

-15.2

-5.9

$50,000 to $99,999

250,694

217,871

187,062

157,635

140,479 -13.1

-14.1

-15.7

-10.9

$100,000 to $249,999

213,264

207,999

202,779

179,091

159,052

-2.5

-2.5

-11.7

-11.2

84,919

97,876

117,695

135,984

152,336

15.3

20.2

15.5

12.0

$250,000 to $499,999

57,691

64,195

74,354

78,330

81,694

11.3

15.8

5.3

4.3

$500,000 to $999,999

18,242

22,058

28,583

36,469

41,969

20.9

29.6

27.6

15.1

$250,000 or more

$1,000,000 to $2,499,999

6,494

8,409

10,634

15,448

20,724

29.5

26.5

45.3

34.2

$2,500,000 to $4,999,999

1,448

1,811

2,392

3,386

4,611

25.1

32.1

41.6

36.2

$5,000,000 or more

1,044

1,403

1,732

2,351

3,338

34.4

23.4

35.7

42.0

Note: Constant-dollar sales classes cannot be prepared before 1982 due to incomplete census records for individual farms prior to that year.
1Sales

class is expressed in constant 2002 dollars, using the Producer Price Index for farm products to adjust for price changes.

2Point

farms have sales of less than $1,000 (current dollars), but are still considered farms because they would be expected to normally sell at
least $1,000 of agricultural products. Point farms are defined here in current dollars—rather than constant dollars—because they are identified in
each census based on current dollars.
Source: USDA, Economic Research Service, compiled from census of agriculture data.

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sales. The share of total sales accounted for by farms with sales of $250,000
or more increased steadily from 47 percent in 1982 to 76 percent in 2002
(fig. 14). Farms with sales of $1,000,000 to $4,999,999 and $5 million or
more doubled their share of sales between 1982 and 2002. The two largest
sales classes now account for nearly one-fourth of agricultural sales each,
although the two groups together make up only 1 percent of farms.
Farms with sales of at least $5 million specialized in relatively few
commodities in 2002. About 34 percent specialized in high-value crops,
with cattle feedlots (19 percent), dairy (14 percent), and poultry/eggs (14
percent) also common. Farms with sales between $1,000,000 and
$4,999,999 tended to specialize in a wider variety of commodities: highvalue crops (26 percent), poultry and eggs (19 percent), dairy (13 percent),
hogs and pigs (11 percent), grains and oilseeds (9 percent), and field crops
other than grain (8 percent).
Larger shares of the two sales classes were located in the Pacific region
than in any other region: 22 percent for farms with sales between
$1,000,000 and $4,999,999 and 32 percent for farms with sales of $5
million or more (table 10). California alone had 17 percent of the farms in
the former sales class and 26 percent of the $5-million-plus farms. About
60 percent of California farms with sales of $1 million or more specialized
in high-value crops, and another 24 percent specialized in dairy.

Typical Enterprise Size
The shift of sales to larger sales classes is also reflected by an increase in
“typical enterprise size” over time. The typical enterprise size aims to
capture the size of farm enterprise from which most of a particular
commodity came. Specifically, we define it as the median (midpoint) of the
Figure 14

Distribution of farm product sales by constant-dollar sales class1 (2002 dollars), 1982-2002
Million-dollar farms’ share of sales increased from 23 percent in 1982 to 48 percent in 2002
Percent of total farm product sales

Sales class (2002 dollars):
$ mil. farms

100
80

$5,000,000 or more
$1,000,000 to $4,999,999

60
$500,000 to $999,999
40
$250,000 to $499,999
20

$100,000 to $249,999
$50,000 to $99,999

0
1982

1Sales

1987

1992
Census year

1997

2002

Less than $50,000

class is expressed in constant 2002 dollars, using the Producer Price Index for farm products to adjust for price changes.

Source: USDA, Economic Research Service, compiled from census of agriculture data.

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Table 10

Farms with sales of at least $1 million, by region, 2002
Item

Sales of $1,000,000 or more
Total

$1,000,000 to
$4,999,999

$5,000,000
or more

Number
Farms

28,673

25,335

3,338

Percent of U.S. total
Farms by region:
Northeast
Lake States
Corn Belt
Northern Plains
Appalachian
Southeast
Delta
Southern Plains
Mountain
Pacific

