Unless prices improve or farm policy changes significantly, Arkansas farmers could be looking at several years of red ink, according to an analysis prepared by University of Arkansas agricultural economists.
Cotton growers could fare marginally better for the next couple of years — due to relatively higher prices for their crop and the possibility of PLC payments for peanuts — but they begin to lose ground beginning in 2020, according to the economists.
“This particular (cotton, soybean, peanut and corn) farm is able to have positive net farm income from 2016 to 2020,” said Dr. Brad Watkins, professor and Extension agricultural economist with the University of Arkansas Systems Division of Agriculture. “But beyond that, the net farm income is negative.”
Watkins was discussing the baseline projection for one of five representative farms the University of Arkansas developed in conjunction with Texas A&M University’s Food and Agricultural Policy Center during a presentation by several university economists at the Agricultural Council of Arkansas’ annual board of directors meeting in Little Rock.
The farm he was discussing has 50 percent of its 5,000 acres in irrigated cotton, 20 percent in soybeans, 20 percent in peanuts and 10 percent in corn and is located near Manila in Mississippi County, Ark. It’s numbers, like the other representative farms, are based on interviews with actual farmers.
Cotton more profitable?
The others include a 3,240-acre rice, soybean and corn farm in Arkansas County; a 6,500-acre soybean, corn and rice farm in Desha County; a 4.000-acre rice, soybean and corn farm in Lawrence County; and a 2,500-acre rice and soybean farm in Cross County.
Watkins was asked about the Mississippi County cotton-soybean-peanuts-corn representative farm appearing to be more profitable than the other scenarios. “Yes, it’s making more, apparently, than the other four,” said Watkins.
“Is that because of the cotton or peanuts?” a grower asked.
“Well, it might be because of the peanuts, of the PLC (Price Loss Coverage program) payments, on those generic base acres,” said Watkins.
Texas A&M’s Food and Agricultural Policy Center maintains data on representative farms, including the five in Arkansas, from across the nation. The data are derived from discussions with farm panels of four to six producers and updated every two to three years.
Farm bill testimony
The numbers from the farms are used when economists from Texas A&M and the University of Missouri’s Food and Agricultural Policy Research Institute testify before congressional committees on the state of the agricultural economy, including those working on the new farm bill.
Watkins’ presentation included a slide indicating the Arkansas County rice, soybean and corn farm has been experiencing negative net farm income since 2016 and will continue to show increasing losses through 2023 if prices don’t improve.
Similar losses are projected for the Desha County soybean, corn and rice farm and the Lawrence County rice, soybean and corn farm from 2017 through 2023. The Cross County rice and soybean farm shows negative net farm income in 2017, is profitable in 2018 and 2019 and then goes negative in 2020, 2021, 2022 and 2023.
He said the economists assume the provisions in the Agricultural Act of 2014 remain in effect through 2023. Prices in the analysis are based on projections provided by the University of Missouri’s FAPRI.
Cotton is not covered in the Commodity Title of the 2014 farm bill, and, thus, is not eligible for the Price Loss Coverage (PLC) or Agricultural Risk Coverage (ARC) insurance-based programs of the law.
Top industry priority
National Cotton Council leaders have said their No. 1 priority is to restore cotton to the Commodity Title and make cotton producers eligible for a price-support program such as Price Loss Coverage in the 2018 farm bill. They’re also seeking a ginning cost-share payment like the one provided for the 2015 crop.
He said the economists with FAPRI “tend to be conservative with their price forecasts. They don’t change much over time, but their cost indices tend to fluctuate more than their price forecasts. What we may be seeing is the prices are fairly stable, but our costs are going up.”
Watkins was asked about the projections for labor costs and equipment prices for the baseline forecasts for the representative farms.
“We keep the costs for the employees constant over time and adjust them for inflation,” he said. “In terms of equipment, what I saw when I sat in on these interviews was that a number of the producers were opting out of purchasing new equipment.
“They were primarily buying used equipment and keeping their equipment longer,” he noted. “In previous years, they would buy a new combine and keep it for two or three years. These farmers were saying they might keep their equipment for five or six years, and they were likely to buy used equipment.”
Besides Watkins, the analysis was prepared by U of A agricultural economists Eddie Chavez, Eric Wailes, Alvaro Durand-Morat and Ranjitsinh Mane.