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Farm Economics 101: What “Subsidies” Really Mean · Conservation Stories

• 0:00
  Speaker A: Foreign.
• 0:08
  Speaker B: And welcome back again to another episode of Conservation Stories. Conservation Stories is a podcast brought to you by the Sand Hill Area Research Association. I'm Tillery Timmons Sims, your host. And I have with me today Andrew Wright.
• 0:22
  Speaker A: Yes.
• 0:23
  Speaker B: Andrew is at Tech Texas, Texas A M, AgriLife extension. Your agri life. Okay. Okay. All right. So I have been asking Todd, Dr. Bauman to. We want to talk about economics. I want to talk about economics and that kind of stuff. And so, so he sent you our way, so I should have known you were from Agri Life. Silly question. He's unfortunately not able to join us today. He's usually setting here with us and. But he's, I think, at the corn growers meeting today, something like that. So we miss him. Todd, you're missed. So, Andrew, give us a little bit of your background.
• 1:04
  Speaker A: Sure. I am from Lubbock, Texas. Yeah, My.
• 1:08
  Speaker B: Okay. Homegrown.
• 1:10
  Speaker A: Homegrown pretty much all my life, I think, you know, playing my, my grand, my granddad farm cotton up around Petersburg and Abernathy.
• 1:19
  Speaker B: Okay.
• 1:21
  Speaker A: Lived in Plainview. We've. My parents moved us slow like around five, when I was around five. And.
• 1:27
  Speaker B: Okay.
• 1:27
  Speaker A: I've been here since then. Went to school at Lubbock High.
• 1:32
  Speaker B: A couple kids are alumni from there.
• 1:34
  Speaker A: Awesome. Very good. Yeah, I graduated. When did they graduate?
• 1:37
  Speaker B: Oh, let's see. One graduated last year and the other one graduated like 20, 21.
• 1:46
  Speaker A: Okay. I was, I was, I was 2002. So a little bit, A little bit before then, but it was when I was in high school that I really, you know, took an economics class and loved it and kept doing it through college. Went to college at Truman State University, which is in Missouri.
• 2:00
  Speaker B: Okay.
• 2:01
  Speaker A: I went up there and swam for their team.
• 2:03
  Speaker B: Okay. Because Lubbock has a great swim team.
• 2:05
  Speaker A: Yes, absolutely. Part of that as well. Came back, did my, all of my graduate school at Texas Tech. Masters in economics, PhD in agricultural economics. Spent about 10 years teaching in San Angelo at Angelo State in their Department of Agriculture.
• 2:20
  Speaker B: My husband's alumni there. Oh, yeah. And that was a long time before you. You were there. Yeah.
• 2:29
  Speaker A: But then about, you know, four years ago, I guess the, the, the position opened up with AgriLife here in Lubbock for an ag economist. And this was coming home.
• 2:39
  Speaker B: And I remember because your predecessor left us and went to Washington, D.C. did you take his job? Justin? So, yeah, Justin Vitavits.
• 2:51
  Speaker A: He, he was stationed up in Amarillo.
• 2:53
  Speaker B: Oh, okay. Yes. Okay. Okay.
• 2:56
  Speaker A: And. And he took that job around Mark. I started In January of 20, I guess 23 and then he left March 23rd. He was just, he is, he is.
• 3:08
  Speaker B: Economist for this Senate Ag Committee.
• 3:12
  Speaker A: He was, he was the, the chief economist for the House act for the House.
• 3:15
  Speaker B: Okay.
• 3:16
  Speaker A: He's made a move to usda. He's USDA chief economist as of maybe a week ago.
• 3:22
  Speaker B: Wow.
• 3:23
  Speaker A: Yes.
• 3:23
  Speaker B: Congratulations. I gotta send him an email.
• 3:27
  Speaker A: Uh huh.
• 3:28
  Speaker B: Wow. That's what we. He's right here in our own backyard. Oh, that's so exciting. That's cool.
• 3:35
  Speaker A: Another local guy. I think he grew up maybe Tulia. So.
• 3:37
  Speaker B: Yeah. Oh my goodness, that's great news. Wow. I love that. That's awesome. Thanks for telling us that.
• 3:45
  Speaker A: Yeah.
• 3:46
  Speaker B: So the questions that I would have about economics are probably what you would teach a second grader because I'm not of the. Although I find it fascinating and that is absolutely what I would want to do, I think, because I think it makes, if it doesn't make sense economically, you know, and so many of the choices that people, farmers, that people want farmers to make, they don't understand the economics enough to really understand what, what's driving the choices that they make.
