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Gloomy economic projections for Arkansas rice

Brad Watkins has been studying the projected economic health of Arkansas rice farms from 2006 through 2010. At the recent Rice Research and Extension Center field day in Stuttgart, Ark., the Arkansas Extension agricultural economist presented preliminary findings.

“Right now, the University of Arkansas and Texas A&M Agricultural Food and Policy Center are collaborating on building and maintaining farm databases for policy analyses. The objective is to be able to project Arkansas rice and cotton farm economic health over five-year periods. The results will be used by Congress in developing farm policy.”

The data gathered is put into a whole-farm simulation model called FLIPSIM. The model incorporates both historical price and production risks faced by farmers.

One source of data comes from representative farm panels. Four to six farmers participate in the panels. Among other things, the panelists provide information on typical costs and crop mixes in particular regions.

A second source of data is projected prices and inflation rates from forecasting by the Food and Agricultural Policy Research Institute (FAPRI).

Watkins and colleagues meet with the farmers first to gather data. “We meet with them a second time to present results from the simulation. The information is updated every two or three years.

“Texas A&M puts out baseline results for farms throughout the nation in January and August. Sometimes they also release results in December, especially in years like this one prior to the 2007 farm bill negotiations.”

For Arkansas, farms in six locations — Stuttgart, Wynne, Hoxie, McGehee, Osceola and Pine Bluff — in the database produce rice. The first three farms are typical rice/soybean operations. The last three are cotton/rice farms — “the majority of their cash receipts come from cotton although they have significant rice acreage.”

Two assumptions are used in the projections. First, the simulation used data from 2004 through 2010. “Only 2004 and 2005 are historical years, the rest are simulated.

“For the second, we assume continuation of the 2002 farm bill.”

As for the net cash farm income for the six farms for 2006 through 2010, only the Stuttgart farm produced any return. The other operations produce negative net cash farm incomes.

The news was even worse for ending cash reserves — the amount available at year’s end from 2006 to 2010. “All farms show negative cash reserves for that period.

“Texas A&M uses two variables to measure economic health. The first is the probability of negative ending cash… during each simulated year.”

All six farms show a high probability of negative ending cash throughout the simulated period of 2006 through 2010.

“The second variable is probability of decreasing real net worth. Again, there’s a high probability — 49 percent to 99 percent across the six farms — of that happening over the simulated period.”

How do Arkansas farms compare to the rest of the rice-producing states?

“There’s no real difference. Nearly all rice farms in the database are projected to be in poor financial health.”

How does rice compare to other crops?

“Well, most row-crop farms across the United States will be in poor financial health. There are some differences between rice and cotton — the high input cost crops. Proportionally, more of those will be in bad shape. Proportionally fewer wheat and feed grain (corn and soybeans) farms are in poor financial condition.”

High fuel prices are the main driver for the bad numbers, said Watkins. But while energy costs are hurting the health of all row-crop farmers, the pain is particularly acute “for rice and cotton farms. If these numbers hold, farming conditions aren’t going to get any better for a while.”

e-mail: [email protected]

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