6.2
8.3
12.9
8.4
9.0
11.1
6.3
6.5
8.2
23.0

6.3
8.8
13.6
8.0
9.5
11.2
6.9
6.2
7.6
21.8

5.1
4.6
7.5
12.1
5.0
10.2
1.9
8.5
13.0
32.0

Northeast: CT, DE, ME, MD, MA, NH, NJ, NY, PA, RI, and VT; Lake States: MI, MN, and WI;
Corn Belt: IL, IN, IA, MO, and OH; Northern Plains: KS, NE, ND, and SD; Appalachian: KY, NC,
TN, VA, and WV; Southeast: AL, FL, GA, and SC; Delta: AR, LA, and MS; Southern Plains: OK
and TX; Mountain: AZ, CO, ID, MT, NV, NM, UT, and WY; Pacific: AK, CA, HI, OR, and WA.
Source: USDA, Economic Research Service, compiled from the 2002 Census of Agriculture.

distribution of production by enterprise size. For crops, the median defined
here identifies the enterprise size at which half of a commodity’s harvested
acreage came from larger enterprises and half came from smaller enterprises. For example, the typical enterprise size for corn in 2002 of 450 acres
(table 11) means that half of all harvested acres of corn is on farms
harvesting more than 450 acres of corn and half is on farms harvesting less
than 450 acres.12
For dairy, the measure captures the midpoint of the distribution of cows by
herd size—half of dairy cows are in larger operations and half are in smaller
operations. For poultry and other livestock, the measure captures the midpoint
of broiler, cattle, or hog sales by enterprise size. Enterprise size differs from
farm size, because a farm may have multiple crop or livestock enterprises.
The well-documented shift to larger livestock enterprises is most evident for
hogs. The typical enterprise size increased nearly twentyfold, from sales of
1,200 head in 1987 to 23,400 in 2004. This increase is consistent with the
rapid consolidation of the hog industry occurring in recent years (McBride
and Key, 2003, pp. 5-10). Typical fattened cattle and dairy enterprises also
grew in size, approximately doubling and tripling (respectively) during the
15-year period.

12This measure is the median of
acres harvested by enterprise size, not
the median of farms by enterprise size.
Under the latter method, farms would
be arrayed by acres harvested and the
median divides farms into two equal
groups, not the acres harvested. By
using acres harvested, our definition of
median identifies the enterprise size at
the midpoint of enterprises arrayed by a
measure of production.

The growth in size between 1987 and 2002 was less extreme for broiler and
cow/calf enterprises, around 70 percent for both enterprises. Much of the
growth in broiler enterprise size occurred long before 1987, and cow-calf
enterprises are a common specialization for small farms. The typical size for
cow-calf enterprises is still just 84 calves per year.
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Table 11

Typical enterprise size for selected commodities, 1987 to 2002
Census year
Selected commodity

1987

1992

1997

2002

Typical annual sales1
(head per farm)
Poultry/livestock:
Broilers
Hogs
Fattened cattle
Cattle, less than 500 pounds

300,000
1,200
17,532
50

384,000
1,880
23,891
60

Percent

480,000
11,000
38,000
65

520,000
23,400
34,494
84

Typical herd size 2
(head per farm)
Dairy production

80

100

Change, 1987
to 2002

73.3
1,850.0
96.7
68.0

Percent

140

275

Typical acres harvested 3
(acres per farm)

243.8

Percent

Field crops:
Corn
Soybeans
Wheat
Cotton
Rice

200
243
404
450
295

300
300
562
605
400

350
380
693
800
494

450
480
784
920
607

125.0
97.5
94.1
104.4
105.8

Vegetables:
Asparagus
Lettuce
Bell peppers
Potatoes
Sweet corn
Tomatoes

160
949
88
350
100
400

200
1,168
130
422
120
450

200
1,461
180
556
173
589

236
2,225
200
810
222
700

47.5
134.5
127.3
131.4
122.0
75.0

Tree crops:
Apples
Almonds
Oranges
Peaches

83
203
450
92

94
234
732
95

122
292
769
100

129
361
1,015
105

55.4
77.8
125.6
14.1

Note: Census records do not have all the data necessary to derive typical enterprise size prior to 1987.
1Median

head sold. Half of the sales of a given species were from farms with more than the typical sales and half were from farms
with less than the typical sales.
2Median head of dairy cows as of December 31 of the census year. Includes dry cows and cows in milk. Half of the cows were on farms
with more than the typical number of cows and half were on farms with less than the typical number of cows.
3Median

acres harvested. Half of all harvested acres of a commodity were on farms harvesting more than the typical number of acres
and half were on farms harvesting less than the typical number of acres.
Source: USDA, Economic Research Service, compiled from census of agriculture data.

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Enterprise size has also increased in crop production. Typical acres
harvested roughly doubled for each of the field crops, for most types of
vegetables, and for oranges. Peach enterprises have been more stable,
increasing by only 14 percent between 1987 and 2002.

