Staggering Costs Knock
by Scott Yates, Oregon Staff Writer
SPOKANE -- Take one good wheat farmer, add a 67 percent fuel increase, (making sure to include the transportation surcharge to get the crop to market), figure in a 22 percent increase in the price of nitrogen and then subtract the total from a per bushel wheat price that is 44 cents lower now than a year ago and what do you get?
Farmers who are just talking about surviving.
"Big or small, you still face those input costs," said Hal Johnson, a farmer near Rearden, who sits on the Washington Wheat Commission. "You can't escape them."
Johnson feels sure this fall's higher fuel and fertilizer prices have taken most of the profit margin out of wheat farming. A study by Herb Hinman, Washington State University extension agricultural economist, indicates he's right.
In a study Hinman conducted looking at fuel and fertilizer prices in September 2004 and September 2005, he predicted the increased costs "will surely have devastating effects on some producers."
Hinman's particularly concerned about the large, leveraged farmer who owns little of his own land. According to the Washington State Agricultural Statistics Service, more than half of wheat farmers in the state rented at least some of their land in 2002.
Updating a cost study he conducted with a group of efficient Whitman County farmers in the 13- to 16-inch rainfall zone a couple of years ago, Hinman showed farmers will realize $13,000 less over a two-year period just from higher inputs. Figure in the lower price for a bushel of wheat and farmers will make nearly $32,000 less over the same period.
(His calculations assume a 65-bushels-an-acre yield, and returns of $14 an hour for operator labor and 8.5 percent to operator net worth invested in the enterprise.)
For the farmer who owns most of his land and equipment, the higher input costs will reduce his profit, but it won't run him out of business. Hinman is not so sure about farmers who have leases and interest payments on machinery.
If there is one bright spot in the current economic woes, Hinman said it might be waking up farmers to the necessity of changing their lease arrangements. That's a drum the agricultural economist has been beating for some time. He's even come up with a "lease analyzer" to help landowners and farmers review existing agreements or begin negotiations on new ones.
Hinman believes the traditional one-third/two- third lease, in which the landlord pays for one-third of the fertilizer and receives one-third of the crop -- "just doesn't cut it."
During his 18 years as chief executive officer of the Washington Wheat Commission, Tom Mick said he's never encountered a more pessimistic period. His own wake-up call that a new paradigm might be emerging was news that a couple of farms which had come up for lease didn't get any offers.
"When a farmer can't get another farmer to farm his ground, that's pretty scary," Mick said.
Curtis Hennings, chairman of the commission, said based on anecdotal reports from bankers, there could be up to a 10 percent reduction in the number of active farming operations in the state within the next year. In Washington, there were 3,400 wheat farms in 2002. A 10 percent reduction would mean the loss of 340 farmers.
Gretchen Borck, issues director at the Washington Association of Wheat Growers, said she's heard farmers say things are so bad they're eligible for food stamps. The only thing stopping them is it's hard to get to the locations that dispense them.
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