Figure 1. Net Farm Income by Decile for KFMA Grain Farms
Lower grain prices the last several years have helped to decrease net farm income for grain farms in the Kansas Farm Management Association. Net farm income for these farms is shown in the figure by deciles from 2002 through 2014. The deciles are calculated by ranking the farms in order by net farm income each year and then putting the top 10% of farms in the 1st decile, the second 10% of farms in the 2nd decile, etc. During the years from 2007 through 2012 when average net farm income was very strong, it was the upper 10% of farms that was really raising the average. For the most part, the largest percentage of farms in any given year earn from $0 to $100,000.
As the figure indicates, the 9th decile usually breaks even while the bottom decile normally loses some money each year. Fortunately, the farm makeup of this bottom decile changes so that farms are not consistently in the bottom decile. The last two years have seen a dropoff in net farm income as grain prices have declined. The affect of these lower grain prices has probably had a more profound affect on the bottom 2 deciles.
Figure 2. Net Farm Income for the Bottom 2 Deciles of KFMA Grain Farms
Figure 2 isolates how the bottom 2 deciles have been affected by lower grain prices. These two groups lost a considerable amount of money in 2014. The 9th decile, which normally earns very little net farm income but also normally loses very little net farm income, lost nearly $30,000. The bottom decile lost well over $150,000. Loses of these amounts will quickly put farms in a precarious financial position. If these farms want to maintain their level of family living, the cash will need to come from a reduction in their equity, an increase in debt, or from some outside revenue. Obviously farms cannot lose this amount of income and hope to be viable operations very long.