ROTATIONS, RISKS, COSTS AND MARKETS:

THE INGREDIENTS OF SUSTAINABILITY

With Reference to Long Term Research Plots

 

December 1, 1998

 

Clinton B. Reeder, PhD
Consulting Economist and Farmer

 

 

The Agronomics Vs Economics Dilemma. The more I work on this project and the longer I farm as my primary means of making a living, the more fascinated I get with the basic underlying factors at work in the agronomics and economics of the circumstances of farming. Biologically, most any crop can be grown in the Pacific Northwest region of the U.S. On my own farm, near Pendleton, Oregon this past year we had plantings of dry land corn, sorghum, linola, barley (several varieties), wheat (several varieties, both soft and hard), canola, garbonzo beans, yellow condiment mustard and others, including some genetically altered varieties of several crops.

However, two inescapable realities are increasingly clear: first, except for a very few alternatives, these alternate crops cannot be grown profitably on a sustained basis; second, with few exceptions, there is not a large enough market to absorb the production if more than a relatively few farmers undertake to grow the profitable alternative crops.

For many seasons, those crops which can be grown profitably, are often only marginally profitable. Hence, there is a very real, very intense contest between the agronomic and natural resource benefits provided by crop rotations and the "harshness and harvest" of economics.

The Public’s Role. Traditionally, society has dealt with this dilemma by imposing some rather significant social programs into the agricultural industry to offset some of the costs associated with agronomically sound practices that might not be profitable, and programs which stabilize the product volume available to the markets as the vagaries of weather and disease take their varying toll on production and product quality from year to year.

In recent years, however, society has increasingly strategized to "withdraw" attention and public resources from the industry, demanding that the industry "make it on its own" without "feeding at the public trough". On the other hand, under the current depressed commodity price circumstances, it has been relatively easy to obtain political support to undergird the industry once again…suggesting that the industry will likely for the foreseeable future be involved in some manner with ongoing "support" programs, especially when prices are particularly depressed…if for no other reason than to indirectly underwrite the risk exposures for agricultural banking and finance institutions and rural communities.

We should keep in mind that in this country, continuing public investment in the food production industry has for generations been an integral part of the production and marketing process, providing a continuing flow of productive technology and ever-increasing understanding of the biological and economics aspects of the industry and its ongoing relationship to the rest of the society, both at home and abroad, in order to assure a year round continuing adequate and acceptable quantity and quality of food products

The Environment– Food Dilemma. One basic, if not THE basic concern is whether the world as we know it today, considering the global population projections, can indeed continue if we significantly increase our demands for "biologically sound, ‘sustainable’ production processes" without public investment to offset the costs and negative economics associated with such practices in much of the world.

One biological reality that we cannot side step is the fact that all food production is a mining activity. All harvesting, whether in "natural" conditions or "managed" conditions, removes certain elements from a given site and relocates those elements to one or more other sites.The only exception to this rule is where production and consumption take place 100 percent on the same acre of ground, over a long period of time. The fact that agricultural production is in effect a mining exercise means that over time, "sustainability" is a transient concept, demanding that the mined natural resource elements on any site used for harvested production must be replaced and/or others substituted as some are depleted, and/or various growing things must be continually adapted to ever-changing habitats and living conditions.

Science and the Current Status in Agriculture. Judging from the available research data base in the region, the farmers in this region appear generally to be using the most sustainable overall set of practices available to them, considering both agronomic and economic factors and associated risks. Neither the farmers’ own on-farm research efforts (very extensive, and ongoing for generations) or the research available from public research institutions identifies more preferred farming systems, "all things considered", which are broadly adaptable and economically feasible across the region.

While certain farmers, scattered over the region engage in what might be considered "more sustainable production systems", those systems for a number of reasons, predominately disease and other residue related problems associated with micro-climatic circumstances, have not been generally extendable to the region as a whole.