Business Organization
Despite the shift in farm product sales to larger farms and increasing enterprise
sizes, most farms continue to be organized as sole proprietorships, partnerships, or family corporations. These farms have consistently made up about 99
percent of the farm count since 1978 (fig. 15), the initial year of the current
census series on business organization. They also accounted for more than 90
percent of agricultural sales each year. Marked shifts have occurred in the
distribution of sales among these farms between 1978 and 2002, however.
Family corporations’ share of sales grew by 7 percentage points, and partnerships’ share grew by 2 percentage points, while proprietorships’ share shrank
by 10 percentage points. Nevertheless, sole proprietorships still accounted for
90 percent of farms and 52 percent of sales in 2002.
Nonfamily corporations make up a relatively minor and stable share of farm
numbers and sales. Nonfamily corporations—part of the “other organization” category in figure 15—accounted for 0.2-0.4 percent of all farms and
6-7 percent of agricultural sales each census year. Most of these nonfamily

Figure 15

Distribution of farms and farm product sales, by business organization, 1978-2002
Family corporations’ share of sales grew the most
Percent of farms or sales
100
80
60
40
20
0
1978

82

87

92

97

2002

1978

82

87

92

97

2002

Farm product sales

Farms
Business organization:
Sole proprietorship

Partnership1

Family corporation2

Other3

1Includes

informal partnerships as well as partnerships registered under State law.
to the 2002 census, family-held corporations were defined in the questionnaire as having more than 50 percent of their stock owned by
persons related by blood or marriage. No specific definition was used in the 2002 census.
3Includes nonfamily corporations, cooperatives, estates or trusts, institutional farms, etc.
2Prior

Source: USDA, Economic Research Service, compiled from census of agriculture data.

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corporations are not large, publicly held companies. Between 80 and 87
percent of them, depending on the year, had no more than 10 stockholders.
Regardless of farm type, proprietorships make up the bulk of family farms:
approximately 90 percent of each small farm type, 77 percent of large
farms, and 60 percent of very large farms (table 12). Given the age distribution of farmers, one would expect to find some farms in estates or trusts. In
fact, 50 percent of nonfamily farms fall in the “other organization” category,
which includes estates and trusts.
Only 19 percent of nonfamily farms are organized as nonfamily corporations. Direct ownership of large farms by large, publicly held corporations is
negligible and is likely to remain so. For example only 5 percent of the
34,500 million-dollar farms were organized as nonfamily corporations in
2004, and 88 percent of these corporations had no more than 10 shareholders (fig. 16).
Figure 16

Organization of farms with gross sales of $1 million or more, 2004
Most million-dollar farms are organized as family farms
Total million-dollar farms = 34,480

Nonfamily farms (12.2%):
Family farms
(87.8%)

Nonfamily corporation (5.4%)
Other organization (6.8%)1

87.8% of nonfamily corporations
have no more than
10 shareholders

1Proprietorships,

partnerships, or family corporations with hired managers. Also includes
estates, trusts, and cooperatives.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management
Survey, Phase III. (Number of shareholders is from version 1 of ARMS.)

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Table 12

Business organization of farms, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total farms

197,734

338,671

837,542

395,781 133,299

86,087

71,708

47,103 2,107,925

Percent
Farms by organization:
Sole proprietorship1
Partnership2
Corporation
Family3
Nonfamily3
Other organization4

96.1
1.8
d
d
na
na

94.7
1.7
#3.7
#3.7
na
na

92.8
4.6
*2.6
*2.6
na
na

93.1
4.1
2.7
2.7
na
na

87.3
6.8
*5.9
*5.9
na
na

77.3
11.3
11.4
11.4
na
na

59.8
18.3
21.9
21.9
na
na

14.6
*6.0
29.3
10.0
19.3
50.1

89.6
4.7
*4.6
*4.1
0.4
1.1

Farm product sales
by organization:
Sole proprietorship1
Partnership2
Corporation
Family3
Nonfamily3
Other organization4

93.5
*2.7
d
d
na
na

87.4
*3.7
*8.9
*8.9
na
na

89.8
6.4
**3.8
**3.8
na
na

90.2
*6.1
3.7
3.7
na
na

86.8
*6.7
*6.4
*6.4
na
na

76.8
11.5
11.7
11.7
na
na

51.5
20.8
27.7
27.7
na
na

**15.1
*6.4
58.6
14.7
44.0
*19.9

57.7
13.7
25.4
18.2
7.2
*3.2

d = Data suppressed due to insufficient observations.
na = Not applicable.
* = Standard error is between 25 percent and 50 percent of the estimate.
** = Standard error is between 51 percent and 75 percent of the estimate.
# = Standard error is greater than 75 percent of the estimate.
1Includes

informal partnerships, such as those between spouses. (In the census of agriculture, informal partnerships are classified as
partnerships.)
2Includes

only partnerships registered under State law.

