Data Sources
Data used to establish the cost and return estimates are based
on producer surveys conducted about every 4-8 years for each commodity
and
updated each year with estimates of annual price, acreage, and production
changes. Commodity-specific surveys as part of the annual Agricultural
Resource Management Survey (ARMS) have been used to collect
the data since 1996. There are multiple versions of the ARMS
each year,
including whole-farm and commodity production practice and cost versions.
Each production practice and cost version gathers detailed information
about input use, field operations, and production costs of a particular
commodity. Field enumerators personally interview farmers using
questionnaires
developed by the National Agricultural Statistics Service (NASS)
and ERS. The ARMS data collection starts during the fall when
production
practice and cost data are collected, and finishes in the spring
when a follow-on interview collects data about whole-farm costs
like overhead,
interest, and taxes.
Each farm sampled in the ARMS represents a known number of farms
with similar attributes so that weighting the data for each farm
by the number of farms it represents provides a basis for calculating
estimates for the target population. Target populations for the
crop commodities include all farms producing one or more acre of
the commodity. To qualify for the ARMS hog survey, operations had
to have a minimum of 25 head during the survey year. A minimum of
10 cows milked were required for dairy operations, while cow-calf
operations needed to produce 10 or more weaned calves to qualify.
The survey data used in estimates for years prior to the ARMS were
collected as part of the annual Farm Costs and Returns Survey (FCRS)
from 1984 to 1995, and the Costs of Production Survey (COPS) prior
to 1984. The types of data currently collected in the ARMS are essentially
the same as the data that were collected through the FCRS and the
COPS, except that the FCRS and COPS surveys collected cost-of-production
data and whole-farm financial data in one interview. Survey base
years for estimates in the cost and return series are:
Survey base years for cost and return estimates |
Corn |
1978 |
1982-83 |
1987 |
1991 |
1996 |
2001 |
2005 |
Soybeans |
1978 |
1982-83 |
1986 |
1990 |
1997 |
2002 |
|
Wheat |
1978 |
1982-83 |
1986 |
1989 |
1994 |
1998 |
2004 |
Cotton |
1978 |
1982 |
1987 |
1991 |
1997 |
2003 |
|
Rice |
1979 |
1984 |
1988 |
1992 |
2000 |
|
|
Sorghum |
1978 |
1982-83 |
1986 |
1990 |
1995 |
2003 |
|
Barley |
1978 |
1982-83 |
1987 |
1992 |
2003 |
|
|
Oats |
1978 |
1983 |
1988 |
1994 |
2005 |
|
|
Sugar beets |
1980 |
1984 |
1988 |
1992 |
2000 |
|
|
Peanuts |
1977 |
1982 |
1987 |
1991 |
1995 |
2004 |
|
Flue-cured tobacco* |
1979 |
|
1987 |
1991 |
1996 |
|
|
Burley tobacco* |
|
1984 |
1989 |
1995 |
|
|
|
Dairy |
1979 |
1985 |
1989 |
1993 |
2000 |
2005 |
|
Hogs |
1980 |
1985 |
1988 |
1992 |
1998 |
2004 |
|
Cow-calf |
1980 |
1985 |
1990 |
1996 |
|
|
|
*Flue-cured and burley tobacco estimates were discontinued after
2004.
Estimates made prior to the first year listed were based on various
surveys conducted in 1974-76. The 1982-83 survey was for all major
crops, split into Southern States (1982) and Northern States (1983).
Since cost-of-production data for any particular commodity are
only collected about every 4-8 years, estimates for non-survey
years use
the actual survey year as a base and use price indices and other
indicators to reflect year-over-year changes. This can cause discontinuities
when new survey data replace these non-survey estimates. The magnitude
of these discontinuities depend on how much technical and/or structural
change occurred in the sector between the survey years, as well
as changes in the sampling, questionnaire, and other data collection
procedures. The survey data are supplemented with price and production
data from other sources, mainly NASS Agricultural Prices and
Crop
Production publications in order to develop the annual estimates
during non-survey years.
Structure of the Accounts
Commodity costs and returns include estimates of both cash expenditures
and noncash costs. Cash expenditures are incurred when factors of
production are purchased or rented. Noncash costs occur when factors
are owned. For example, if a farmer fully owns the land used to
produce corn, he/she would have no expenditure for land rental or
for loans to pay for the purchase of land. Yet, an economic cost
arises. By owning the land and using it to grow corn, the farmer
foregoes income from other uses of the land, such as renting it
to another producer. These costs come about because production resources
are limited and have alternative uses. If a farmer uses savings
to pay for operating inputs, such as seed, fertilizer, chemicals,
and fuel, and thus pays no interest on operating loans, the farmer
still incurs an economic cost because the savings could have earned
a return in another use. Likewise, the farmer has an opportunity
cost of his/her labor used in the production of the commodity because
it could have been used on another farm or in off-farm employment.
The cost and return accounts were categorized into cash and economic costs for all commodities from 1975 to 1994. Beginning in 1995, the accounts were revised to conform with methods recommended by the American Agricultural Economics Association Task
Force on Commodity Costs and Returns. The Task force recommended that the cost and return account be divided into operating costs and allocated overhead costs. When a commodity was subsequently surveyed after 1995, this format has been used in the accounts (table
of comparison between methods).
Regions
Beginning in 1995, the cost and return accounts have been reported
using ERS
Farm Resource Regions. This regional definition provides
a consistent delineation across all of the commodities and attempts
to classify
farms into homogeneous resource and farm-type regions. Commodity
accounts are reported only in the regions where enough survey
observations
are available to make a statistically reliable estimate. Some modifications
are made to the regional delineation for situations where the
production
practices in different areas of a region differ to the extent that
separate regions are warranted.