It is not generally ignorance that drives normal and typical field practices by farmers, but rather an astute understanding of both the agronomics and economics of the complex production processes, the micro-climates and the subtle variations in field conditions that underpin the farming systems in the region. It appears, upon review of the research history in the region, that only if we deny this reality can we sustain any significant criticism of the typical production system on farms in this region. The harsh reality is that production systems superior to those in general use have not yet been identified that are both biologically and economically sustainable in broad application to the region, with reasonable stability and risk levels.

Most progress is subtle and gradual. Only on rare occasions do we manage to generate quantum leaps in technology. What the world needs now, is new perspective on agriculture, not one that throws out what we know now, but one that thinks about what might be required to generate some quantum leaps in understanding, so that current production systems can be adapted to the developing political, biological and economic realities. I am not suggesting that we need some miraculous new research technology, but that we begin investing in understanding some basic fundamentals, in a new way…soils, micro-biology, water quality, sub-surface drainage affects, riparian restoration consequences, etc. We apparently need to ask a different set of research questions.

Objectives of This Project. This project is designed to take full advantage of an extensive data base generated from long-term series of historic test plots investigating the agronomic feasibility of various crop rotations in Umatilla County, Oregon. There are persons who believe the traditional production system in this area has about reached its peak potential, that the sustainability of the traditional production system/s and cropping alternatives in the area have fallen into severe jeopardy. With the present depressed commodity prices, the economic sustainability question is highly pertinent and pressing.

The objective of this part of the overall project is to:

Ultimately, the project is designed to explore and if possible enhance the sustainability of the agricultural industry in this region, which is a major building block in the overall economy of the Pacific Northwest.

Sustainability Defined (Re-Defined). If we could discover that biological equilibrium state which is truly sustainable for the long term, we could relax in the security of knowing beyond a doubt that we would never have to develop and learn how to successfully implement any new production processes…yet, that is a great myth. So long as labor and other production costs continue to rise greater than the average productivity increases for labor and capital investments, the cost of manufactured goods will rise, shipping cost will continue to increase. Even though agronomically we may have reached a homeostatic position, from an economic sustainability standpoint, we will certainly not be in a sustainable equilibrium condition.

History suggests that "sustainability" is a fleeting concept. In practical terms, there is no end to the need to continuously give attention to reducing production costs and/or productivity or the various resources used in any production system. For this reason, the author believes it is for the most part a myth to assume any truly long-term sustainable agricultural production system will ever be devised. All production systems are likely to be "sustainable" for only a period of time, until the disadvantages of the system begin to cumulatively outweigh the advantages. In other words, inherent in any production system will be the seeds of that systems eventual "decay".

In a recent book devoted to investigating agricultural sustainability, several definitions are offered as possibilities (Agricultural Sustainability: Economic, Environmental and Statistical Considerations. Edited by Barnett, Payne and Steiner. John Wiley and Sons. 1995):

Additional comments in this book may sound a bit troublesome to many people:

I believe the truth about sustainability is embodied (suggested) in the following quotes:

Part of the frustration in trying to define sustainability lies in the assumption that the definition will itself be sustainable, stable, unchanging, long-lasting, viable for the long term.

My own lifetime of searching for comprehension of how the universe really works, suggests maybe we generally yearn for stability and ultimate understanding so seriously that we tend to overlook the obvious. Since all things change; since all nature is a dynamic, ever-changing process subject to a multitude of sequential inter-related cause-affect-response dynamics, the only way a sustainability definition can itself be sustainable is for the definition to embody the reality that all things change, constantly, at sometimes variable rates and the only thing that provides any sense of security in that process is the periodic slowing of the rates of change of elements in the system of life itself which make it appear all change has ceased, that we have finally arrived at a secure, relatively unchanging state of existence…an illusion, lasting only for a limited period of time, until the biological-social-economic stresses accompanying the slowing of change mount until the pressure to once again accelerate change forces that acceleration of change

Why is this, that all things constantly change? The answer lies in a simple reality often overlooked, if even acknowledged: all production processes are mining and resource re-location activities, whether in the sea or water channels, in the air, or on the land. And, resource re-location activity assures that habitats are ever-changing, for all living things, meaning that any reference to "restoration" must have a historic time element, for the idea of restoring some "natural state" is absolutely meaningless for life process which have no true "equilibrium state", except that state which might have existed in the minds of persons at some previous point in time (generally, surrounded by great mountains of myth and incomplete or selective memories).

