Bischoff, John H.

Dobbs, Thomas L.

Pflueger, Burton W.

Shane, Richard

English

Public Research Access Institutional Repository and Information Exchange

South Dakota State UniversityOpen PRAIRIE: Open Public Research Access InstitutionalRepository and Information ExchangeEconomics Commentator Department of Economics4-2-1996Are There Tradeoffs Between Farm Profitabilty andEnvironmental Quality in South Dakota's Big SiouxAquifer Area?; Grain Market Volatility - Is $4.00Cash Corn Possible in Eastern South Dakota?Thomas L. DobbsSouth Dakota State University, thomas.dobbs@sdstate.eduJohn H. BischoffSouth Dakota State UniversityBurton W. PfluegerSouth Dakota State University, burton.pflueger@sdstate.eduRichard ShaneSouth Dakota State University, richard.shane@sdstate.eduFollow this and additional works at: http://openprairie.sdstate.edu/econ_commPart of the Agricultural and Resource Economics Commons, and the Regional EconomicsCommonsThis Newsletter is brought to you for free and open access by the Department of Economics at Open PRAIRIE: Open Public Research AccessInstitutional Repository and Information Exchange. It has been accepted for inclusion in Economics Commentator by an authorized administrator ofOpen PRAIRIE: Open Public Research Access Institutional Repository and Information Exchange. For more information, please contactmichael.biondo@sdstate.edu.Recommended CitationDobbs, Thomas L.; Bischoff, John H.; Pflueger, Burton W.; and Shane, Richard, "Are There Tradeoffs Between Farm Profitabilty andEnvironmental Quality in South Dakota's Big Sioux Aquifer Area?; Grain Market Volatility - Is $4.00 Cash Corn Possible in EasternSouth Dakota?" (1996). Economics Commentator. Paper 330.http://openprairie.sdstate.edu/econ_comm/330ECONOMICSCOMMENTA TORSDSUSOUTH DAKOTA STATE UNIVERSITYARE THERE TRADEOFFS BETWEENFARM PROFITABrLITY ANDENVIRONMENTAL QUALITY IN SOUTHDAKOTA'S BIG SIOUX AQUIFER AREA?byThomas L. DobbsProfessor of Agri. Econ.John H. BischoffAsst.Prof., Water Res.Inst.Burton W. PfluegerExtension Economist. Lon D. Henningformer Econ. Res. Asst.One year ago we reported to readers of theEconomics Commentator on profitability findings fora study of farming practices and systems in SouthDakota's Big Sioux Aquifer (BSA) area (No. 347,March 27, 1995). The study, funded in part by theUSDA's Sustainable Agriculture Research andEducation (SARE) program, was designed to helpassess the effectiveness of two special Federalprograms intended to reduce the risks of nitratecontamination of BSA groundwater. The programsare the Integrated Crop Management (ICM) programand the Water Quality Incentive Program (WQIP).Through these programs, farmers receive cost-share and technical assistance to voluntarily shift topractices and systems that are thought to reduceadverse environmental effects. We examinedimplications for profits and potential nitratecontamination from non-point agricultural sourcesassociated with crop production over the aquifer. ThisCommentator issue contains estimates of theenvironmental effects, which were not yet completewhen the earlier issue (No. 347) was prepared.(Continued on page 2)No. 361 April 2, 1996GRAIN MARKET VOLATILITY-- IS $4.00 CASH CORN1 POSSIBLE IN EASTERN! SOUTH DAKOTA?byRichard ShaneExtension GrainMarketing SpecialistThe March USDA Grain Stocks and ProspectivePlantings reports were bullish for corn prices andneutral for soybean and wheat prices. The grain tradeexpected 3.88 billion bushels of corn stocks on March1. The actual amount reported is 3.8 billion bushels.Most years this would have only a couple cents'impact on price but this year, with stocks so tight, themarket responded with an lie increase at the open ofthe Chicago Board of Trade (CBOT). The prospectiveplantings of corn added to the enthusiasm as acreagewas pegged at 79.9 million compared to a pre-reportguess of 81.1 million acres. New crop DecemberCBOT corn futures were up 6C near the open. Thistype of price action supports forecasts for extremeprice volatility in the corn market this spring andsummer. Any weather related problems delayingplanting or reducing yields will cause large potentialprice increases and great pricing opportunities forproducers. Futures hedges and hedge-to-arrivecontracts will be popular under these conditions. Basiswill be wider than normal on cash forward contractbids due to the need for some basis protection.Corn production could reach -9,4 billion bushels ifa normal or trend yield is realized for the entire U.S. .Since demand is expected to remain strong, this isbarely enough corn to maintain around 500 millionbushels in carry-over stocks. Such conditions wouldlead to another year of good corn prices. The large(Continued on page 4)Page 1Study Area and MethodsThree counties in the BSA area—Brookings,Moody, and Minnehaha—have been the focal point ofthe Big Sioux Aquifer Demonstration Project, aUSDA-sponsored pilot effort based on technicalassistance and cost-share