3A

corporation is classified as a family corporation if more than 50 percent of the stock is held by people related by blood or marriage.
Other corporations are classified as nonfamily.
4Estates,

trusts, and cooperatives.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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Contracting
Although few nonfamily corporations—large or small—directly operate
farms, they often make contracts with farmers to provide the commodities
they need for processing or wholesaling. ERS identifies two types of
contracts in ARMS:
●

Production contract. A production contract is a legal agreement
between a farm operator (contractee) and another person or firm (contractor) to produce a specific type, quantity, and quality of agricultural
commodity. The contractor usually owns the commodity being produced and the farm receives a service fee.

●

Marketing contract. Under a marketing contract, the contractor buys
a known quantity and quality of a commodity from a farm for a negotiated price. The farm owns the commodity while it is being produced
and receives a price reflecting the value of the commodity.

Contracts can provide benefits to both producers and contractors
(MacDonald and Banker, 2005, pp. 52-53; MacDonald et al., 2004, pp. 2430). Farmers get a guaranteed outlet for their production with known
compensation, while contractors get an assured supply of commodities with
specified characteristics, delivered in a timely manner.

Production Under Contract
Although production and marketing contracts account for about two-fifths
of U.S. agricultural production, the share varies by commodity (fig. 17). For
example, U.S. farmers produce virtually all sugarbeets and poultry under
contract. Contracting also accounts for at least half of the production of
cotton, tobacco, fruits, dairy products, and hogs. At the other extreme, only
a small portion of wheat, soybeans, or corn—all traditional field crops—is
grown under contract.
The aggregate data show slow and steady growth in contracting over the
years, but change can be more rapid for some commodities. For example,
the share of tobacco production covered by contracts went from 1 percent to
50 percent between 1995-96 and 2004. Cigarette manufacturers replaced
cash auctions with contract marketing because contracts better enabled them
to acquire enough of the specific types of tobacco they needed. The
contracting share of hogs also increased rapidly over this 10-year span, from
31 percent to 71 percent, driven in part by product differentiation. Processors wanted more control over the characteristics of the hogs they acquired,
which helped them provide a consistent quality of meat to consumers
(MacDonald and Banker, 2005, pp. 55-59).

Variation by Type of Farm
Use of contracts also varies by farm type. The share of limited-resource,
retirement, and residential/lifestyle farms using contracts is just 3 or 4
percent (table 13). For the remaining types of family farms, the use of
contracts increases with sales, ranging from 9 percent of low-sales farms to
37
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Figure 17

Share of value of production under marketing or production contracts for selected commodities,
1995-96 and 2004
Share of tobacco and hogs sold or removed under contract increased dramatically
Percent of value of production
100
Average of 1995-961
2004

80
60
40

*
*

20
0

de

ck

an

sto

ry

ult

Po

gs
Ho

iry

Da

ve

ttle

l li

Ca

Al

ts
ee
rb
ga
Su

s

uit

Fr

les

tab

n
tto
Co

ge

Ve

o
cc

ba

To

rn
Co
ns
ea
yb
So

ps

at

he

W

ro
lc
Al

s

gg

ies

dit

mo
om
lc
Al

*=Standard error is between 25 percent and 50 percent of the estimate.
1An

average of 1995 and 1996 was used to provide a more statistically reliable estimate.

Source: USDA, Economic Research Service, 1995 Farm Costs and Returns Survey and 1996 and 2004 Agricultural Resource Management
Survey, Phase III.

Table 13

Farms with contracts and value of production under contract, by farm type, 2004
Small family farms
Farming-occupation
Limitedresource

Item

Retirement

Residential/
lifestyle

Lowsales

Mediumsales

Large-scale
family farms
Large

Very
large

Nonfamily
farms

All
farms

Number
Total farms

197,734

338,671

837,542

395,781 133,299

86,087

71,708

47,103 2,107,925

Percent of group
Farms with contracts1
Value of production
under contract2

*2.7

3.3

4.2

9.0

34.5

50.3

63.7

15.4

10.9

*10.1

13.3

10.4

*18.2

21.4

34.5

51.0

35.1

37.8

Percent of U.S. total
Farms with contracts1
Value of production
under contract2

2.3

4.9

15.3

15.5

20.0

18.9

19.9

3.2

100.0

0.3

0.7

1.5

2.7

6.1

13.5

61.2

14.1

100.0

* = Standard error is between 25 and 50 percent of the estimate.
1Includes

farms with production contracts, marketing contracts, or both.

