Volume 5, Number 3                             October 29, 2001

The Farmer

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The Mathematics of a Sinking Ship

by Dr. Ridgely Abdul Muímin Muhammad

 

Do you remember what happened in 1995? Minister Farrakhan redeemed part of the 4500 acre farm that the Honorable Elijah Muhammad had here in Georgia and 2 million black men showed up in Washington, D.C. for the Million Man March. From the point of view of the American government this was threatening: two million potential soldiers and land on which to grow their own food. What do you think that America decided to do, sit back and do nothing? In 1996 she put into law the "Freedom to Farm Bill" which essentially removed government price support programs for the major commodities. This article will show you the economic effects of that shift.

But first let me say that starting on October 16, 2001 I was blessed to be sequestered for eight days as a member of the Commission established to restructure and reorganize the Nation of Islam to make it operate more efficiently. We were meeting to improve the Nation of Islam as America was feeling the ripple effect of the September 11th bombing of the World Trade Center and Pentagon. The irony was not overlooked.

I was honored to be among so many great minds and dedicated servants to our people. It was comforting to see that among us there was someone who had expertise in solving almost any problem that Black people or any people in America were facing. I felt that there was someone among us to watch our collective backs on each of the essential needs of our people. For some animals the responsibility of providing the essential needs for survival are left to each individual. However, in a civilized society one must depend on others and must contribute to others to insure survival of the group or society.

For so long the question of food has never been a concern for Americans. Americans spend only 6% of their income on food whereas the average for the rest of the world is 21%. Food is cheap. Cheap food insures that the factory workers and other city dwellers will stay pacified and not revolt against the government, as they did in France under the rule of King Louis XVI when the price of food got too high.

The news media has not focused on the fact that over the last 3 to 4 years the level of suicide among farmers has increased dramatically. The media is doing features like "The Fleecing of America" and using farm subsidies as the culprits. Therefore in this article I will show you a mathematical glimpse of the iceberg that has already struck the "Ship of State".

We farm in Southwest Georgia which is the agricultural back bone for this state and supplies a substantial percent of peanuts and cotton for the entire country. Her 3.11 million acres of cropland devoted to row crops are divided into 330,000 acres of soybeans, 510,000 acres of peanuts, 420,000 acres of corn, 350,000 acres of wheat and 1,500,000 acres of cotton. Although Georgia is the second largest grower of fresh vegetables in the country, only 115,000 acres are devoted to vegetables. This shows the dominance of row crops for the agricultural economy of Georgia.

The given assumption in Southwest Georgia is that if you are farming less than 5,000 acres you need to turn your farm into a hunting plantation. And that is just what is being done. So for our analysis we will look at a "typical" 5,000 acre farm in Southwest Georgia. We say "typical" because we will divide the cropland acres according to distribution of those crops for the 3.11 million acres of cropland for the state. Our "typical" farm therefore, will grow 531 acres of soybeans, 820 acres of peanuts, 675 acres of corn, 563 acres of wheat and 2412 acres of cotton.

Our farm is "typical" in terms of its cost of production which is based on average costs as estimated by the University of Georgia Agricultural Economics Department. Our farm receives the average price which is the market price for this area of Georgia. Farmers do not set prices. Agriculture is one of the last true competitive markets where supply and demand determine prices and not monopolies or oligopolies (cartels). The farmer generally will not know what price he can expect until after harvest.

Now letís look at Table 1 (below) and take soybeans as an example. This typical farmer grows 531 acres of soybeans and sells it at the market price of $3.92 and receives $62,392. His variable costs (seed, fertilizer, chemicals, labor and harvesting, etc.) are $65,936 which are $3,544 over his gross sales. Therefore soybeans does not return enough money to pay for its immediate costs for producing it. When you add in the fixed costs (land and equipment leases, insurance, taxes, interest, depreciation and repairs), this typical farmer loses another $33, 838 which results in a grand loss of $37,382.

Now if you look at the other commodities, this farmer loses $59,928 on corn, $55,128 on wheat and $582,000 on cotton. The only commodity that produces a profit is peanuts in which he receives a profit of $245,062. When you add it all up, this farmer loses $489,578.

Now one might say, "Well, the farmer needs to grow just peanuts and forget about the rest". However, the only reason that peanuts return a profit year after year is that the government subsidizes the price of peanuts and restricts the total acreage of peanuts. A farmer is given a certain allotment of what he can grow and still get the government subsidized price. There used to be such subsidies and crop acreage restrictions on the other major commodities such as corn and wheat until the passage of the 1996 farm bill.

TABLE 1:   TYPICAL GEORGIA FARM    COST AND RETURNS (2001)

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                        SOYBEAN   PEANUT   CORN     WHEAT    COTTON  TOTAL

ACRES                        531         820          675          563          2412          5000

PRICES                      3.92        0.30         1.96         1.97            0.30

GROSS SALES      62,392  695,633     99,260     44,341      470,257  1,371,884

VAR. COSTS         65,936  345,800   106,006     69,623      779,638  1,367,003

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VAR. RET.               -3544   349,834      -6746    -25,282    -309,381          4881

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FIXED COST          33,838   104,771     53,182     29,846     272,822     494,459

TOTAL COST         99,775   450,571   159,188     99,469  1,052,460  1,861,462

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PROFITS (LOSES) -37,382    245,062   -59,928   -55,128   -582,203   -489,578

R.O.I.                          -37%          54%       -38%       -55%        -55%         -26%

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One may also argue that this year, 2001, was a non-typical year in terms of prices received by farmers. Table 2 represents the market prices for soybeans, peanuts, corn, wheat and cotton for the years 1995 through 2001.

 

Table 2: MARKET PRICES 1995-2001

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YEAR SOYB.   PEANUT    CORN   WHEAT   COTTON    PROFITS     R.O.I.

1995       6.71            0.30        3.55          3.39             0.77      379,412       20%

1996       6.87            0.30        3.58          4.38             0.71      314,734       17%

1997       6.68            0.30         2.90         3.19             0.68       220,372      12%

1998       5.24            0.30         2.46         2.60              0.65      119,567        6%

1999       4.60            0.27          2.25        2.30              0.44     -308,358    -17%

2000       4.53            0.30          2.03        2.14              0.58        -33,591      -2%

2001       3.92            0.30          1.96        1.97              0.30      -489,578     -26%

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                                                                                    TOTAL      202,558       10%

                                                              YEARLY AVERAGE         28,937     1.4%

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As you can see prices have dropped precipitously since 1996 for each of these five commodities except peanuts. Soybean prices in 2001 were almost one half of what they were in 1996. The same can be said for corn, wheat and cotton. The cumulative result of these falling prices is that although our typical farm experienced substantial profits for 1995, 1996 and 1997, those profits were dropping and finally went extremely negative in 1999 through 2001. Now couple this drop in prices with a three year drought starting in 1998 which has not yet been factored into our analysis and one will begin to see the precipice over which our farmers are looking. Without the drought from 1998 through 2001 our "typical" farmer would have lost, on average, $177,990 per year.

Going back to Table 1 we see that our "typical" farmer spends $1,367,003 for variable inputs so that he can produce a crop. The farmer must put this money into the ground and leave it there for from 3 to 4 months depending on the crop. He either must have this $1.37 million dollars in cash or borrow this money from lenders. Now if you were looking at our "typical" farmer according to the historical price trends and cost data that you have in Tables 1 and 2 would you loan him $1.37 million dollars in operating capital for the coming year?

A city personís simple solution for our "typical" farmer may be, "Quit farming and get a real job".

If they follow this "logical" course, what will you eat? Food donít grow on white concrete.