• 4:26
  Speaker A: Sure.
• 4:27
  Speaker B: And then there's some things that we have an interest in helping maybe like converting to grassland project that we're developing there and we want to have the economics piece. It has to be there.
• 4:39
  Speaker A: Right.
• 4:40
  Speaker B: We have to know, you know, and so kind of give us a little bit about your, like what exactly are you doing?
• 4:49
  Speaker A: Yeah.
• 4:50
  Speaker B: So a lot of our, some of our audience will be like people that you had yesterday at the water college. So farmers, producers that will have background and understand. But like we had a podcast recording earlier today. We were talking about the loan price, you know, and so I'm like, a lot of people don't, you know, those are, those are things that are kind of like if you're not really kind of in that ag world, commodities world, you not might not know. Right.
• 5:16
  Speaker A: And so I guess just kind of what I do and what I. Yeah.
• 5:19
  Speaker B: So yeah. So tell me, tell me, like what, what is a typical day look like for you? What are you, what are you reading?
• 5:28
  Speaker A: Yeah. So for me as an extension economist, a typical day around this time of year is going to be a lot more travel.
• 5:37
  Speaker B: Okay.
• 5:38
  Speaker A: I'm going to be out in the counties. This is around the time that a lot of our agri life agents in all the different counties, they're scheduling their, their meetings with producers and they bring in specialists like me as well as agronomists, entomologists, we science people, so on and so forth to really just give the producers a good overview of what we're seeing the challenges are or the challenges for what the challenges for the year are. And it's kind of our take and hopefully lend them some of our expertise on how to meet those challenges. And so that's maybe where I would go in and talk about what do I see developing in the markets.
• 6:22
  Speaker B: Okay.
• 6:23
  Speaker A: And maybe what that's going to imply about price. I wish I had a crystal ball to, to know exactly what the price of say, cotton was going to be next January or next December when, when the farmer's trying to sell.
• 6:36
  Speaker B: Right.
• 6:37
  Speaker A: I don't have that. I really, actually what I really wish I had was a button that could just get the, get the exact price we need so that a farmer could, could make money.
• 6:46
  Speaker B: But yeah, exactly.
• 6:47
  Speaker A: I haven't, Yeah, I haven't quite gotten that into that yet. So. But yeah, so, so around this time of year that, that's what I'm doing a lot of. And then I'm going to meetings like at the water college that you mentioned that was, that was kind of a fun one. I didn't have to, to, you know, prepare a, a big presentation or anything. I was just part of a panel. And so it's just really getting to talk and, and, and get asked questions and give an answer, which is sometimes scary.
• 7:14
  Speaker B: Yeah.
• 7:15
  Speaker A: But also fun because it's a little bit more, just a little bit more conversational.
• 7:19
  Speaker B: Right, true.
• 7:20
  Speaker A: Other times of the year, I might be working on taking, say, information or data coming out of our research out at the center. So we have people who are researching different cropping systems, different ways to say, maybe integrate, like I said, grass, grassland, livestock, forages into some of our systems. But like you said, at the end of the day, if a farmer is going to adopt it, it's got to, it's got to pay.
• 7:47
  Speaker B: It has economic. Yeah, well, and that's part of the reason why has kept us kind of in this cycle where we are now, because the only thing that pays in the last few years has been insurance.
• 7:58
  Speaker A: Yeah, it's been hard. It's been hard to.
• 8:00
  Speaker B: That's kept us alive.
• 8:01
  Speaker A: Profit.
• 8:02
  Speaker B: We wouldn't, we would not be here as an industry if we hadn't had that kind of.
• 8:06
  Speaker A: Yes, having, having that, having that safety net and yes, those risk tools have been, have been very, very useful.
• 8:13
  Speaker B: Yes.
• 8:14
  Speaker A: These last couple years.
• 8:15
  Speaker B: Exactly, exactly.
• 8:16
  Speaker A: So, you know, they'll, they'll do their, their, they'll get their data out of, out of their, their research and then they'll Give it to me and I'll start to, to build budgets around it and maybe do a little bit of, of analysis kind of on the long term risk. And so it's okay, you know, if you think about the saying a broken clock is right twice a day. Right, Right. Well, any cropping system is going to make money once, but you don't just want it to make money once. You want it to be something that more often than not is going to make money for the producer. And so that's where the risk analysis comes in and putting some probabilities. Okay, this is what we saw this year in 2025 or since, you know, they're getting data from last year. Here's what we saw in 2023, 24, 25. How often can we really expect to see that?