under the WQIP and ICM.We used data collected from four representative casefarms that participated in this program in the early1990s. One "dryland" (non-irrigated) farm is in eachof the three counties and an irrigated farm is inBrookings County: Case Farm ^1—Brookings County;reduced tillage; corn-soybean rotation, with somealfalfa; ICM participant; Case Farm i^2-MoodvCounty; some aspects of reduced tillage; corn,soybeans, and oats; ICM participant; Case Farm ^3—Minnehaha County; corn, soybeans, oats, alfalfa, andclover; WQIP participant; and Case Farm #4-Brookings County; continuous corn; center-pivotirrigated; WQIP participant.The methods for estimating farm profitabilityusing a budget generator package called CARE (Costand Return Estimator) were explained in the earlierCommentator issue (No. 347) dealing with this study.In the net return calculations, both market values ofharvested crops and Federal farm program deficiencypayments were included in gross receipts. Variableand fixed costs of production except for land andmanagement charges also were included in thecalculations. However, neither the payments fromICM and WQIP nor the costs of specialized services(e.g., crop consulting and soil testing) funded by thosepayments were included in the farm budgets. Thus,the payments were treated "as if they were directpass-throughs. ICM and WQIP payments were $7/acfor Farm ^1, $4.93/ac for Farm ft2, $7/ac for Farm#3, and $14.30/ac for Farm H.Impacts of different farming practices and systemson environmental quality, as measured by nitrateleaching to groundwater, were estimated with theNitrogen Leaching and Economic Analysis Program(NLEAP). Estimates of nitrate leaching were madefor each of the practices and systems for which farmprofits were estimated. This was done under threedifferent assumed rainfall scenarios: "typical", "wet",and "dry". The nitrate leaching estimates were madeaveraging the annual results over a 6-year time periodfor each climate scenario.Results with Typical RainfallThe relationships between farm profitability andnitrate leaching, assuming various crop managementpractices and systems, are shown for each case farm-under "typical year" rainfall conditions-in the fourfigures that follow. "Before" results represent thefarming practices and systems in place prior toparticipating in the ICM or WQIP. "After" results areestimates for each farm after initial changes were madein response to ICM or WQIP technical assistance andcost-share, and with the same crop rotation. (ForCase Farm ifI, no significant changes were madeinitially, so "Before" and "After" were the same.)Also shown are profitability and nitrate leachingestimates for certain possible additional practicechanges-such as banding fertilizer or splitting nitrogenfertilizer applications. Estimates also are shown forselected possible system changes which involveswitching to more diverse crop rotations.^ IProfitability/N Leaching RelationshipsCase Farm #1 (typical year)110IQS-(DaoIE100-<• 9&go•0/A.AAS,C,S Rot•0/A.A.A.C,S,C Rot•After10 1 5 20 25 30# of N Leacnad per Acre35 40 45Profitability/N Leaching RelationshiptCase Farm #2 (typical year)105gg •O/AAAS.C.S.BoL..o<ack_DCDzPage 285-75-65-55-45-35-•0/A.A.A.C,S,C Rotidlit'Kl"erBanding N•Before10 15 20 25 30 35# of N Leached per Acre40 4fProfitability/N Leaching RelationshipsCase Farm #3 (typical year)112--no-'1CB--106-'104--1Q2-'10O'98-96-oQEao(Eo.Z«»94•0/A.A.A.C,S.C Rot"•""•07A,7CAa•Afteri^efore10 1 5 20 25 X# Of N Leached per Acre35 40 45Profitability/N Leaching RelationshipsCase Farm #4 (typical year)u<oaE3oCCoZM-95--90-'85-'BO-'75-70-'GS--eo-55-'50•••e.-s-Rot"«plitN.•After...•Before•A,A,C,S.C,S Rot10 15 20 25 X# of N Leached per AcreX 40 45Under "typical" rainfall conditions, a number ofpossible practice and system changes (including the"After" practice changes made in initial response toICM or WQIP participation) appear to offer promiseof increasing farm profits on the dryland farms (i '^l,#2, and #3). Most of those changes also decreaseleaching. Estimated leaching in typical rainfall yearsis relatively low even "Before" ICM and WQIP onFarms #2 and #3. Thus, changes in practices resultingfrom those programs (the "After" scenarios) and otherpossible practice and system changes appear to yieldvery little change in nitrate leaching. Estimated"Before" and "After" (ICM) leaching is somewhathigher in typical rainfall years on Farm ^1. There theimpacts of possible practice and system changes onleaching are slightly larger~a decrease in leachingfrom splitting N applications and increases from themore diverse rotations.Estimated nitrate leaching is much greater on theirrigated case farm (#4) in typical rainfall years thanon the three dryland farms. Although the "After"WQIP management change increased profits, it did notappear to decrease leaching. Splitting N applicationswould appear to further increase profits but have onlya modest impact on leaching-in typical