Previously, we examined the record profits of the great commodity super cycle in regards to personal consumption and family living costs. According to the Nebraska Farm Business, Inc., (NFBI) family living withdrawals doubled from 2007 to 2012 in the zenith of the great commodity super cycle. While profits in 2013 to 2014 continue to diminish, the impact on family and personal living withdrawals has not been immediate. Family living withdrawal is a potentially powerful force in business success and must be monitored carefully, as any other expense.  While based on Nebraska numbers, NFBI data is an excellent resource and insight no matter where you farm. 

Examination of the 2014 top and bottom one-third of personal withdrawals shows the gap between high and low levels of cost may be narrowing as compared to previous years. According to the most recent data, the 2014 gap was approximately $36,000. In the recent past, the difference was approximately $60-70,000. Perhaps tighter economic times are narrowing the gaps. Consistent with past data, food and meals, recreation and gift and cash donations remain the largest expense categories for all families. However, families living at higher maintenance levels expend more in each category.  

In the 1980s, off-farm income was a major contributor to cash flow success in the farm business. The off-farm income data for 2014 finds personal wages and salaries just above $12,500, which is exceeded by gifts and inheritances totaling above $19,000. As farms and ranches become larger, I notice a trend that off-farm income and revenue is less prominent in the cash flow generation and debt servicing ability of the business.

Another significant trend emerging in 2013 to 2014 is non-farm capital purchases have come to a screeching halt. In 2012, the peak was above $120,000, but is now well under $10,000.  Similarly, non-farm real estate purchases such as, lake houses, condos, etc. have also declined significantly. These numbers show a marked lack of extra, discretionary money because of commodity price drops, which is appropriately reflected in expenditure patterns.

In 2014, the total of personal non-farm costs, taxes and Social Security, along with savings was nearly $168,000. This is in stark contrast to the peak of expenses totaling $320,000 in 2012 and $208,000 in 2013. While expenses are decreasing, the total amount still represents considerable cash flow or amount per bushel or per hundredweight of hog or cattle, or gallons of milk, depending on the operation. 

In recent years, averages have dramatically shifted due to additional income, changing lifestyles and demographics. Today, with price resets and continued volatility, careful scrutiny is required. When managing a farm business for success and sustainability, all variables must be evaluated including, family living withdrawals and investment patterns both on and off of the farm. Family living withdrawals can make the difference between a successful or vulnerable farm or ranch business.  Position your family and business for success!