Iversen: modern risk management for farmers


Herders and farmers depend on the land and nature to generate enough income to support the business and their families; however, South Dakota farmers are supported by federally subsidized insurance safety nets and a variety of USDA programs as well as several interest groups lobbying Washington on their behalf, while breeders are being pushed dangerously to the brink of failure.

Almost everyone knows that agriculture is South Dakota’s largest industry, and many people know that ranching makes up the largest portion of agriculture’s contribution to the state’s economy. Some people even know that cattle and calves on South Dakota ranches account for nearly two-thirds of that number of “cattle production.” However, what few people probably understand is how razor thin the margins for ranchers are as we operate every year, and with today’s high input costs and prolonged drought conditions. , how many of us are on the verge of sinking if we don’t find solutions.

Livestock keepers are usually grouped with farmers for many “agricultural” economic statistics. There are probably several reasons for this, but I think the main one is that most economists and statisticians don’t even know where to start with us. Many of us ranchers bristle at being called farmers, not that there is anything wrong with farming, but we are very different. Most breeders are exceptionally independent, distrustful of government, and prefer to keep their business contact details handy.

In the world of ranching, being self-sufficient has been a badge of honor, but I fear that unless we push the risk management tools and safety nets that are available to farmers, we are on the brink of failure. extinction, thanks to our independence.

Think about it. Farmer operating costs have gone up over the years… rising land rents, rising fuel costs, rising fertilizer costs, rising machinery costs, rising seed costs. Almost all input costs have seen massive increases over the years. And many farmers lament the price of their harvest. The price of a bushel of wheat on February 4, 2019 was $5.17, one dollar and fifteen cents lower than the price on February 11, 1974. The price of corn on October 7, 2019 reached $3.98, a modest ten -eight cents more than the price on October 14, 1974. Read that again. Some commodity prices are the same today as FORTY-FIVE YEARS ago. And yet…farmers seem to be able to continue paying for their inputs and rents continue to rise. The good years, building beautiful shops, modernizing equipment and, above all, expanding and paying record prices for farmland. Meanwhile, ranchers are still using their trusty 1982 John Deere 4440 with over 12,000 hours to feed their cowherd.

There have been advances in fertilizer products and seed technology that increase yields, but I would argue that federal crop insurance plays a bigger role. With products like revenue-based crop insurance, farmers can consistently maintain profitability and sleep well at night KNOWING what their bottom line will be. Ranchers, on the other hand, can only rely on hopes and prayers that an October blizzard won’t wipe out half or more of their herd, or that a prairie fire won’t ravage their range. summer distribution, or that a late spring frost has won do not damage their cool season pastures. The best planning in the world cannot anticipate a foreign invasion that would cause grain prices to rise by several dollars a bushel, causing livestock markets to fall below break-even by several hundred dollars a head. They can’t anticipate a prolonged drought that forces a rancher to sell his herd of cow-calf pairs in the spring after feeding them $250/ton bought hay all winter in the optimistic hope that it will be a wet spring. .

The only serious insurance program in place for ranchers today is the USDA’s Pasture, Rangeland, and Forage program. This “tool” relies on a rancher essentially betting on where the rain will fall within a 17 X 17 mile grid over a two-month period throughout the year. It’s not unlike the Superbowl Squares. It does not take into account confounders such as temperature, wind speed, whether the rain falls in several well-spaced showers or in a single gully deluge, and there is no way to verify on the ground the precipitation. A rain event fifteen miles away that passes over the weather station can disrupt the entire grid.

And of course there’s NAP, which at 25% coverage is better than nothing but not much better…and a breeder would only get the full 25% in the event of a total loss. The comment I hear most often is that NAP isn’t perfect but it’s cheap…to which I reply “you get what you pay for”. Farmers have the option of purchasing “purchase” protection and receiving loss rates closer to market, but of course this product is not available to grass growers.

Livestock producers must have access to an affordable, income-based insurance program modeled after crop insurance. The grass is our “harvest” and the cows are our “combine harvester”. One solution would be to treat a rancher’s grass like a farmer’s crop. The USDA has decades of rangeland production information, categorized by soil type and rainfall, already available in the Web Soil Survey. This tool has been used by countless conservationists and route planners. By simply incorporating an exclusion zone into each assured pasture, an expert would be able to measure the production of ungrazed grassland against the expected production of that zone in a normal rainfall year.

The 2023 Farm Bill must include reliable risk management tools for livestock producers so they can insure their pastures, like farmers. Towns in western South Dakota were built by cows, and local community businesses depend on ranchers to stay profitable. The state’s second largest population center, Rapid City, was originally nicknamed “Hay Camp” because it was formed as a center that provided food for cattle during the Gold Rush. Over time, ranchers are slowly pushed out, unable to compete with land prices pushed up by farmers looking for new opportunities, buoyed by the certainty that their bottom lines are secure. Small towns are getting smaller, main street businesses are disappearing, and schools are continuing to consolidate as a result.

Every year more and more drought-tolerant seed varieties are created that push the plow further and further into the arid lands that the dust bowl taught us not to cultivate. The very fertility that made the black soil regions of the United States was a product of native tallgrass prairie. Almost all of this grassland has been turned into farmland to produce more crops. The arid grasslands are among the last and best reserves of biodiversity in the country. Keeping herders and ruminants in these grasslands allows them to remain commercially viable and economically productive for the state and small communities.

Since 1980, America has lost 50% of its cattle ranches. The share of the food dollar that producers receive has declined from $0.53 in 1946 to $0.14 today. To be sustainable and generational, we must remain profitable. To be profitable, farmers need a multi-risk risk management tool to intervene when unforeseen circumstances arise. Allowances are appreciated, but they are unreliable.

Eric Iversen

Mellette County Cattle Rancher


About Author

Comments are closed.