AMERICAN FARM BILL COULD AFFECT LONG-TERM FARMING PROFITS

Originally published on August 30, 2001

 

A farming old-timer once told me that when it comes to bad news, "what one farmer doesn't think of, the other usually will."

With this in mind, I had dismissed some of the early speculation surrounding the 2001 U.S. farm bill and the talk that it might expand floor price coverage for U.S.-grown peas, lentils and chickpeas.

We farm in an area that has had some success growing pulses. If we were forced to remove pulses from our cropping rotation because of oversupply and low prices, our farm and others would have to strategically rethink the economics of producing strictly cereals and oilseeds. 

To illustrate, let's look at a section of farmland in west-central Saskatchewan. This farmland is now farmed on a crop share basis. The landlord has agreed to pick up one-third of the variable crop expenses in exchange for one-third of the harvested crop.  The harvested crops typically include wheat, barley, lentils and canola.

Using the yield and pricing extensions put forward in table one, we can expect $20,272 in gross profit.  You'll notice that the lentils are the big earners at $120.82 of gross profit per acre.

In table two we assume that the new U.S. farm bill includes subsidies for pulse crops, expanding their production to the point that its makes growing them in Canada a losing proposition.

In this example, we have replaced lentils with wheat and for rotational purposes have added some chem-fallow.  With this cropping rotation our gross profit drops to $13,772. 

 

 

Using financial data from previous columns, I have set out the following examples:

A forage operation with hired custom bailing.

Grazing 100 head of commercial cows for 200 days.

A commercial cow-calf operation.

The summary table tells the story. The cow-calf alternative leads the charge with a gross profit return on investment of 13.68 percent.  The grain-pulse alternative is second at 12.99 percent. Grazing finishes third at 12.47 percent.  Forage comes in fourth at 8.94 percent with the grain-oilseed alternative last at 8.83 percent. 

The 2001 farm bill is expected to come into being this fall or winter.  Until then, our farm and others on the Prairies will be looking south to see if pulses will be in the final version of the legislation.

If they are, then we will see a further movement away from a profitable grain economy here in Western Canada.

 

Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan.  The opinions expressed in this column are for information only.