rainfall years.Changing to more diverse crop rotations would havesubstantially greater impacts on nitrate leaching, butwould decrease profits relative to the continuous corn"After" scenario. Here, tradeoffs between farmprofitability and environmental quality appear to exist.Results for Wet YearsSpace does not permit us to display the results for"wet" and "dry" scenarios here. As expected, nitrateleaching estimates were greater for "wet" weather thanfor "typical" weather conditions on most of the casefarms. Prospects for reducing nitrate leaching bymoving to more diverse crop rotations were especiallynoteworthy on the irrigated farm under wet weatherconditions. The corn-soybean rotation showed asubstantial reduction in nitrate leaching on the irrigatedfarm in wet years, compared to continuous corn, withonly a moderate sacrifice in profits.ConclusionsThis study focused on potential profitability/environmental quality tradeoffs associated withdifferent farming practices and systems where nitrateleaching to groundwater was the principalenvironmental concern. The findings can besummarized as follows:~A number of practices and systems appear tooffer good prospects for increasing farm profitabilityand modestly reducing nitrate leaching to groundwater.-The potential for certain alternative practices andsystems to reduce nitrate leaching is greatest in periodsof unusually wet weather.-Alternative farming systems appear to have theirgreatest potential for reducing nitrate leaching inirrigated farming situations.-Cost-share programs like the ICM and WQIP,coupled with active extension programs, appear tohave promise for increasing farm profitability and, insome cases, reducing nitrate leaching.More detailed discussion of research procedures;features of the case farms, and findings are availablein a series of SDSU Economics Pamphlets. Readerswho want such detail may contact any of the first threeauthors of this Commentator article at SDSU.Page 3(GrainMarket...cont'dfromp.l)cropscenariowithabumpercropliketheU.S.producersharvestedin1994wouldleadto1.5billionbushelsincarry-overandCBOTfuturespriceswellbelow$3perbushel.Ashortcropforwhateverreason,cold-wetorhot-dry,wouldleadtopricesexceeding$4.00inChicagoasrationingofsupplieswouldbenecessaryandofagreatermagnitudethanduringthecurrentmarketyear.SoybeansSoybeanstocksandprospectiveplantingswerereportedatamountsequaltopre-reportanticipations.Awetspringcouldleadtoanincreaseinsoybeanacresplanted.Anormalcropyearwillresultinasmallincreaseinstockstoaround250millionbushels.EventhoughBraziliscurrentlyharvestingasmallercropthanlastyear,keepinmindthatBrazilhashadseveralrecordproductionyearsinarow.Thesuppliesofsoybeansareadequateandgoodgrowingconditionsthissummerwillcertainlyleadtolowerpricesthanthemarketcurrentlyoffers.Somepriceprotectionisprudentmanagementatthistime.Cashcontractsandhedgesofferprofitsofaround$1.25perbushelatthistime.Ifupsidepotentialisdesired,useaputorminimumpricecontracttogetdownsideprotection.Ifoptionpremiumsaredistastefultoyou,perhapsafencing(window)strategywillprovideyouthedownsideprotectionrequiredbutretainsomeupsidepotential./aivdafiwoj-S-n*140Page4WheatWheatacresareexpectedtobeupabout6%comparedto1995.Winterwheatplantingswereup7%asreportedbyUSDAinJanuary.TheMarchreportindicatesthatproducerswillincreasespringwheat3%anddurum6%comparedtolastyear.Totalprospectivewheatplantingsof73.1millionacresandaverageyieldswillallowformodeststocksgrowthbutnotenoughtopushpricebelow$4.00.Itwouldtakebumpercropsinothermajorwheatproducingregionsoftheworldtoreducepricetothehigh$3.00's.Mostwheatproducingcountries'producersarerespondingtothecurrenthighpricebyplantingmoreacres.Inthesouthernhemisphere,bothAustraliaandArgentinaharvestedlargercropsthisyearcomparedtolastyear.Worlddemandforwheatcontinuestogrow,butincreasedacreagewillmorethanoffsetthisgrowthandpricewilltailoffasharvestapproaches.Ofcourse,anaverageyieldmustbeexpectedtomakethishappen.Marketingalternativessimilartothoseforcornandsoybeansaresuggested.Getyourmarketingplanwrittensopricingopportunitiesavailablenoworonaweathermarketthisspringandsummerarenotmissed!***************ECONOMICSCOMMENTATOREDITOR;DonaldC.TaylorECONOMICSDEPARTMENTSouthDakotaStateUniversityBox504ABrookings,SD57007-0895Phone:(605)6884141Fax:(605)688-4386E-Mail:StoverP@mg.sdstate.edu475copiesoftfiisnewsletterwereproducedatacostoflesttfianSIGOpsissnbsHaof)33xio3ssaippyIffQLSas'sSnpfooigVWSxoalusamcdsQsannoaoosAUSaHAINAHIVISVIOSVQHJHOSnsQS

Are There Tradeoffs Between Farm Profitabilty and Environmental Quality in South Dakota\u27s Big Sioux Aquifer Area?; Grain Market Volatility - Is $4.00 Cash Corn Possible in Eastern South Dakota?

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Are There Tradeoffs Between Farm Profitabilty and Environmental Quality in South Dakota\u27s Big Sioux Aquifer Area?; Grain Market Volatility - Is $4.00 Cash Corn Possible in Eastern South Dakota?

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