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

December 23, 1998

NDSU Ag Economist Cites Reasons for Farm Financial Woes

Many of the state's agricultural producers may not again see a year as devastating as 1997 was because the numbers, when adjusted for inflation, show that it probably was the worst year North Dakota's ag sector experienced in a decade—or perhaps a generation. However, financial storm clouds were forming before 1997 dawned, and trends that precipitated the trouble will likely persist, says an ag economist with the North Dakota State University Extension Service.

"There was a collision in 1995. That was the year when average gross farm income was no longer enough to cover total farm expenditures and provide for family living," says Andy Swenson, extension farm and family resource management specialist at NDSU. "We're now past the collision point according to the data."

The data Swenson refers to stem from the records of between 550 and 600 individual producers who participate in the North Dakota Farm Business Management program. Data are compiled annually and so should provide an accurate statewide representation of financial conditions.

The cyclical nature of the beef cattle market is one reason why income and expenses have converged. However, cattle prices should be improving during the next few years as the price cycle moves into its upward phase. Swenson says a longer-term concern involves wheat, the state's largest agricultural enterprise.

"According to long-term trends, wheat yields in the counties outside of the Red River Valley increased by 7.5 percent from 1989 to 1997, but during that same period costs of production went up 58 percent," explains Swenson. "Even if we would have had a trend-line wheat yield in 1997, the average North Dakota wheat farmer would have lost money on cash-rented land."

Because of price increases and rate increases, fertilizer expense nearly tripled from 1989 to 1997, on average, and farm chemical expenses nearly doubled, Swenson says. Similar cost of production increases occurred for barley and durum, up 49 percent and 59 percent, respectively. Nearly stagnant yields coupled with dramatic increases in the cost of production have produced a significant jump in the unit cost of production for hard red spring wheat, barley and durum.

However, Swenson says the cost situation is now improving. Costs were down in 1998 relative to 1997, and he expects costs to decline further in 1999.

For 1998, the average hard red spring wheat yield in North Dakota for counties outside the Red River Valley was about 31 bushels an acre. Using an estimate for costs of production that includes cash rent for land, Swenson says the break-even point for wheat was $4.26 a bushel. That price assumes a $20-per-acre net return to labor, management and equity to cover family living expenses. With the average 1998 Agricultural Market Transition Act (AMTA) payment factored in, break even would have been $3.94 under this scenario.

North Dakota's ag families have been compensating for the poor economic performance of their enterprises with nonfarm income. From 1991 through 1997, nonfarm wages and salaries increased by 80 percent. The average annual nonfarm wage is now nearly $10,000. In 1997, farms with gross sales of less than $100,000 demonstrated the best repayment capacity because those farms also had the most nonfarm income, Swenson says.

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Source: Andy Swenson
(701) 231-7379

Editor: Dean Hulse
(701) 231-6136