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Farm income feeling impact of low crop prices

This issue of Southeast Farm Press, optimistically entitled Profit 2001, contains numerous economic outlooks covering all of the major row crops grown in the region, along with fresh vegetables. In addition to the outlooks, we've provided additional information that we hope will help you to make more money next year.

But before we get too far ahead of ourselves, it might be prudent to take a quick look back and analyze what went wrong in 2000.

A steep increase in the cost of diesel fuel and rising interest rates were just two of the low points for farmers in 2000. And we can't forget the weather. Many growers in the lower Southeast suffered through the most severe drought conditions seen in this region in 100 years.

The primary culprit of the current farm crisis, however, continues to be prices. Even if you were lucky enough to get all of the hit-or-miss showers this year, or if you were 100-percent irrigated with a bumper crop, it wasn't enough to guarantee a profit in 2000.

The impact of farm prices on net farm income cannot be over-emphasized, says Marshall Lamb, economist with the National Peanut Research Laboratory in Dawson, Ga., and advisor to the Farm Press Peanut Profitability Award Program.

A quick look at the decline in farm prices from 1991 through 2000 shows that peanuts went from a high of $680 per ton during the last year of the previous farm bill to the current fixed support price of $615 per ton. If a threatened assessment earlier this year had become a reality, that price would be at about $569 per ton.

Corn prices, says Lamb, have declined as a function of supply and demand from $3-plus per bushel in 1997 to $1.83 per bushel this year. Soybeans were trading in the $6-range from about 1995 through 1997, only to drop to about $4.50 per bushel from 1998 through 2000. Cotton prices, after reaching the 75-cent range in the mid-1990s, now are in the mid-50-cent range.

How have these plummeting prices affected net farm income? To help answer this question, Lamb looked at the balance sheet of one of the 250 to 300 farmers participating in the Peanut Lab's cost-monitoring program. The grower in the example chosen grows a mix of crops over 1,200 acres. His crops are irrigated, and he consistently makes high yields.

Lamb looked at three scenarios: 1) the grower owns all of his cropland; 2) the grower owns 50 percent and rents 50 percent of his land and quota; and 3) the grower rents all of his land and quota.

At 1995 prices, the grower's net income, if he owned all of his cropland, would have been $83,500, says Lamb. If the same farmer rents half and owns the other half of his land and quota, his net farm income at 1995 prices would be $58,000. If he rents all of his land and quota, he still makes $32,000 in net farm income at 1995 crop prices, with a large portion of his income going towards land and quota resources.

At 2000 crop prices, the grower's net income drops to $27,000 if he owns all of his cropland. If he rents half and owns the other half, he breaks even at 2000 prices. If he rents all of his land and quota resources, his net farm income is minus $23,000. If we add in LDP and POP payments, the grower makes $36,000 if he owns his land. If he rents half and owns half, he makes $10,000. If he rents all of his land, his net farm income is minus$15,000.

From 1995 to 2000, the price of quota peanuts is down by about 10 percent, says Lamb. During the same time period, corn is down by about 33 percent, cotton is down by 20 percent and soybeans prices have decreased about eight percent.

"But a 10 to 20 percent decrease in prices does not translate into a 20 to 30 percent decrease in income," notes the economist. "Those percentage decreases in price translate into a decrease in net farm income of 50 to 67 percent. The impact that crop prices are having on farm income is extremely significant. It's putting farmers in a difficult situation, as they try to get a decent return on the money they've invested into a crop," says the economist.

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