September 21, 2012
The Great Drought of 2012 has revealed a lot about what farming practices work and what doesn't when water is scarce. But the drought isn't news for us farming in the High Plains. We've been farming in a drought for the past 10 years. Only recently have things gotten really bad.
Now is the perfect opportunity to revisit the numbers on how to make money when times get tough.
According to Rob Aiken and Dan O'Brien at Kansas State University, wheat-sorghum-fallow was the most profitable rotation for western Kansas from 2002 to 2007, followed by wheat-fallow. In their study, "Ten Crop Sequences, Transition to No-Till," wheat-sorghum-fallow made $35/acre on an annualized basis while wheat-fallow made $31/acre. Coming in at a distant third place at $14/acre was wheat-corn-fallow. All other crop rotations lost money. Remember, this six-year analysis included three years of drought.
Meanwhile, K-State's most recent crop budgets for western Kansas also show corn trailing in profitability in a wheat-summer crop-fallow rotation. Based on December 2011 estimates, non-irrigated corn cut for grain still lags grain sorghum in profitability for all yield scenarios, mostly due to corn's higher input costs with seed and fertilizer.
A non-irrigated crop rotation that includes sorghum – not corn – clearly is the best way to make money in the long run if you're farming in the semi-arid High Plains.
And yet, farmers are doing the opposite. According to National Agricultural Statistics Service, non-irrigated corn acres here in the west-central district of Kansas nearly tripled over the past ten years from 117,000 to 325,000 while sorghum declined from 506,000 to 500,000 acres.
But that's not all. Abandonment on non-irrigated corn during this 10-year period was 22% while only 14.5% of sorghum acres were abandoned.
So, not only is dryland corn less profitable, it's also riskier. And yet it's increasing in popularity. Is anyone else puzzled by this? If my college econ professors were right, investment chases profitability. But here, the opposite is happening.
How does this make sense? Here's my wild guess: The government has made risk-taking too cheap. With the government covering two-thirds the cost of crop insurance premiums, farmers are emboldened to take more risk.
Again remembering the message from one of my ag econ professors, there's no free lunch. These subsidies come at a social cost. Because crop insurance subsidies are clouding the messages transmitted from the marketplace, they are diverting resources away from their most efficient use. This is not only a waste of tax dollars, but a waste of resources.
Imagine if all those dryland corn acres over those 10 years were planted to sorghum and enjoyed a lower abandonment rate. That translates to 108,056 acres of lost production for west-central Kansas. Include southwest and northwest Kansas at their respective abandonment rates, and the loss across western Kansas comes to 263,975 acres that might have produced a crop had they been planted to low-risk sorghum instead of high-risk corn.
It's hard to say what the yield would have been on those abandoned acres, but assume a very conservative yield of 40 bushels/acre. That's 10.6 million bushels of sorghum that western Kansas never produced. For the consumer, that's a loss of more than 28 million gallons of ethanol or 100 million pounds of beef. How do we convince our fellow taxpayers this is a good deal?
Sure, we're in a drought and insurance will help some farmers make it through this year's blood-letting. Farmers could also self-insure and adopt a lower-risk crop rotation as many farmers have already been doing for years, and those farmers have been doing just fine. Isn't this the better and least costly route when you consider all that forgone production and the billions taxpayers have paid out?
Maybe there's an upside to crop insurance subsidies, but on the whole, I'm struggling to get how we're better off.
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