• 9:05
  Speaker B: So do you. So I personally have used the enterprise budgets. Good, like wonderful. A lot actually. In fact, I had a project where I was working on a grant with someone else and we were discussing how much would it cost to grow hemp and they were convinced it would be 250an acre. And I was convinced that that's what it would take to probably harvest, you know. And so I've actually used that, you know, more than once to, to build projects around and to help people. And then I've actually used them, recommended them to, you know, people that, asking those questions like why aren't farmers doing this or that? And I'm like, you know, go here, pick any one of those crops.
• 9:58
  Speaker A: Yep.
• 9:58
  Speaker B: You know, and, and that will help you understand the issues that we're facing.
• 10:06
  Speaker A: Yep, that's great. That's why those budgets are there for, for exactly what you're talking about to give people just a template or a pattern that they, they can look at to better understand, you know, for producer choices for a researcher, somebody writing grants, to get a really realistic look at what the economics are of some choices that they're trying to look at.
• 10:25
  Speaker B: And you don't have to be an Excel expert. I mean, like anybody can pull those up. And what I think they're great for is, you know, maybe farmers that just aren't, they don't really like computers, you know, or don't really want to spend time, you know, in the weeds about stuff, you know what I mean? And so those are just a plug and play. They're really great.
• 10:47
  Speaker A: Yep. So have you used the budgets that are on our, the Agri Life, the Extension Economics website, or have you gone to our South Plains profit website? Oh, do you know about.
• 10:58
  Speaker B: No, I do not so it's been.
• 11:00
  Speaker A: Around for, for a long time I don't think. So that's one of our best kept secret@south plainsprofit.com Tamu. Edu.
• 11:07
  Speaker B: Yeah, no, I've not been there.
• 11:09
  Speaker A: And, and so we have two things on that website. This, it was. It's part of a project that's been funded by Cotton Incorporated through their state support program.
• 11:17
  Speaker B: Yeah.
• 11:19
  Speaker A: A long time at least like 20 or 30 years probably. And so we have on that, on that website is a calculator that's really focused help producers look at kind of calculate what, what the PLC price loss coverage. This is one of the Title 1 programs. What some of the payments are going to be for different crops. But really the marquee thing on that website is probably our. We take all of our extension budgets and we put them into an Excel format where you can change numbers and so when you look at like the District 2 irrigated cotton budget. For irrigated cotton budget.
• 11:57
  Speaker B: Okay, I have seen that. Okay so maybe I have been on this page because that's what I've used.
• 12:02
  Speaker A: Okay. So the Excel, the spreadsheet.
• 12:03
  Speaker B: Yes.
• 12:04
  Speaker A: Yeah. Okay.
• 12:05
  Speaker B: So yes, that's what I have used and they're phenomenal.
• 12:08
  Speaker A: Yep.
• 12:08
  Speaker B: And so, but I didn't realize. So I, I know that I'm going to visit with a fellow in the next couple of weeks that has created a new tool for some machine using machine learning to make decisions on crop insurance which can get pretty complicated and I heard the update yesterday on crop insurance and left cross eyed because it is confusing.
• 12:37
  Speaker A: It's a lot.
• 12:37
  Speaker B: Yes, a lot. It is a lot. Yeah. So all kinds of different options. But I do think that probably they mentioned yesterday that there were going to be some harvest incentives connected. Do you know anything about this?
• 12:54
  Speaker A: I. If, if, if what? If what you're talking about is what I think you're talking about. There's a, there's some, a couple groups that are working on a pilot program. So it's not, it, it's not out yet. There's nothing there yet.
• 13:07
  Speaker B: Okay.
• 13:07
  Speaker A: But I, I think there are a couple groups that are working on maybe a pilot program that could be added in my offer. Yeah. A little bit more, more protection on the harvest side but right now there's nothing.
• 13:22
  Speaker B: Okay.
• 13:23
  Speaker A: Yeah, that's not.
• 13:23
  Speaker B: Yeah. Okay.
• 13:24
  Speaker A: Not a thing that you can sign up for right now.