2Includes

commodities under production or marketing contracts.

Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

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64 percent for very large family farms. The share of their production under
contract also increases with sales, from 18 to 51 percent.
Although a small percentage of each small farm type has contracts, small
farms make up 58 percent of the farms with contracts, reflecting their large
numbers. Value of production under contract, in contrast, is concentrated
among very large family farms, which account for 61 percent of the total.
The value of commodities removed under production contracts is counted in
the farms’ gross sales, often used as a basic measure of farm size. But the value
of commodities removed is not included in gross cash income (equivalent to
gross revenue) received by the farms, because they never owned or sold the
commodities. Only the fees that the farms receive under a production contract
are included in gross cash income. As a result, gross sales are much higher
than gross cash income for farms with most of their output under production
contracts, such as poultry farms. If gross cash income were used to measure
farm size, only 11 percent of poultry farms would be classified as large-scale—
using a $250,000 cutoff—compared with 56 percent if gross sales were used
(see box, “Gross Sales or Gross Cash Income?”).

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Gross Sales or Gross Cash Income?
Gross farm sales (or gross sales) is an indicator of farm
size. It measures what the farm produces, regardless of
who has a claim on that production. Gross sales is calculated as the farm’s crop and livestock sales plus the shares
of production received by any share landlords and production contractors. The measure also includes all government
payments received by the farm and its landlords.
In contrast, gross cash farm income (or gross cash
income) is the total revenue received by the farm business alone, excluding any shares accruing to share landlords and contractors. Gross cash income is the sum of
livestock sales, crop sales, government payments, and
“other farm-related income” received by the farm business. Other farm-related income includes income from
a variety of sources: custom work, machine hire, livestock grazing, timber sales, outdoor recreation, contract
production fees, etc.
For farms with no production contracts and no landlords,
gross sales and gross cash income will generally be the
same, both calculated as the sum of crop sales, livestock
sales, and government payments received by the farm. In
some cases, however, gross cash farm income is higher

than gross sales, due to the additional miscellaneous
items making up other farm-related income.
For farms with production contracts, gross cash income
may be substantially less than gross sales. Commodities
removed under production contracts are excluded from
gross cash income but are included in gross sales. Fees
received from contractors are included in gross cash
income—as part of other farm-related income—but
these fees are small compared with the value of the
commodities removed.
Farms specializing in poultry or hogs have especially
small gross cash income, relative to gross sales (see
text table below). The ratio of gross cash income to
gross sales is lower for poultry farms (34 percent) than
for hog farms (72 percent) because poultry farms
produce more under product contracts.
Our perception of the size of poultry farms would change
if we measured size by gross cash income instead of
gross sales. Only 11 percent of poultry farms would be
considered large-scale—applying the $250,000 cutoff to
gross cash income—instead of 56 percent.

For poultry farms, gross cash farm income was only one-third of gross sales in 2004
Item

Poultry
farms

Hog
farms

Other
farms

All
farms

Number
Total farms

**34,149

33,292

2,040,485

2,107,925

Dollars per farm
Gross farm sales
Gross cash farm income

*685,750
*231,239

435,882
314,701

88,342
93,574

103,509
99,297

Percent
Ratio of gross cash farm income to gross farm sales

33.7

72.2

105.9

95.9

Share of production under production contract

85.7

58.9

5.5

18.2

*55.5
*11.3

32.0
21.4

6.8
7.4

8.0
7.7

Farms with gross farm sales of $250,000 or more
Farms with gross cash farm income of $250,000 or more
* = Standard error is between 25 and 50 percent of the estimate.
** = Standard error is between 51 and 75 percent of the estimate.
Source: USDA, ERS, 2004 ARMS.

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Conclusions
This report has four major findings important to understanding farms and
farm households today and in the future.
●

Farm product sales have shifted to larger farms over the past two
decades. Farms with sales of $250,000 or more accounted for 76 percent of all sales in the 2002 Census of Agriculture, and million-dollar
farms alone accounted for 48 percent.

●

Most U.S. farms—including million-dollar farms—are family farms.
The share of farm output from large, publicly held corporations
remains minimal.

●

Generally, large and very large family farms are viable economic
businesses, with favorable financial ratios. Small farm businesses are
less viable as businesses, but the households operating them receive
substantial off-farm income.

●

Different farm policies affect different sets of farmers. Payments from
commodity programs tend to flow to medium-sales and large-scale
farms, and conservation payments tend to flow to smaller family
farms. A majority of farms, however, receive no government payments, but they may be indirectly affected by the effects of government payments on farmland and commodity markets.