This reality can easily be demonstrated by reference to wheat, one of the longer lasting cultivated crops around the globe. A farmer plants the seed, which most likely was produced somewhere else, and re-located to this site. The wheat plant grows, combining soil-borne resources with the energy of the sun to produce new plant material, including new seed, which is harvested and taken from the field for use in another production cycle or as food or feed for livestock, generally in some other location. A kernel or two may be consumed in the production process by wildlife, which digest the material, and defecates in a locations other than where the feed was acquired (another resource re-location activity).

As the plant grew, it embodied water and associated resources from the soil and air in that site…in other words, the plant literally mined that site’s resource base. As the plant mined that site, it literally changed the habitat for micro-organisms as well as macro-organisms, increasing the habitat quality for some, decreasing the habit quality for others, forcing a never ending, moment by moment, sometimes slow, sometimes rapid adaptation in micro-scale for the living elements of that site. Over time, collectively, in macro-scale…and with periodic "catastrophic events", the pace can at times takes quantum leaps "forward" / "backward" / "to a much different status".

When the plant material is harvested, the mined resources are relocated to other sites, including across the oceans by shipping. In the course of being re-located, the resources embodied in that kernel of wheat are "processed"—separated via milling, re-combined into a multitude of other "outputs" which are then fed to people and/or animals of one or more species in one or more additional locations. Rodents and birds consume part of it, humans consume part of it, livestock consumes part of it and the by-products of all this biological metabolism are deposited somewhere, often thousands of miles from where the embodied resources originated…changing the habitat for micro-organisms as well as macro-organisms, increasing the habitat quality for some, decreasing the habit quality for others, forcing an adaptation in micro-scale for the living elements of those subsequent resource location sites, and in the longer term, forcing macro-scale adaptations…and so goes the ever-evolutionary process of life on this planet earth. So, what really does "sustainability" mean in a world economy which is constantly relocating and substituting its resources, and adapting.

Ultimately, the search for sustainability is not then a search to identify the one or more production processes which are reliable for the long term, but it is rather a search for a level of understanding which enables us as humans to sequentially manipulate the resource base of the universe in a manner which provides an ongoing volume of foods and fibers sufficient to sustain life as we know it, and/or as we elect to create it, and/or as it evolves-adapts-mutates into modified life forms, including us as individuals and as the collective human species.

It is as if we are crossing an ocean which itself is ever-changing, in a boat that in part constantly alters form, trying to make sure that we somehow keep adapting the boat as it evolves in form as we ride it across the sea of life, so that we too do not simply sink into the abys and become just another extinct species.

The challenge of sustainability, then, is to recognize, acknowledge and accept the reality that sustainability is not some "life dilemma" that we will ultimately "solve", but it is in fact "the process of life itself"…meaning most likely that the fact we studied it has changed it, the fact that we "improved" it in some respect meaning that we have diminished it in some other respect/s…which in turn most likely means that as we increase our understanding of the current and more recently evolving state of its being, some one or more bit of knowledge we thought we had previously resolved is no longer true.

The truly troubling aspect of this whole way of looking at the concept of sustainability is that, possibly, the more we "improve" and polish our "research methods", and our methods of extending to others what we know, the faster we even obsolesce our methods of understanding and extension.

Modeling: A Tool Needing Careful Validation. Of great concern to this researcher is the fact that as we manipulate the universe, we increasingly rely upon computer "modeling" which creates an unusually saleable illusion of precision, upon which we are basing immensely significant resource allocation decisions and public policy. Imagine the collective error that this process introduces into the life processes, if each model only embodies one or two untrue assumptions!

Why do we rely upon the modeling in this fashion? Because our resource allocation process increasingly restricts research dollars, meaning we must make increasingly complex decisions based on data of sometimes (often?) decreasing adequacy. Politics determines resource allocation. Politics is largely numbers of voters, who tend to fund their personal agenda, meaning that as rural numbers of voters decrease, society’s understanding of practical basic resource issues diminishes, potentially leading toward increasing error in resource management strategies.

