NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
September 30, 1999
North Dakota farmers who grew sunflowers, flax, corn, sugarbeets and potatoes had a good production year in 1998. Record-high average yields for all those crops were set last year, but crop yields don't offer a complete picture of farmers' overall economic situations.
The 1998 net income of North Dakota farmers, as based on the financial records of participants in the Farm Business Management Program, would have been close to zero without government farm program payments and emergency aid, says an agricultural economist at North Dakota State University.
"Over the years, increased production from advances in machinery, seed, pesticides and other technologies have increased farmer profit only briefly," says Andrew Swenson, an extension farm and family resource management specialist at NDSU. "Consumers, not producers, have been the main beneficiaries. The technology treadmill has brought oversupply and led to lower real commodity prices and fewer farmers. If prices continue low into the future, reliance every year on above-average yields entails tremendous financial risk."
The economics of wheat production in North Dakota has been deteriorating for several years. From 1989 to 1997, the cost of raising wheat increased by 58 percent, but the trend line yield increased by only 8 percent. Swenson says adverse weather conditions creating such production problems as Fusarium head blight (scab) have overwhelmed technology, and low prices in recent years have compounded the problem.
In 1998, the cost of raising wheat in North Dakota outside of the Red River Valley averaged $110 per acre, excluding the producer's labor. In the valley, production costs averaged about $175 due to higher land costs and increased use of inputs, Swenson says. With an average yield of slightly more than 29 bushels per acre and a selling price of $3.19 per bushel, producers outside the valley growing spring wheat on cash rented land would have lost about $11 an acre in 1998. Wheat producers in the Red River Valley would have lost about $28 an acre.
"The sale of wheat, after expenses, did not provide money to help pay family living expenses in 1998," Swenson says. "Instead, producers in this situation either relied on government payments to cover living expenses, depleted their savings or increased their debt."
The increasing debt level of North Dakota farmers is a concern, Swenson says. Extrapolating from the farm records of producers enrolled in the North Dakota Farm Business Management Program, he estimates that one-third of North Dakota farms now carry a 70-percent debt load--meaning that for every $100,000 of assets, these farms have amassed $70,000 of debt.
"The current problems in agriculture have been well publicized. It is obvious that with current prices and the current cost structure, crop farming in North Dakota is not sustainable without federal assistance," Swenson says. "Eventually prices will recover or costs will decline, but it is important to recognize that the underlying reasons behind the long-term downward trend in farm numbers will probably remain intact.
"In a competitive free-market economy, prices gravitate to the lowest cost of production. Economies of size have provided cost advantages and fueled concentration in agriculture. The size of farms and the size of agribusinesses continue to grow. This trend will continue unless society believes the negatives consequences of concentration--mainly, the depopulation of rural areas and the concern over market power--outweigh the benefits."
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Source: Andrew Swenson (701) 231-7379
Editor: Dean Hulse (701) 231-6136