NEWS for North Dakotans
Agriculture Communication, North Dakota
State University
7 Morrill Hall, Fargo, ND 58105-5665
July 30, 1998
The current problems of North Dakota wheat farmers can be explained in large part by this simple fact: between 1988 and 1997 the average North Dakota wheat yield has increased 8 percent, the average cost of production 58 percent.
These numbers are for all farmland outside the Red River Valley, says Andrew Swenson, farm management specialist for the North Dakota State University Extension Service.
"A 58 percent increase in costs to generate an 8 percent increase in yields goes a long way toward describing the difficulty North Dakota farmers are having in generating net income," Swenson notes. "This disparity has, among other things, greatly heightened financial risk for farmers since crop insurance coverage is based on yields, not costs. This means that now crop insurance covers less of a farmer's costs.
"Simply put, if costs continually increase faster than yields, and prices don't increase, wheat must eventually become unprofitable—and that's the situation we've reached."
In 1997, says Swenson, even an average yield of 30 bushels per acre would not have been sufficient to cover costs of production—and most yields in the state were much lower than average.
"In North Dakota," he says, "technological advances in seed varieties, chemicals and labor-saving equipment have not increased yields faster than costs—with the result that cost of production per bushel has gone up, not down. In 1989, the cost of production for a trend-line yield was $2.67 per bushel, and in 1997 was $3.93 per bushel. So a price of $3.21 in 1989 and $4.43 in 1997 would generate a meager $15 per acre return for family living, assuming trend-line yields."
Swenson predicts that the cost of wheat production will be down somewhat in 1998 due to lower fertilizer, fuel and seed costs, and also because some farmers probably cut back on inputs because of poor price outlook or their own financial difficulties. USDA is predicting a yield slightly above average.
"The bad news is price," says Swenson. "Wheat price is more than 20 percent lower than it was last year at harvest. In central North Dakota, for instance, gross revenue may be $93 an acre, figuring 31 bushels at $3. Subtract from that $110 in costs, and you have a loss of $17 per acre.
"Clearly, something must change in the yield trend, or in costs, or in prices—or in government policy—or some combination of these factors, if wheat is ever to be profitable."
The 20-year trend in North Dakota wheat yields—excluding the Red River Valley—reveals an annual increase in yield of less than three-tenths of a bushel per year, and in the Red River Valley the increase has been even less.
"This increase is far less than the average yield increase of 1.5 bushels per year for corn in Indiana," says Swenson. "So in North Dakota it has been taking about six years to get the same bushel increase in wheat yield that Indiana gets in corn yield in a single year. This is one reason North Dakota farm income has been trailing that of the Corn Belt."
The average cost of producing an acre of wheat in North Dakota, outside the Red River Valley, has gone from $74 in 1989 to $117 last year. These costs come from records of the North Dakota Farm Business Management Education Program, and they include land rent and machinery depreciation, but no charge for operator labor, management and farm equity.
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Source: Andrew Swenson (701) 231-7379
Editor: Barry Brissman (701) 231-7866
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