November 26, 2002

LINCOLN, Neb. — Call this the year of the "haves" and "have nots" for Nebraska agriculture.

There's likely to be significantly more income disparity among Nebraska farmers and ranchers this year, thanks to drought and other factors, said Roy Frederick, a University of Nebraska agricultural economist and public policy specialist.

"It's probably the most significant in nearly a decade," Frederick said. "It's a rather poor year overall, but around that average of being poor there are some who will have done very well and all too many who will see red ink."

Negatives included the drought, limited irrigation water in some areas, increased irrigation costs, dried up grazing lands, higher forage costs and drab livestock prices. On the more positive side, crop insurance, federal price supports and drought assistance for livestock producers should ease the financial strain for some farmers and ranchers.

In the crops sector, growers who had plenty of water for irrigation saw at least average crops, Frederick said.

Even with higher irrigation costs, a 20 percent to 30 percent hike in corn and soybean prices this year compared to 2001 should generate higher gross and net farm incomes, the Institute of Agriculture and Natural Resources economist said.

Dryland producers in parts of the state – particularly in northeast Nebraska – should have produced enough grain to take at least partial advantage of higher crop prices.

"Problems begin with those with much smaller than normal crops," he said.

Dryland crops in the western two-thirds and southeast part of the state were hit hardest. Average dryland corn yields dropped by half from 2001 to 2002 and some dropped much more than that.

"High commodity prices alone won't overcome yield losses of that magnitude," Frederick said. "Luckily most crops were insured through the federal government crop insurance program. However, the insurance only minimizes the losses, few farmers will find it turns a loss into a profit."

Drought-parched grazing and hay lands also plagued producers. About half of Nebraska's land is used for haying and grazing and no insurance is available when it fails to produce, he said.

In the livestock sector, prices generally have been lackluster, Frederick said. Recent fed cattle prices in the mid-$60s are not profitable for most producers nor are hog prices in the $30 range.

"Unfortunately, these price levels have been more the norm than the exception through much of the year," he said.

Nationally, lower livestock prices are the major reason the U.S. Department of Agriculture projects a 20 percent drop in net farm income for 2002.

"Nebraska agriculture is probably more dependent on the livestock sector than the national average. There is no reason to think that farm income in the Cornhusker state won't be hit at least as hard," Frederick said.

Livestock producers did receive federal drought aid. The feed assistance program and livestock compensation program will help cattlemen, Frederick said. For example, beef cow owners will be able to collect about $40 per head from the two programs. This will offset a significant part of the lost forage and hay from this year's drought.

The new Farm Bill's commodity support program eventually will give modest help to feed grain, wheat and oilseed producers. However, the payment schedule will be spread over a much longer time than before and may not be available in 2002.

"Direct payments will be made on soybeans and other oilseeds for the first time," Frederick said.

Another mostly positive factor is that crop production input costs were only modestly higher this year. For example, lower nitrogen fertilizer costs tended to offset higher seed costs. Operating loan rates also were the lowest in decades.

Land prices and cash rental rates tend to be good predictors of agricultural profitability, Frederick said. Like incomes, these values vary across Nebraska.

"I would expect farmers and other potential agricultural investors to take a wait-and-see attitude" about land purchases next year, he said. "They will want to know that 2003 is not going to be a repeat of 2002 before making much of a commitment."

11/26/02-SA

Roy Frederick - Ph.D.
Agricultural Economics
Professor
(402) 472-6225

Sandi Alswager Karstens
IANR News and Photography
(402) 472-3030

Department: Agricultural Economics