Modeling provides a sense of security, as we at times proceed under the illusion of precision provided by the process. I do not mean to bad-mouth modeling, but in my recent experience it is modeling which has contributed the greatest errors in judgement, and all too often some person with even limited experience with the subject of the model, identifies massive errors in assumptions built into the model. In many cases, it seems clear that model validation has been given totally inadequate attention.

It appears that ultimately, "nature" is devised with some underlying dynamic "laws of nature", "rules of thermodynamics", etc. which are our only reliable constants—and it appears there may in fact be one or more exceptions to each of them, which merely means we have not yet fully identified the underlying "natural laws" in all their complexity (simplicity).

I am reminded of the attempts to computerize the behavior of flocks of birds and schools of fish. (see "Artificial Life: A Report From the Frontier Where Computers Meet Biology" by Steven Levy…Vintage Books, 1992) . It is easy to assume the required computer programming would be horribly complex, with a vast array of variables, when in fact it appears to be relatively simple, relying primarily on just a couple of behavioral rules: first, "stay together", and second, "do not collide, with anything".

Therefore, to pull together this modified concept of sustainability means that we re-define it something like the following: Sustainability is the ongoing, ever-changing process of discovering the relationship among various resources used in ever changing combinations and the dynamics (chemistry, metabolic processes embodied in various life forms) of the universe, in order to facilitate manipulating the resource base of the universe so that desired species thrive and non-desired species do not (or maybe, so that various species survive in relatively acceptable numbers and locations). The sustainability concept has no particular starting point, nor any particular ending point, and no ultimate lasting answers or solutions, only a perpetual challenge to renew our understanding and adapt our management interventions, or lack thereof, to facilitate what we consider the more desired state of affairs from time period to time period, infinitum, with "progress" defined as lengthened periods of security provided by periodically arriving at a collective state of affairs which is sufficiently slow changing that we may for a time live in the illusion that we have "finally achieved nirvana".

Economic Models for Cropping Systems: In setting the stage for a more in-depth economic analysis relative to "sustainability", it will likely be instructive to evaluate the present incentive to be looking seriously at alternative crops and alternative tillage / production systems. A detailed budget has been developed which considers 1. Crops Sales, 2. Other Farm Income, 3. Income / Inventories Carried Forward From Prior Years, 4. Direct Costs, 5. Overhead Costs, 6. Debt Service Obligations (with or without loan carryover from previous year), 7. Living Expense (Return to Operator’s Labor and Management), 8. Income from Non-farm Sources and 9. Government Payments.

The focus of the analysis will be net cash flow, rather than a "full blown economic analysis"…i.e., debt payments will be included as an annual "cost", but non-cash costs such as depreciation expense will not be included. The order of analysis is established to identify the cash income strictly from farm operations, to which is then added Non-farm Income and Government Payments. This strategy will provide insight into the consequences and adaptive research needs as federal government program payments are phased out under current federal legislation.

The results from this first model will also translate the ultimate net cash flow into the equivalent average wheat yield necessary to carry the cash obligations of the farm under various cropping circumstances…which in turn will provide some idea of the gap between existing average yields in the region and the average yield necessary to sustain the current cost of production structure on wheat farms in the region.

This model also includes a rather extensive family living expense section, as a proxy for "return to operator’s labor and management". One of the major adaptive strategies when cash flow is short, is to restrict the cash requirements for living expenses ("downgrade" the family lifestyle) in order to sustain the operating potential of the farm business.

A second model is being developed which will have the capacity to incorporate weather conditions, soil moisture availability, annual cropping, alternative tillage systems and other more intense considerations. That model is not yet operational. When it is, it will provide the capability to make sequential decisions relative to seasonal scheduling, as well as consider the ramifications of at least a limited number of more intensive alternative cropping systems.

Dependence on Federal Farm Program Payments. The order of analysis in the first model was established in order to make very clear the current and potential financial dependence of the average / typical Northwest wheat farm on the combination of non-farm Income (working spouse, for example) and the federal government program payments. From a policy perspective, this analysis makes clear the potential burden on the industry of discontinuing the farm program payments.

