The drought monitor report as of Tuesday, September 22, indicates some improvement in conditions, especially for the northeast corner of the state. Almost all of Barton County and much of the surrounding area is in moderate/severe drought with more and most of Stafford and Rice Counties in severe drought. The northeastern third of the state is now in abnormally dry conditions. The six to ten-day forecast (September 28 to October 2) indicates a 40 to 50% chance of leaning above normal for temperatures and 40 to 50% of likely above normal for precipitation. The eight to fourteen-day forecast indicates (September 30 to October 6) indicates a 40 to 50% chance of leaning above normal for temperatures and a 40 to 50% chance of leaning above normal for precipitation. The rain doesn’t help harvest but if it happens, great for the 2027 2027 wheat crop to get off to a decent start.
Without going over the basic economics of U.S. agriculture, let’s just keep several key concepts in mind. Today, we aren’t considering items such as crop insurance or government programs designed to help producers cope with low commodity prices or the payments made to partially offset the loss of income with the tariff wars.
· Producers are price takers. Simply put, they have no control over input or output prices. They take it or leave it. They can, however, through various mechanisms “lock in” input and output prices hoping they received the best price they could.
· Profits equal total revenue minus total costs. Revenue is simply how much they sold times the value of the output. Total costs consist of total variable plus total fixed costs. As you increase production your variable costs increase. You fixed costs never change and as you produce more, your fixed costs per unit of production decrease.
· Producers must make reasonable yield projections and use inputs accordingly. The challenge they face, even with irrigation, is they really won’t know how accurate their projections were until the crop is harvested as they are at the mercy of weather and pests.
Since about 2018, input costs have outpaced crop value overall. This varies depending upon actual production. Everything involved from increasing land values and input cost inflation outstrips crop prices for most. The tariff wars have increased prices for pesticides and farm equipment and machinery. And over the last two years, add in higher interest rates for loans on land purchases and operating loans. Then the spike in all energy costs, especially diesel, and the large increase in all fertilizer costs, particularly nitrogen, caused primarily by the war with Iran and to a much lesser extent the Ukraine War. And while crop prices are increasing somewhat from a variety of factors, the value of crops per bushel is well-below the cost of production.
The
result is a significant increase in farm bankruptcies and producers selling
out. The result is also felt by all
aspects of rural communities. Without
aid from the Federal Government, things would be even worse. Most experts are forecasting items such as
high fuel and fertilizers to continue at least through 2027. Long term weather forecasts also indicate the
likelihood of significant weather challenges for the foreseeable future.