NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

April 23, 1998

To Farm or Not To Farm: A Question
In Northeast North Dakota

Farmers in northeast North Dakota have only about a 50/50 chance of paying their out-of- pocket costs if they raise durum, barley, flax or dry beans this year, according to Dwight Aakre, farm management specialist for the North Dakota State University Extension Service.

Very poor odds for a business venture.

"Current expectations for harvest time prices keep dropping, while costs of operation do not," says Aakre, "and we're now approaching price levels where the best farming strategy is to consider how to minimize losses."

Aakre bases his calculations on county average yields from 1983 to 1997. Individual farm yields will deviate considerably, of course, from county averages.

"Even so," he says, "it is very likely that parts of every farm—the high-risk acres—will have a low probability of positive payback, even under better price conditions. The chance of these acres contributing anything to fixed costs in 1998 may be near zero. That's why individuals need to think seriously about whether they should farm their marginal acreage."

Economic theory suggests that when a farmer can't earn back at least the variable costs of production, he's better off not producing at all. Why? Fixed costs will need to be paid for whatever happens, and if no crop is produced they will be a dead loss. But producing a crop for which out-of-pocket expenses exceed cash sales will mean another loss on top of that first one.

"The difficulty in applying this theory," says Aakre, "is that farming involves so many variables that it's tough to know when to go out to the field, and when to hang it up and go fishing."

He calculates that the chances of generating enough income to pay out-of-pocket costs in northeast North Dakota are 50 percent for flax and barley, 55 percent for durum and dry beans, 70 percent for hard red spring wheat, and 80 percent for oil sunflowers.

"It is likely too late to drop rented land for 1998, but not too early to think about getting rid of a rented farm in the future if it has a considerable acreage likely to bring in low or extremely variable yields," says Aakre.

One little-noted fall-out from the 1996 Farm Bill, he says, is its impact on marginal crop land.

"Under previous farm legislation there were generally annual set-aside requirements. Marginal acreage usually found its calling as set-aside, and as such it was not much of a financial burden to own or rent a few acres of poor quality land. Today there is no return from land that is not planted, and eventually poor acreage will be sorted out and cast off as wasteland—and valued accordingly."

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Source: Dwight Aakre (701) 231-7378

Editor: Barry Brissman (701) 231-7866

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