Idaho Falls, Idaho
April 21, 2005
Idaho potato growers roll the dice every time they plant
spuds in their fields. At the
University of Idaho's
Idaho Falls Research and Extension Center, agricultural
economist Chris McIntosh rolls the dice in his computer.
What McIntosh has learned
confirms the experiences of many Gem State potato producers:
their chances of recovering their operating costs are less
than 95 percent for all of their potatoes and less than 75
percent for their open-market spuds.
Add in their ownership
costs-for land rent, management, taxes, insurance, and so
forth-and the odds of Idaho potato growers recovering their
full investment in any given year are less than 33 percent
for all potatoes and less than 30 percent for open-market
spuds.
Nevertheless, they're willing
to give it a try, says McIntosh. "The year that you do cover
all of your costs, you do it to such an extent that you can
rebuild your equity," he says. "Other years, you farm your
equity." In other words, potato growers keep rolling the
dice because the money really rolls in during the good
years.
McIntosh based his research on
"Monte Carlo" analysis. First, he used UI cost-and-returns
estimates-developed for 2003 by colleagues Paul Patterson,
Bill Bohl and Robert Smathers-to ascertain a cost of $1,038
per acre to grow potatoes on a 1,500-acre eastern Idaho farm
that produces 500 acres of spuds in a three-year
grain-grain-potatoes rotation. Then, he examined monthly
average potato prices for August 1990 through September 2004
and yearly seed prices and yields. Finally, he ran 10,000
computer simulations to see how often the prices growers
received would have covered their operating or total
expenses. The simulations were based on random samples of
potato prices, seed prices and yields.
On average, returns above
operating costs were $500 for all potatoes and $421 for
open-market potatoes. But on a yearly basis, the simulation
indicated that potato growers grossed enough to cover their
total costs only one year in three for all potatoes and
three years in 10 for open-market potatoes.
According to McIntosh, the
majority of the risk that Idaho potato growers face is due
to fluctuations in potato prices. Variation in yields
accounted for only 11 percent of the historical variation in
returns over operating costs. "Since most risk is due to
price, contracting could dramatically reduce the overall
risk of producing potatoes," he says.
When McIntosh undertook a
similar study in 2001, historical prices showed even more
fluctuation. "There has been a little less variation in
prices over the last four years," he says. Unfortunately,
they have been both less variable and lower.
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