Higher prices help sustain South Dakota farm sector

Higher prices help sustain South Dakota farm sector Improved commodity markets in 2003 have helped the South Dakota farm sector, easing the effects of drought and poor market conditions in 2002, a South Dakota State University economist said.

But SDSU Extension Economist Matthew Diersen said not all producers are benefiting to the same degree.

"While about two-thirds of the drought and market impacts from 2002 have been restored to the farm sector, winter wheat and cow-calf producers will have to wait longer for a full recovery," Diersen said.

Diersen stresses that while the change is positive, there is a range of possible impacts for the farm sector.

The worst-case scenario, Diersen said, suggests that the drought cost to the South Dakota farm sector was $800 million in 2002, offset by only $375 million from improved markets in 2003.

However, the best-case scenario suggests the state's farm sector lost only $650 million in 2002, offset by $550 million because of improved markets in 2003.

Drought conditions continue in much of the state in 2003, and Diersen said livestock producers who had to liquidate sizable portions of their herds likely are not sharing in the recovery.

In addition, crop insurance indemnity payments to wheat producers did not offset revenue losses in 2002 as extensively as for corn and soybean producers. Wheat producers tend to buy relatively lower levels of coverage.

"In simplest terms, wheat and cattle producers in the central and western parts of the state have been hit hardest, and they will likely need more time to recover," Diersen said.

Members of the Department of Economics at South Dakota State University earlier assessed the likely statewide economic impact of the 2002 drought at $1.4 billion, which included direct impacts to the farm sector. Net farm income in South Dakota for 2002 was only $560 million compared to the average from 1999-2001 of $1.36 billion according to Economic Research Service numbers.

New calculations by SDSU economists show how the farm sector is recovering from drought.

"Combining drought and market factors, farm sector income was down $650 million to $800 million in 2002," Diersen said. "The improved market conditions in 2003 would offset a portion of those losses. We estimate an additional $375 million to $550 million in farm sector income will be realized this year."

Here's a closer look at the crops and livestock sectors:

Crops

Above-average wheat and corn yields and above-average wheat and soybean prices combine to give South Dakota a 2003 total of $2.04 billion in projected crop returns, or $239 million above the previous three-year average.

Both corn and wheat are widely grown in South Dakota, so effects of improved revenue from those crops would accrue across the state. However, South Dakota State University Extension Climatologist Dennis Todey said large portions of western South Dakota have received below-normal precipitation during the past 21 months and most of the state is in some stage of drought at the present time.

Late season dryness (which also limited soybean yields) has left most of the state's soils very dry. The outlook for improvements in moisture is difficult to predict because of the absence of a defined El Ni�o or La Ni�a situation.

Cattle

For 2003, the National Agricultural Statistics Service (NASS) projects a reduction from 2002 of 80,000 head for South Dakota's calf crop. However, prices in 2003 are 28 percent higher than during 2002, making for a difference in calf crop values of $204 million. Calves sold by the end of 2003 would add directly to revenue for the farm sector. But Diersen cautions that a $10 per hundredweight drop in calf prices would reduce the value of the calf crop by $97 million.

South Dakota feedlots that sold slaughter cattle from July through the present, and that stayed in the cash market, have benefited from the higher prices. The feedlot sector may generate an additional $34 million in aggregate revenue in 2003, Diersen said.

Evidence of the disparity among those selling livestock comes from the Animal Industry Board. From July through September of 2003 the number of cattle sold in South Dakota totaled 416,527 head. 2002 volume during the same time period was much higher at 526,793 head as the drought stressed pastures enough that yearlings and calves were marketed early, and cows were culled and sold early.

The 2003 numbers, however, are much higher than the volumes in 2001 of 326,430 head and 2000 of 249,054 head.

The disparity is explained in part by sale locations. Those where cowherds were reduced are showing smaller sales compared to earlier years. NASS reported that beef cow inventories were sharply lower in the Northwest, North Central, West Central, and Central crop reporting districts.

Sale locations in more predominate cattle feeding areas, especially auctions that sell a relatively large portion of slaughter animals, are seeing an increase in sales volume in 2003 compared to earlier years.

Diersen added that conditions at the end of 2003 show range and pasture for South Dakota at 22 percent "very poor" and 35 percent "poor." That is almost as bad as at the end of 2002, when 30 percent was rated as "very poor" and 27 percent as "poor". Hay yields were below the 10-year average and the relatively tight ending stocks from 2002 result in another relatively tight supply situation for the 2003 feeding period.

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