Prior to 1995, State boundaries were used to delineate regions
for most commodities. States were grouped according to those with
similar
production practice and resource characteristics. Cost and return
accounts for commodities reported under the old format still use
these regional definitions.
Estimating Costs and Returns
Methods recommended by the American Agricultural Economics Association
Task Force on Commodity Costs and Returns have been used to estimate
the costs and returns of commodities surveyed in 1995 or later.
Specifics of the recommendations can be found in the published Commodity
Costs and Return Estimation Handbook. The following is an overview
of the estimation methods.
The gross value of crop production is calculated by valuing the
survey crop yields by State-average harvest-month crop prices
in
each year. The gross value of livestock production is the cash
receipts received from the sales of feeder animals, market animals,
and milk.
The value of secondary products such as wheat and oat straw, cottonseed,
cull animals, and manure, are also included for both crop and
livestock
commodities. Secondary products are also valued using survey production
levels and State-average prices, or actual cash receipts for
some
products.
Four basic approaches are used to estimate the commodity costs:
direct costing, valuing input quantities, indirect costing, and
allocating whole-farm expenses. The choice among approaches used
to estimate particular cost items is mainly driven by the ability
of farmers to report commodity specific costs for that item. For
example, most farmers can report the cost of seed purchased for
a commodity, but cannot report the fuel cost for a commodity because
fuel is typically used to produce several commodities on the same
farm.
Approaches used to estimate commodity
costs |
|
|
|
|
Crop commodities |
Purchased seed |
Homegrown seed |
Fuel, lube, & electric |
General farm overhead |
Fertilizer |
Manure |
Repairs |
Taxes and insurance |
Chemicals |
Unpaid labor |
Capital recovery |
|
Custom operations |
Land |
|
|
Hired labor |
Operating interest |
|
|
Purchased water |
Ginning |
|
|
Livestock commodities |
Purchased feed |
Homegrown feed |
Capital recovery |
General farm overhead |
Feeder animals |
Grazed feed |
|
Taxes and insurance |
Vet & medicine |
Unpaid labor |
|
|
Bedding and litter |
Land |
|
|
Marketing |
Operating interest |
|
|
Custom services |
|
|
|
Fuel, lube & electric |
|
|
|
Repairs |
|
|
|
Direct costing involves
summarizing survey responses to questions about the amounts paid
for each input item. For items such as crop fertilizer and chemicals,
this is accomplished by asking the farmer how much per acre was
paid for the inputs used to produce the crop. For other items such
as livestock custom services and repairs, this is accomplished by
asking the farmer how much of the total farm expenditures for each
input were for production of the livestock commodity. Direct costing
is the preferred cost estimation procedure because it does not require
any assumptions about prices or quantities. However, it only works
well when the farmer has commodity specific records or can recall
the amount spent for the commodity.
Valuing input quantities
combines survey data on the physical quantities used in the production
process with secondary data on input prices. This approach is
particularly
useful in situations where farm produced or farmer owned inputs
are used and opportunity costs are the best means of determining
the input values. For example, the costs of homegrown seed and
homegrown feed are estimated by valuing the quantities of each
used by crop
prices. An estimate of the manure nutrient content is valued using
State nutrient prices. Unpaid labor hours are valued using
an estimate
of the wages earned off-farm by farm operators. Land is valued
according to the average cash rental rate for land producing
the commodity
in the particular area. Operating interest is an estimate of the
opportunity cost of the investment in the operating inputs during
the production period using the 6-month Treasury Bill interest
rate.
Indirect costing
uses a combination of survey information on production practices,
technical information on machine performance, and engineering
formulas
determined from machinery tests. This method is particularly useful
for estimating the costs associated with using farm machinery
and
equipment because these items are typically used to produce multiple
farm commodities and thus are not easily allocated to a single
commodity.
The method combines survey information on machine type, size, and
hours used with secondary information on fuel use rates, repair
rates, replacement costs, and years of expected life to drive engineering
formulas that compute annual machinery operating and ownership
costs.
These costs are computed for tractors, trucks, field machinery,
and the irrigation and drying equipment used in crop production,
as well as the housing, feed storage, and manure handling equipment
used in livestock production. The capital recovery method for
estimating
asset ownership costs replaced the previous capital replacement
and nonland capital estimates, per the Task Force recommendations.
State machinery replacement prices are used in the capital recovery
and repair cost estimates, while State fuel prices are used
to estimate
the cost of fuels used. An estimate of the long-run rate of return
to farm assets out of current income (10-year moving average)
is
used as the interest rate in the capital recovery estimate.
Allocating whole-farm
expenses takes survey responses to whole-farm expense items
and allocates them to a commodity according to some allocation scheme.
This method is particularly useful for estimating items whose cost
cannot be directly attributable to a single commodity, but where
all commodities must pay the cost. The allocation scheme used in
the cost and return accounts is a estimate of the share of total
farm operating margin (value of production less operating costs)
accounted for by the commodity. For example, if a commodity accounts
for 30 percent of the total farm operating margin, the commodity
is charged 30 percent of the overhead, taxes, and insurance costs.
General farm overhead costs include costs for farm supplies, marketing
containers, hand tools, power equipment, maintenance and repair
of farm buildings, farm utilities, and general business expenses.
Taxes include non-real estate property taxes and insurance is farm
property insurance, excluding crop insurance.
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