Shifts to Larger Farms
Constant-dollar sales class data show a steady growth in large farms (sales
at least $250,000) and decline in the number of farms in most other sales
classes. Growth in the number of large farms was accompanied by a sales
shift in the same direction. The share of production accounted for by large
farms grew from 47 percent in 1982 to 76 percent in 2002. By 2002,
million-dollar farms alone accounted for 48 percent of sales, compared with
23 percent in 1982.
The only other increase in farm numbers was for farms with sales less than
$10,000, which grew in the last two intercensus periods because of growth in
the number of point farms. Most of this increase was due to a change in the
census farm definition and an adjustment for undercoverage in the census farm
count. Farms with sales less than $10,000 accounted for 59 percent of farms in
2002, up from 49 percent in 1982. Their share of sales, however, declined from
3 percent in 1982 to 1 percent in 2002. Thus, the 29-percentage-point increase
in the share of sales for large farms came largely from a declining share for
farms in the $10,000-$249,999 sales classes.

The Place of Family Farms
in U.S. Agriculture
Family farms dominate U.S. agriculture. Most farms (98 percent) are family
farms, and they collectively generate 85 percent of the value of production.
Large-scale family farms account for about 60 percent of production, which
is large compared with their 8-percent share of farms. Small family farms
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make significant contributions to the production of specific commodities,
such as wheat, corn, soybeans, hay, tobacco, and beef.
Even million-dollar farms are overwhelmingly family operations. About
88 percent operated as family farms in 2004, and only 5 percent were
organized as nonfamily corporations, usually with no more than 10 stockholders. Direct ownership of million-dollar farms by large, publicly held
corporations is negligible and is likely to remain that way, although these
corporations often act as contractors. Nonfamily corporations made up
less than 1 percent of farms and no more than 7 percent of sales in the
last six agricultural censuses, despite the ongoing shift of production to
large farms.

Financial Status of the Family Farm
Farming had a very good year in 2004. Total net farm income for the sector
was $83 billion, substantially higher than the annual average for the previous
10 years ($55 billion) and the previous peak in 1996 ($69 billion), all measured
in constant 2004 dollars. Seventy percent of all farms in 2004 earned a positive
net farm income. Only 3 percent of farms were classified as vulnerable (negative net cash farm income with a debt/asset ratio greater than 40 percent). More
than half of the vulnerable farms were residential/lifestyle farms, whose operators—by definition—rely on off-farm work for their livelihood.
For the most part, large and very large family farms are viable economic
businesses. Their average profit margin and rates of return on assets and
equity were all positive, and the large majority of these farms had a positive
operating profit margin. Small farms—in contrast—were less viable as businesses. Their average operating profit margin and rates of return on assets
and equity were negative. Nevertheless, some farms in each small farm
group had an operating margin of at least 20 percent.
A majority of each small farm group had a positive net farm income, but the
average net income for each type of small farm was low compared with largescale farms. Small farm households typically receive substantial off-farm
income. Most off-farm income is from earned sources, from a wage and salary
job or self-employment. Off-farm work dates back at least to the 1930s. The
shift to full-time off-farm work, however, is more recent.
Because many farm households—particularly those operating small
farms—are dual-career and receive a large share of their income from
off-farm earnings, macroeconomic and monetary policies affecting the
nonfarm economy are important to farm households. Also, a provision of
the U.S. tax code allows farmers to write farm losses off against other
income (Freshwater and Reimer, 1995, p. 220). This provision is especially important to operators of residential/lifestyle farms who have
substantial off-farm earned income. Finally, the status of retirement
programs is important to operators of retirement farms and to older operators in other farm types as they approach retirement.

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Different Farms, Different Policies
Payments from commodity-related programs and conservation programs go
to different types of farms. The distribution of commodity program
payments is roughly proportional to the harvested acres of program
commodities. As a result, medium-sales small farms and the two types of
large-scale farms received 78 percent of commodity-related government
payments in 2004. This report does not consider, however, how those
payments are distributed for land-renting farm operators between land
owners and operators.
In contrast, the Conservation Reserve Program (CRP), which pays the bulk
of environmental payments, targets environmentally sensitive land rather
than commodity production. As a result, retirement, residential/lifestyle, and
low-sales small farms received 62 percent of conservation program
payments in 2004. This distribution reflects the large number of farms in
these groups, their large landholdings, and their tendency to enroll large
shares of their land in the CRP. The program has relatively low labor and
capital requirements, which make it attractive to residential/lifestyle farmers,
who spend most of their work time off the farm, and to retired or older lowsales farmers, who have scaled back their operations.
A large majority of farms, 61 percent in 2004, do not receive government
payments. Nevertheless, these farms—and the households that operate
them—may be affected indirectly by government payments’ impact on
farmland and commodity markets. Some studies find that capitalizing
government payments has increased farmland values by 15 to 25 percent in
recent years (U.S. Dept. Agr., Office of the Chief Economist, 2003, p. 5).
This would increase the net worth of landowing farm households, regardless
of whether their farm received government payments. In addition, various
analyses indicate that government payments have increased crop production
between 1 and 6 percent over time (U.S. Dept. Agr., Office of the Chief
Economist, 2003, p. 8). Thus, livestock producers who do not receive
government payments may benefit from lower feed prices due to an
increased supply of grain.

