The negative triple play of lower commodity prices, elevated costs, and higher interest rates is unraveling across the agriculture industry. The emotions driven by these variables in addition to extreme weather and uncertainty regarding tariffs, sanctions, and agriculture trade policy can be extremely volatile.

Tight cash flows and drains on working capital are becoming very apparent in the mid-year financial reports of some producers. Part of the cash flow dilemma is related to family living withdrawals. These expenses often come out of lines of credit that are reviewed at the end of the year or the first quarter of the next year.

Cash flow nightmare

Family living costs could become a cash flow nightmare as inflation is even more prevalent in these expenses. Housing, healthcare, and insurance costs are just a few of the variables that have inflated by double digits. To gauge family living costs, I often draw upon state farm record databases and the FINBIN database. For this article, I will focus on the family living cost summaries from Nebraska Farm Business, Inc.

Total living costs

Total family living costs for 2023 were $116,206. When total non-farm costs were added, the amount increased to $146,332. The non-farm costs include savings and investments, non-farm vehicle purchases, and nonfarm real estate purchases. When income and social security taxes were added in, the total withdrawals were nearly $225,000. This is a substantial amount of cash flow deducted from both farm and nonfarm earnings.

The average nonfarm earnings for this group were nearly $52,000, which includes wages, salaries, rent and interest income, tax refunds, side gigs, and other nonfarm income. Thus, 20 to 25 percent of the withdrawals could be covered by outside income sources.

When the family living costs were broken down into the top third, average, and bottom third, a $40,000 difference was observed between the top and bottom thirds. This is the least amount of variation I have observed in this data set for many years.

Looking back

To place family living costs in perspective, let’s look back almost 20 years ago to the database in 2006 when total family living costs were approximately $50,000. Family living costs doubled to over $100,000 annually in 2012 during the great commodity super cycle. From 2013 to 2023, family living costs ranged from $83,000 to a high this year of $116,000.

Tight cash flow

With tighter cash flows in the period from 2013 to 2020, producers in this database did tighten the financial belt on family living costs. Family living costs in the post commodity super cycle observed a decline of 10 to 20 percent, only to bounce back to above $100,000 annually three to five years later.

The navigation of tighter cash flows will require due diligence and a focus on family living costs. Expect your lenders to require more documentation on actual costs. In the next article, we will do a deeper dive into family living costs.