When I made a similar analysis a few years ago to evaluate the cost impact of several federal policy proposals on Northwest wheat farms, the level of dependence of the region’s farms on the federal farm program payments was significant. That level of dependence appears to be much more significant at the present time, raising very troubling questions about the long-term sustainability of the dry land wheat industry in the region. It appears very obvious that some combination of the following must occur in the relatively near future: one, direct (variable) per unit costs of production must be reduced; and/or two, commodity prices must be increased by no less than 40 to 50 percent; and/or three, federal support payments in some form must be continued; and/or four, land values must decline by 30 to 40 percent; and/or five, farms must be creatively consolidated to spread overhead costs over more production per farm.

Pressure to Consolidate Farms. Preliminary analysis suggests rather strongly that unless prices of agricultural commodities strengthen significantly in the relatively near future, we can expect a rather major shift in land ownership and / or who farms the land. That will involve a considerable consolidation of land into fewer and larger farms, due to the need to spread general farm operating overhead over increased acres in order to keep the average total cost per unit produced as low as possible. Land values can be expected to fall accordingly, and increasingly the longer the present commodity price level continues.

The analysis suggest that at the present time there are likely a relatively large number of farm families who are taking a "one more year and see what happens" approach to farm management planning strategy.

Breakeven Yields. Preliminary analysis indicates, for a 2,800 Northwest non-irrigated wheat farm at 25 percent land ownership for the operator, with 1,100 acres of wheat and 300 acres of barley, the average breakeven wheat yield to cover all direct costs plus overhead costs plus a minor level of debt service, is about 88 bushels per acre at current local cash prices and about 63 bushels per acre with current year government program payments (Market Adjustment Payments, marketing Loan Deficiency Payments and regular farm program commodity payments). It is very difficult, if not impossible, for the average farm to sustain an average yield sufficient to cover costs without the government payments and/or a correspondingly significant level of non-farm income.

If the farm moves to a rotation involving about 900 acres of wheat, 150 acres of barley, 150 acres of Mustard and 200 acres of Garbonzo Beans, all raised in summer fallow rotation, with an operator share of land ownership being 25 percent, the breakeven yields in terms of average wheat production moves to 90 bushels at current local cash market prices and 64 bushels if government payments are included. It is obvious that if any alternative crop generates less gross income after direct cost of raising that crop are deducted (net direct income from the crop), relative to wheat, the breakeven production level in terms of wheat yield will increase.

At current wheat prices, the yield increase necessary to compensate for loss of the federal farm program payments would be about 20-25 bushels per acre for the more typical Northwest wheat farm., considering the federal payments provided relative to the 1998 crop.

Crop Rotations. Overall, the analysis indicates that rotations per se do not necessarily provide any significant benefit in terms of increased net earnings, especially if the farm continues with the typical fallow rotation. In order to justify the move to development of a crop rotation, there must be some increase in net earnings over the span of the rotation, or the incentive is to remain with the typical wheat / fallow rotation…less learning demanded of the operator, greater overall production stability from year to year without the need to invest in additional equipment.

Two rather obvious options exist which are being explored with increased seriousness: increased annual cropping and reduced tillage. Increased annual cropping is showing some promise, but not without a considerable increase in risks. The same can be said for reduced tillage, where tillage costs are often offset by increases in chemical costs and increased problems with weeds and crop diseases. One factor of concern is that for the region as a whole, there is inadequate research data available concerning (1) How to make a successful transition from conventional tillage systems toward reduced tillage systems, and (2) Which rotation crops can be incorporated into an altered tillage system without risking unreasonably an overall decline in net earnings?

Lease Terms. One of the more obvious problem areas which surfaces in making this analysis is the appropriateness of the customary lease terms for farm land in the region. A typical crop share lease is 60 percent share to the operator, with a 40 percent share to the lessor (landowner). These basic terms were established many years ago in most cases, and have not been adapted in many leases to reflect the changed economic circumstances.