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Hoppe, Robert A., editor. Structural and Financial Characteristics of U.S.
Farms: 2001 Family Farm Report. AIB-768. U.S. Dept. Agr., Econ. Res.
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Hoppe, Robert A. “Farm Households Are Often Dual-Career,” Rural
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Hoppe, Robert A., and David E. Banker. Structure and Finances of U.S.
Farms: 2005 Family Farm Report. EIB-12. U.S. Dept. Agr., Econ. Res.
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Hoppe, Robert A., and Penni Korb. “Farm Numbers: Largest Growing
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MacDonald, James M., and David E. Banker. “Agricultural Use of
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McBride, William D., and Nigel Key. Economic and Structural
Relationships in U.S. Hog Production. AER-818. U.S. Dept. of Agr.,
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Perry, Janet E., and Mary C. Ahearn. Limited Opportunity Farm Households
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U.S. Department of Agriculture, National Agricultural Statistics Service.
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United States Summary and State Data, AC-02-A-51. June 2004.
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Appendix I
Measuring Operator Household Income
and Net Worth
The Current Population Survey (CPS), conducted by the Bureau of the
Census, is the source of official U.S. household income statistics. Thus,
calculating an estimate of farm household income from the Agricultural
Resource Management Study (ARMS) that is consistent with CPS methodology allows income comparisons between farm operator households and all
U.S. households.
The CPS definition of farm self-employment income is net money income
from the operation of a farm by a person on his or her own account, as an
owner or renter. CPS self-employment income includes income received as
cash, but excludes in-kind or nonmoney receipts. No adjustments are made
to the CPS income measure to reflect inventory changes, since inventory
change is a nonmoney item. The CPS definition departs from a strict cash
concept by deducting depreciation, a noncash business expense, from the
income of self-employed people.
Farm self-employment income from the ARMS is the sum of the share of
farm business income (net cash farm income less depreciation) accruing to
the principal operator’s household, wages paid to the operator, and net rental
income from renting farmland. Adding other farm-related income of the
operator household yields earnings of the operator household from farming
activities. (Other farm-related earnings consist of net income from a farm
business other than the one being surveyed, wages paid by the farm business
to household members other than the operator, and commodities paid to
household members for farm work.)
ARMS is also the source of data for estimates of operator households’ net
worth. The net worth of farm operator households is defined as the difference
between their assets and liabilities. It is calculated as the sum of the operator
household’s farm net worth and nonfarm net worth. If the net worth of the farm
is shared with other households (such as the households of shareholders in a
family corporation), only the operator household’s share is included.
For more information on operator household income and well-being, see
“Farm Household Economics and Well-Being,” a briefing room on the ERS
website (http://www.ers.usda.gov/Briefing/WellBeing/). Estimates presented
in this report are consistent with those from the briefing room. Both sets of
estimates are derived from ARMS for the principal operator households
using CPS procedures. Household income estimates cannot be derived from
the sector estimates of net farm income presented on another ERS briefing
room, “Farm Income and Costs” (http://www.ers.usda.gov/Briefing/FarmIncome/). The farm sector estimates are estimated from several data sources
and include all participants in farm production, including contractors and
share landlords who do not farm. For more information, see Harrington et
al. (1998, pp. 45-52).

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Appendix II
Defining Limited-Resource Farms—
Past, Present, and Future
Perry and Ahearn (1993) first identified limited-resource farmers for the
Economic Research Service (ERS)—based on 1988 data—although they
used the term “limited-opportunity” rather than “limited-resource.” They
defined limited-resource farms using three criteria:
●

Farm sales less than $100,000

●

Farm assets less than $150,000

●

Operator household income less than the poverty level

When the Economic Research Service created its farm classification system
in 1998, it incorporated the Perry-Ahearn definition, with one modification.
Family income was required to be below $20,000 rather than the poverty
level. Using a $20,000 cutoff rather than the poverty level avoided the
necessity of knowing family size. Family size is not collected every year by
the Agricultural Resource Management Survey (ARMS), but it is needed to
assign the appropriate poverty level to a family (Hoppe, 2001, p. 4).

