How Do Farmers Get Paid?

Every month I receive a paycheck, each one the same as the month prior. It’s guaranteed as long as I’m employed. But my farmer husband isn’t as fortunate. There are no guaranteed paydays and there’s no guessing what the pay will be when it arrives in his bank account. That’s what makes farming risky but rewarding – you know you worked for every penny in your account.

So how does a farmer get paid? In this post I will attempt to explain how farmers get paid for their crops. In a second post, I’ll delve into the livestock side of the farm.

Farmers, like all business owners, have expenses – often called inputs – and profits. Below is a list of common expenses – some farmers will have additional inputs, making this list even longer:

  1.  Seed
  2.  Equipment
    1. Tractor
    2. Planter
    3. Combine
    4. Grain cart
    5. Trucks
    6. Disc or field cultivator
    7. More . . .
  3. Fertilizer
  4. Herbicides
  5. Irrigation (we don’t pay for water in Kansas but you have to pay for the electricity or diesel fuel to power the pump to get it from the ground to the field)
  6. Labor
    1. Hourly pay
    2. Health insurance
    3. Unemployment insurance
    4. Life insurance
    5. Paid time off
  7. Land payment or rental payment (depending on if you own or rent your land) for each section of farm ground owned or rented
  8. Crop insurance

Come harvest time, the farmer will harvest the grain and either sell it at that time to a cooperative or private grain company or they will store it on their farm to sell at a later date. We have no on-farm storage so sell all of our crops at the time of harvest. The cooperatives or grain companies will then sell it to a variety of buyers and end-users.

Sometimes we are given the opportunity to forward contract or lock in a price for our crop. This is a risk we can take that can result in (a) a price higher than the price at the time of harvest or (b) a price well below what is being paid at the time of harvest. We have no way of knowing what the harvest price will be so it’s a complete gamble on our end. A farmer must deliver on any contract he signs with a cooperative or grain company.

If a farmer doesn’t want to forward contract anything they can sell it “across the scale” and take the price the grain elevator is offering that day. The elevator’s price is based on the commodity market – for our area that’s the Chicago Board of Trade.

If you have paid attention to the news at all lately you have seen headlines about low crop prices. This is a big deal for farmers since the crop price is the only determinant of the value of our crop. When crop prices fall, so does our income (although the input costs and time it takes to raise that crop do not). For example:

If wheat is $6.50/bushel x 5,000 bushels = $32,500 (income). If wheat is $5.25/bushel x 5,000 bushel = $26,250. A $1.25 drop in price can reduce our income from our wheat crop by more than 20%. That’s a big deal.

Harvests (both wheat in the summer and then corn, soybeans and grain sorghum in the fall) are essentially a farmer’s only paydays. Some farmers will find other ways to make money like selling wheat straw for bedding or raising hay for feeding cattle, but harvests deliver the most substantial and important paychecks. Many farmers depend on a good harvest to have the income to pay for the next round of inputs and operating expenses.

 

 

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