In this analysis, one of the focal pieces of data generation is the division of costs and revenues between the farm operator and the lessor. Under current circumstances, on a "typical" wheat farm with 50 percent ownership by the operator, the division of net income is about ($39,000) to the operator and about $54,500 to the lessor. In Oregon, property tax limitations have primarily benefited the landowners, while the operator has absorbed the vast majority of the increase in operating costs over the past 20 years.

Preliminary Research Summary.

Table 1, parts A-1 and A-2 indicates that the traditional use of summer fallow, together with wheat and barley as the primary crops, under current commodity price circumstances does not provide a profitable enterprise, even if the crop share lease terms are increased to 70 percent crop share to the operator, or the operator owns 100 percent of the farm land, without any significant debt. The current barley prices simply do not justify raising the crop, even though it does provide some crop rotation benefits.

Table 1, Parts C-1, C-2 and C-3 indicate that even a broader crop rotation, with crops generally viable for a significant acreage in the region, does not provide a generally profitable cropping strategy, even with the operator owning most or all the land in the farm, or with the crop share lease terms modified more in terms of the operator.

Table 1, Parts B-1 and B-2 reflect the dilemma for the region. Even though most farmers would prefer to adapt some kind of crop rotation to their farms, the economics favor continuing with wheat as the primary, if not the only crop.

Table 1. Summary: Preliminary Economic Analysis of Various Crop Rotations, Land Ownership Patterns, and Crop Share Terms

Operator

Crop Acres

Land
Garbonzo

Net Cash Flow + Govt Payts

Ownership

Wheat

Barley

Mustard

Beans

Total Farm

Operator

Lessor
A-1. With 60/40 lease terms:

25%

900

500

-

-

$ (11,987)

$ (83,557)

$ 71,570

50%

900

500

-

-

$ (11,987)

$ (59,701)

$ 47,713

80%

900

500

-

-

$ (11,987)

$ (31,073)

$ 19,085

100%

900

500

-

-

$ (11,987)

$ (11,987)

$ -

A-2. With 70/30 lease terms:

25%

900

500

-

-

$ (11,987)

$ (63,215)

$ 51,228

50%

900

500

-

-

$ (11,987)

$ (46,139)

$ 34,152

80%

900

500

-

-

$ (11,987)

$ (25,648)

$ 13,661

B-1. With 60/40 Crop Share Lease Terms:

25%

1,400

-

-

-

$ 56,670

$ (40,203)

$ 96,873

50%

1,400

-

-

-

$ 56,670

$ (7,912)

$ 64,582

80%

1,400

-

-

-

$ 56,670

$ 30,837

$ 25,833

100%

1,400

-

-

-

$ 56,670

$ 56,670

$ -

B-2. With 70/30 Crop Share Lease Terms:

25%

1,400

-

-

-

$ 56,670

$ (12,514)

$ 69,184

50%

1,400

-

-

-

$ 56,670

$ 10,547

$ 46,123

80%

1,400

-

-

-

$ 56,670

$ 38,221

$ 18,449

C-1. With 60/40 Crop Share Lease Terms:

25%

800

200

200

200

$ 20,200

$ (68,853)

$ 89,053

50%

800

200

200

200

$ 20,200

$ (39,168)

$ 59,369

80%

800

200

200

200

$ 20,200

$ (3,547)

$ 23,747

100%

800

200

200

200

$ 20,200

$ 20,200

$ -

C-2. With 70/30 Crop Share Lease Terms:

25%

800

200

200

200

$ 20,200

$ (44,344)

$ 64,544

50%

800

200

200

200

$ 20,200

$ (22,829)

$ 43,029

80%

800

200

200

200

$ 20,200

$ 2,989

$ 17,212

C-3. With 65/35 Crop Share Terms on grains, 75/25 on Mustard and 80/20 on Garbonzo Beans

25%

800

200

200

200

$ 20,200

$ (49,345)

$ 64,546

50%

800

200

200

200

$ 20,200

$ (26,164)

$ 46,364

80%

800

200

200

200

$ 20,200

$ 1,655

$ 18,546

Note: since the actual budget can differ rather significantly from farm to farm, the author suggests that the above net cash flow figures should be considered generally accurate within plus or minus about 10-15 percent.