The Current Definition
In 2003, a new definition of limited-resource farms was developed by an
interagency committee to provide a consistent definition across all USDA
agencies (U.S. National Archives and Records Admn., 2003, p. 32520). This
USDA-wide definition is currently used in the ERS farm classification. The
limits on sales and household income are similar under the former and
current definitions (see box, “Defining Limited-Resource Farms”). Both
definitions use a $100,000 cutoff for farm sales, although the current definition indexes the cutoff to reflect price changes. The current definition also
requires 2 years of low sales, rather than 1. The cutoff for household income
is also set low in both definitions, but—as in the case of sales—2 years of
low income are required under the current definition.
The main difference between the two definitions is the absence of a limit on
farm assets in the current definition. An asset limitation was not used
because the assets held by individual farmers are difficult to verify on applications to participate in USDA programs targeted at limited-resource
farmers. Instead, the requirement for a second year of low income—which
is easier to verify than low assets—was added as an indication of persistently low income.

Differences
The limited-resource farms identified under the two definitions are different
in some respects (app. table 1). Although the level of household income is
similar under the two definitions, median farm assets are nearly three times
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Defining Limited-Resource Farms
Criterion

Former definition
in the ERS farm
classification

Current definition
(USDA-wide)

Sales

Less than $100,000,
with no indexing

Low sales in both the
current and previous year.
Low sales is defined as
less than $100,000 in 2003
and indexed thereafter

Farm assets

Less than $150,000

No limits

Operator household
income

Less than $20,000
in the current year

Low in both the current and
previous year. Income is
low if it is less than the
poverty level for a family
of four with two children—
$19,157 in 2004—or if it is
less than half the county
median household income

Appendix table 1

Characteristics of limited-resource farmers under the former and
current definitions, 2004
Item

Former
definition

Current
definition

Number
Farms and operator households

74,819

197,734

Dollars per household (or farm)
Median household income (2004)
Median farm assets
Median household net worth

9,900

10,300

87,614

244,609

109,463

271,280

Years
Average age

61

65

Source: USDA, ERS, 2004 ARMS.

as high under the current definition ($244,600) as under the former definition ($87,600). Similarly, the net worth of farm households is nearly three
times higher under the current definition. Operators under the current definition also tend to be older: 65, on average, under the current definition versus
61 under the former definition.
A total of 197,700 farms were classified in 2004 as limited-resource farms
under the current definition. This includes 56,300 farms that were also classified as limited-resource under the former definition (app. fig. 1). The 141,400
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Appendix figure 1

Limited-resource farms under the former and current definitions, 2004
Limited-resource farms added by the current definition have more assets and older operators
Number of limited-resource farms
Current definition only
Both definitions
Former definition only

250,000
200,000
Median household income—$11,515
Median farm assets—$334,225
Average age of operator—66 years

150,000

Excluded by former definition because of
high assets

Median household income—$8,460
Median farm assets—$81,675
Average age of operator—62 years

100,000
50,000

Median household income—*$14,192
Median farm assets—$110,500
Average age of operator—58 years

0

Excluded by current definition because of
high income or sales in previous year (2003)

* = Standard error is between 25 percent and 50 percent of the estimate.
Source: USDA, Economic Research Service, 2004 Agricultural Resource Management Survey, Phase III.

farms added under the new definition have a higher level of farm assets—a
median of $334,200—compared with farms classified as limited-resource
under the former definition. Operators of the added farms also tend to be older.

Alternate Definitions
The current limited-resource definition focuses on low-sales farms operated
by farmers with low household income over a 2-year period. Different
criteria could be considered, at least for research purposes. For example, we
could use a definition that included an asset constraint, such as the previous
$150,000 limit. We may want to even consider an asset constraint that
changes over time—such as one-half of the median assets of all small
farms—to reflect increases in the value of farmland and other assets used in
farming. Different sales constraints might also be tested.
In future Family Farm Reports, ERS will continue to provide information
about limited-resource farms as defined currently because that definition
is used by USDA agencies to administer programs. We will also explore
alternate definitions to identify other groups of limited-resource farms. To
facilitate comparing the USDA-wide current definition with alternate
definitions, the limited-resource category will be dropped from the ERS
farm classification system in future reports. However, there will be more
information on counts and characteristics of limited-resource farmers
under different definitions.

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