Most farm families depend on income from their farm business to cover their family living expenses. Thus, one would expect there to be a strong correlation between net farm income and family living. It turns out there is a fairly strong correlation of 0.62. However, as the figure above indicates, there is a lag before family living adjusts.
Net farm income increased substantially in 2007 for grain farms in Kansas and other states thanks to much higher grain prices. Net farm income remained higher than average through 2013 before starting to decline in 2014. As can be seen in the figure, farm families did not start to adjust their family living until later. The figure above is based on real dollar amounts so that historical numbers are comparable to current dollars. Family living went from around $50,000 before the increase in net farm income in 2007 to around $70,000 now.
Now that net farm income has declined for two years, family living expenses are only now starting to decline. 2015 saw net farm income fall to a near record low for Kansas KFMA farms. However, the drop in family living was not nearly as great. The question going forward is what happens if net farm income is again at very low levels in 2016. Will farm families be able to adjust their family living downward at a rapid rate. As nearly any family can confirm, adjusting spending upward when there is additional income is an easy thing to do. Adjusting spending downward is not nearly as easy