The longer term dilemma for the regional community as a whole is that the federal government payments for this farm are about $90,000 in 1998. If this amount is subtracted from all the net cash flow numbers above for the total farm, there is no alternative shown which can generate an adequate net cash flow, even with no significant debt and 100 percent land ownership by the operator.

Over the next few months, hopefully by January, the second model will be completed. It will include soil moisture conditions, annual cropping and some other factors which will provide additional insight into the range of alternatives potentially available to Northwest non-irrigated farm land, devoted to wheat as the primary crop.

Preliminary Conclusions.

  1. Lease Terms. It is very clear from this analysis that lease terms need some rather immediate attention; that lease terms need to at least include special provisions for particularly adverse income periods…if the long term relationship between operator and land owner is to be stabilized and protected.
  2. New Farming Systems. Two rather obvious options exist which are being explored with increased seriousness: increased annual cropping and reduced tillage, neither of which is yet adequately tested and demonstrated over the region.
  3. Improved Varieties Would Help. While adapted varieties and higher yielding varieties will certainly help, there must by considerable attention given to the economic factors as well as the agronomic factors. Otherwise, the wheat production areas of the Northwest are likely to become increasingly marginal competitors.
  4. Low Mortgage Debt, Substantial Land Equity and Conservative Lifestyle Needed. It appears that to continue in production under current conditions, the operators of most wheat farms with 3,000 or fewer acres must own close to two-thirds of the productive land base of the farm, must be relatively free of debt obligations and must have a relatively conservative family lifestyle.
  5. Yield Increases Necessary. Overall, it appears that the average wheat yield in the Northwest must be increased by 10 to 15 bushels per acre for the industry to remain reasonably viable at current market prices, if the federal government program payments continue. If the payments are indeed discontinued, and the general level of commodity prices does not increase, wheat yields would have to increase by about 30 to 35 bushels per acre, or about 30 to 50 percent, more or less to keep the "typical" farm in business.
  6. Economic Factors Presently Overriding Agronomic Factors. Preliminary analysis suggests that while alternative cropping systems, including crop rotations with increased annual cropping and various reduced tillage systems (not limited to no-till systems) may help increase earnings potential in some cases, it appears that without a significant increase in commodity prices these changes in farming systems for the region will NOT be enough to offset the current cost pressure combined with the depressed commodity prices. Sustainability has both an agronomic and an economic component. The latter at the present time drives the system, tempered by attention to priority agronomic considerations.
  7. Research Need Urgent. For the region as a whole, it appears that research to adapt present production practices in a manner that reduces average per unit costs, with positive environmental benefits, is urgently needed…including research concerning effective means of transitioning from traditional cropping systems to more profitable and sustainable production systems.

In addition, there is a great need for additional economic research concerning (1) the likely structural consequences for the industry if such adaptive strategies are not forthcoming, and (2) the continuing level of federal government financial support for the industry necessary to soften the likely dramatic restructuring which may take place if federal farm program payments are in fact discontinued without a corresponding increase in commodity prices.

Dr. Reeder is a current member of the national Agricultural Air Quality Task Force in USDA mandated by the 1996 Farm Bill. He has been actively involved in environmental issues for over 15 years, serving as a representative of the farming community, especially related to water quality issues. He served on a federal Research Review Team which evaluated teh WSU/ARS PM10 Research Project; chaired the Umatilla County Smoke Management Task Force, which developed an air quality/smoke management ordinance for the county; and chaired the Oregon Wellhead Protection Advisory Committee which developed a drinking water protection program termed by EPA to be a "model program for empowering local communities". Dr. Reeder was an Extension Agribusiness Management Specialist and Economist at Oregon State University from 1966 to 1978, when he assumed ownership and operating responsibility for a 2,000 acre family wheat farm in Umatilla County, Oregon. Dr. Reeder and his son, Paul, hosted the Monsanto Fields of Tomorrow field day and related alternate crops/no-till demonostrations in 1998.


 

DspropCR.doc