Farmers, ranchers must create economies scale

This issue inaugurates The Northern Colorado Business Report Leading Agricultural Indicators, a new quarterly feature through which we will examine trends in production, yields, prices received, cost of production, exports and other conditions and issues relevant to the agricultural sector of Larimer and Weld counties in Northern Colorado. Agriculture is especially important in Weld County, which ranks as the No. 4, No. 5 or No. 6 agricultural county in the nation, ranked by value of production and depending on the data source and year referenced. Weld leads the United States in value of production of some agricultural products, such as sheep and lambs. Our indicators reveal that the total value of crop production in Northern Colorado increased from $256 million in 1980 to $283 million in 1995, matching neither the growth in gross domestic product nor the Consumer Price Index. The total value of livestock production increased from $107 million in 1981 to $144 million in 1996, a 35 percent increase that also trailed GDP and CPI. Cattle, calves and milk cows each claimed about one-third of the total value of production in 1981, and the relationship was about the same in 1996, with milk cows at 38 percent and cattle and calves at 32 percent of total value of production. Sheep and lambs were 22 percent of value of production in 1981, dropping to 13 percent in 1996. Hogs and pigs were less than 4 percent in 1981, increasing to 13 percent in 1996. Have prices received for farm products changed much since 1980? No, especially if we examine prices through 1994, the last year of the old farm program that had existed, virtually unchanged, since before 1980. The new farm program is designed to phase out price supports and acreage limitations, and prices are expected to be more volatile, making wise management/crop selection much more important. Here are a few noteworthy statistics found in our index:

* The price of winter wheat was $3.70 per bushel in 1980, $3.48 per bushel in 1994 and averaging $4.60 per bushel in 1995.

* Prices for sunflowers increased from $9.60 in 1991 to $12.80 in 1995.

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* Sugar-beet prices ranged from $22.40 a ton in 1984 to $47.50 a ton in 1980 Value of production has decreased from $41 million in 1980 to $16 million in 1995 but has been relatively stable since 1986.

So, if prices received for agricultural products have not been increasing as fast as the rate of inflation and the increase in the value of production is less than the rate of increase in GDP and inflation, how can the farm sector survive? It can only survive by increasing yields, using more capital and less labor, and squeezing some owner/operators out of the industry so the remaining operators can enjoy economies of scale in production and thus become more efficient. John Green is a professor of economics at the University of Northern Colorado in Greeley.