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A farmer works a field northeast of Mt. Vernon back in September. Matt Gade/Forum News Service

High expenses meet low prices for South Dakota producers

MITCHELL, S.D. -- On average, South Dakota farmers saw a drop in income of more than $100,000 last year.

Farms in South Dakota experienced a nearly 77 percent decline in net profit in 2015 compared to the year before, according to a study released Monday by the South Dakota Center for Farm/Ranch Management at Mitchell Technical Institute.

The average farm income in 2015 was $38,898, which accounts for sales, expenses and depreciation. The average income in 2014 was $168,361, close to the five-year average of $162,915.

"This decrease in net profit was primarily driven by the lower grain prices and considerable drop in livestock values in 2015," said Jared Hofer, director of the Farm Management Program at MTI. "Most grain farming operations showed above-average yields in 2015, which created a slight profit, despite land and input costs continuing to rise while grain prices stayed low."

Although the numbers show farmers making a small profit, the net income doesn't take family living expenses into account, which averaged $83,335 in 2015.

Joseph Calmus, a 38-year-old farmer from Canova, of Miner County, said his living expenses were light enough to keep him in the black, but he plans on budgeting more this year and cutting expenses.

"Try to cut your expenses wherever you can," he said, "whether it's being more efficient or trying to do things a little differently to get the same outcome with less expense."

Calmus plans to use less chemicals on his corn, soybeans, wheat, oats and alfalfa, and he plans to feed his cattle lower-quality hay supplemented with distillers grains, though he said ranchers must ensure the cows still get enough minerals.

"They've got to get what they need," he said.

Hofer said the 2015 net income was lower than every year since at least 2008, when a "farm boom" caused commodity prices to rise. At its peak, corn was sold for about $7 per bushel. Today, a bushel of corn sells for about $3.

"There was a five- to six-year run there where it was very profitable to be a farmer, but unfortunately, reality has kind of set back in," Hofer said. "The commodity prices, they're probably slightly higher than they were before the boom, but the expenses are significantly higher. There's just not much margin left for the farmer."

Average gross income, the amount of money earned without considering expenses, also took a dip from about $1.065 million to about $1.016 million despite higher yields. Hofer said cattle prices were to blame, as there wasn't much change in the amount of beef harvested from cattle.

"The biggest reason the gross income is down is because livestock values dropped probably 25 percent from the prior year," Hofer said.

Calmus said the biggest problem for his operation was the low grain prices. He sold his grains for about 50 percent less than last year, whereas his cattle prices only dropped about 30 percent.

"They both play a big part of my income, but the grains being a bigger percentage drop than the cattle did, I'd say the grains hurt me more," Calmus said.

Hofer said some ranchers bought calves at 500 pounds when prices were higher, raised them to 1,500 pounds and sold them for the same price at which they bought them after prices dropped.

The Center for Farm/Ranch Management has tracked farmers' profits since about 1989, Hofer said. Numbers from 2015 were gathered from a sample of 111 farming operations throughout South Dakota.

Hofer said the center helps farmers around the state keep records and manage their operations for a fee of about $1,450 per year. Each year, they compile data and put together a report that is used as a benchmark by lenders, accountants, legislators.

Looking ahead, Hofer said 2016 doesn't look better for farmers, as he expects a drier season, average yields and still-high operating expenses.

"Those factors are kind of concerning, that if we get back to an average production with these lousy prices, it's going to be ugly," Hofer said. "Overall, just with prices and moisture, we need a few things to go our way to have an average year again."

Calmus shared his concern, though he has already experienced a dry summer.

"I live in a pocket where it was dry (last summer). I had some grains that didn't perform as well as they did in 2012, and that was a major drought (year)," Calmus said.

The 2015-2016 winter was the wettest in years, but Calmus said the water hasn't stuck in the ground. But with a few good spring rains, the future could still hold promise.

"The outlook right now doesn't look very good, but I'm hoping to kind of hold things together and see what the next year brings," Calmus said. "Hopefully some good yields will offset the prices a little bit, which is, I think, what everybody out there's thinking right now."