By Gene Meyer
TOPEKA — David Bozone did not have any choice.
“There’s no grass on my pastures,” said the rancher from Hugoton. “We had to sell.”
Bozone sent this spring’s calf crop to market seven months earlier than he’d planned, even though he lost potential income on the deal.
Unfortunately, Bozone is not alone. Farmers and ranchers across nearly half of Kansas are wrestling with similarly painful decisions or watching their crops — their potential paychecks — wither and die.
But even as this drought threatens the livelihoods and communities of many farmers and ranchers, it has a silver lining — a temporary boon to state revenue.
Each animal Bozone sold three weeks ago would have fetched a conservative $250 more, if he pastured them until February and raised them to a feedlot-ready 800 pounds or so. Instead, he sold the calves at less than 600 pounds.
Now he worries that if the drought doesn’t end soon enough, he will need to begin selling some of the 270 cows that produce those calves to make what’s left of his forage last longer and keep what’s left of the dwindling herd alive.
His prospects are not encouraging. The U.S. Department of Agriculture, or USDA, estimates that subsoil moisture, which helps grow grass for cattle to eat as well as corn, sorghum, soybeans and livestock feed, is critically short across 60 percent of Kansas and more than 80 percent in the southwest, where Bozone lives.
The USDA projects that corn and sorghum fields statewide will produce their lowest yields since 1983 this fall, cutting statewide corn production 15 percent from a year ago and sorghum by 28 percent. Soybean production also is forecast to plummet 28 percent from last year’s record, and alfalfa production is expected to drop 21 percent to levels last seen in 1956.
More than 50 of Kansas’ 105 counties are federally designated agricultural disaster areas, reflecting drought in the west and floods in the east that are rated the worst in more than half a century.
Such devastation has profound implications for rural Kansas, where farm income is the bedrock for everything from property tax bases that support schools and local commercial development to retail sales that local economies need to thrive.
This year’s agricultural disasters also will alter the pattern of state tax revenue for at least a few years, though those changes are more difficult to calculate, because agriculture’s fortunes ebb and flow over many seasons.
On a local level, “the full economic effect is actually more likely to show up in 2012,” said Charles Claar, a certified public accountant with the Lewis Hooper and Dick LLC accounting firm in Garden City, which has an extensive agricultural practice.
As in other parts of the United States, farmers and ranchers try to build financial reserves in good years to carry them through bad ones, Claar said. Many producers had a good year in 2010 with high grain prices and decent production providing healthy reserves to carry them into 2011.
“That won’t be the case going into 2012,” Claar said. “We’re hearing from clients who estimate they may be down 30 percent or more from what they carried into 2011.”
Plus, not all farmers have been afflicted by the drought or floods along the Missouri River in eastern Kansas that also destroyed crops, said Art Barnaby, a Kansas State University Extension Service agricultural economist.
The losses have driven grain and other commodity prices higher, which will lift incomes for farmers whose crops haven’t been as devastated, Barnaby said. And farmers whose crops were totally devastated could get as much as 75 percent of the income they expected before those losses, depending on how crop insurance and other USDA disaster payments work out. Those payments to eligible farmers in more than 50 counties designated by the USDA as agricultural disaster areas this summer are taxable income too, he said.
“The situation for livestock producers is the most difficult to call,” Barnaby said. “Higher grain prices mean higher feed costs for them, which could reduce their taxable income.”
Grain that producers buy to feed their livestock is a tax deductible production cost that helps producers reduce the net income on which taxes are calculated.
Crop planting patterns that change from year to year also make a difference, said David Widmar, a Kansas Department of Agriculture economist.
As of mid-August, Kansas farmers appeared to be headed toward their 10th poorest soybean crop, their sixth poorest sorghum crop and their second poorest corn crop all since 1981. But farmers planted much more corn and sorghum this spring than they did the previous year, and more of those fields are surviving the bad weather.
Based on early August farm level prices, the total value of Kansas’ soybean crop will drop more than $300 million this year, to $1.35 billion, but corn and sorghum crop values will increase from $749 million to $4.76 billion, Widmar said. One caveat — commodity prices and the taxable income they generate — almost certainly will change before farmers sell those crops, he said.
Finally, tax revenue patterns in previous drought years such as 1980 and the years that immediately followed cannot shed light on this situation, said Tracy Turner, a Kansas State University economist and public finance specialist.
Because of crop insurance and farm program changes since the 1980s, economists have no experience measuring how droughts such as this one change net farm income or the personal income of implement dealers, grain haulers and storers, retailers and others in communities where farmers live, Turner said.
“There certainly are going to be effects, and they might be pretty substantial,” Turner said. “But looking back won’t give us a clear picture of what they are.”
Kansas drought may provide temporary state tax revenue boon
By Gene Meyer