Agricultural and Food Policy
 Agri Outlook
Radio
Number 76
Policy: Part 3. Key points to consider as the Senate debates the new farm bill on
agricultural policy, the global economy, and the need for a strong safety net for the U.S.
rice and cotton sector. (5:11 minutes)
Audio/Video Script:
Dr. Bobby Coats
Extension Economist
University of Arkansas, Division of Agriculture
Rice and cotton production costs have risen dramatically since 2002 giving
even our best producers cash flow concerns and making them extremely sensitive
to policy changes that negatively impact their farming operations. Producer cash flow
concerns point to the need for a farm bill disaster title. This is Bobby Coats
Extension Economist University of Arkansas Division of Agriculture.
Strong global growth and damaging weather events since 2002 have dramatically
increased rice and cotton producer’s cost of production. Couple this with farm
policy and trade uncertainty, volatile and uncertain commodity prices and one
can begin to understand our best producers’ financial and policy sensitivity and
concerns about their future.
Our best producers are uneasy about their future. If our best producers have
concern then the remaining 2/3’s of our producers have real adjustments to make.
Per unit costs must be managed to remain competitive.
There are numerous ways to access the financial health of our rice and cotton
producers. If I were a policymaker, this is what I would like to know about the
financial challenges these operations face.
The following is what I consider typical of the top third of Arkansas rice
farms. This operation has the capability to survive the most damaging economic
or policy trauma.
In 2002 this farm spent $14.71 per acre on fuel expenditures and in 2006
the cost was $59.19 per acre or a 302% increase. The per gallon increase in
the cost of fuel amounted to 144%. Even with drought conditions and
management practices contributing to increased energy use the energy cost
increase due to rising energy prices were and continue to be staggering.
Total actual costs less debt costs, family living, and taxes were up 43%
for rice and up 47% for soybeans from 2002 through 2006.
A financial analysis of the operation using average farm market prices
for marketing periods 2002 through 2006 showed the following:
2006 Cash Surplus of $4.75 per acre
2005 Cash Surplus of $12.34 per acre
2004 Cash Surplus of $0.01 per acre
2003 Cash Deficit of -$15.50 per acre
2002 Cash Deficit of -$17.21 per acre
A financial analysis of the operation using a strong farm
marketing program for marketing periods 2002 through 2006 showed the
following:
2006 Cash Surplus of $18.01 per acre
2005 Cash Surplus of $24.77 per acre
2004 Cash Surplus of $4.56 per acre
2003 Cash Surplus of $3.50 per acre
2002 Cash Surplus of $2.29 per acre
I believe that the above analysis suggests that rapid change is taking place
on our rice farms and this is also true of our cotton farms. Producers have an
array of options when considering their future, some of which are additional off
farm income; increased productivity; expansion; aggressively expand into grain
and confinement operations and/or fruit, nut, and vegetable operations; another
occupation; and retirement.
The farm business challenges that our rice and cotton producers are now
experiencing are the most challenging they’ve experienced. Change and reform are
happening; policy that accelerates change will be very disruptive to these farm
businesses.
This has been Bobby Coats Extension Economist University of Arkansas Division
of Agriculture.
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