• 13:26
  Speaker B: Yeah. Interesting. So. So tell us the. For those who aren't necessarily involved in agriculture, What percentage of the budget are inputs like things that I have to Go and buy. That will help my crop grow. Like, are they, we talk about it, that they're increasing. The cost is ever increasing.
• 13:57
  Speaker A: Costs have been going up and, and part of that is general inflation. Like you and I have seen the grocery store. Some of that is related to different, different things going on around the world. Fertilizer is probably the, the input that has gone up the most. And that is a, it's really hard to, to untangle exactly what's causing it. It's not just any one thing. We use a lot of nitrogen fertilizer, for example, which, which relies on or is a kind of a byproduct of, of or connected to natural gas markets. And so when natural gas prices are higher, generally natural fertilizer prices tend to get higher as well. And so I think that that's, that's probably the, the, you know, the thing in the budget that's, that's gone up this year relative to last year. Probably the, the for. For irrigated crops, probably your, your four biggest expenses are going to be seed, fertilizer, chemicals, and then fuel because. Or fuel. Fuel. Slash energy. Because.
• 15:16
  Speaker B: Yes, energy for your pivots.
• 15:18
  Speaker A: Yeah, you gotta run, run the pivot.
• 15:19
  Speaker B: Yeah, yeah, yeah. So I, I heard and I didn't, this is a rumor I heard, but that like drip cotton was one of the more profitable choices that you could have made this last year was kind of the prediction. I don't know. So how do you, how do you go about deciding, like, okay, here's what we think, or, or like, because I look at those sometimes I look at them and go, okay, oh, heavens, everything's red on that last line. Oh, here's, here's one where things are black.
• 15:58
  Speaker A: Right, Right. So, yeah, drip cotton or drip irrigated cotton is probably one of the more. Or one of the more profitable things in the budget. It's the challenge is that your irrigation system, it's a very large investment. So it's not something that you can just say, oh, this year I'm gonna do drip, and next year I'll do pivots a little bit better. Right. And so, yeah, if you have a drip system, you make money. If you don't, if you, if you don't have that, then that's not really going to be a realistic option. So that's, it's not just about when we, when you look at those budgets, it's not just about looking and seeing like, what's, which one has the biggest return. You also have to think in terms of, of, you know, what's, what's feasible? What do I have the equipment for? And, and, and ask, Ask some of those questions as well.
• 16:53
  Speaker B: Yeah, yeah. It's amazing to me just how complex it is. So I, I am not the. I'm this. I'm the one who spins in our house. My husband is not the one who spins, and he's the one who keeps such meticulous books that when we were farming, a banker said to me one time, Doug had gotten up to walk out, and I was like. He said, do you have. He keeps, like, his records I've never seen. And I was like, oh, I know. He's up to like three in the morning, like, always keeping books. And he was like, no, he. He, like, knows how much fuel his pickup uses to go to each field and how much fuel each pickup that his hand uses to go to. That's good. It's like, yeah. Except that makes you, like, go, okay, I think it's time to quit. You know where you. You know where you stand, which can be kind of scary. Might not be the most encouraging news. And I think that goes to one of the things I wanted to talk to you about too, is like, what. What brings people to the point of I can't go on anymore is that your. The things that you have that you use as collateral to get your operating money every year, which could be like, when we were going out of farming 2003, it was about 750,000. That was. That was a long time ago too, so I'm sure it's well surpassed that now. And that was about two. I can't remember, about maybe 2,500 acres. So, you know, pretty average size around here, even maybe on the smaller side now. Yeah. So, I mean, you. And then you cross your fingers that you spend this money on their inputs and that at the end of the day, when you harvest that, the price is high enough.
• 18:59
  Speaker A: Well. And that is going to rain over the summer and it's not going to hail and.
• 19:03
  Speaker B: Exactly, exactly. And that. But if you can't pay that off, your net worth, like, what you have, right. What you own becomes less and less and less value. And, and that's what. That's that slow downward cycle of eventually, I can't go on anymore. And I know that there are, you know, people that I know that are in that position this year and friends that are bankers that are having to figure out, how do we help our customers?
• 19:40
  Speaker A: Yeah.
• 19:41
  Speaker B: How do we help our customers?
• 19:42
  Speaker A: Yeah.
• 19:44
  Speaker B: So if you could weigh the magic wand of policy, like, how Much of the situation that we're in. And this is, this is like our fifth podcast to record today. So this is then in three previous podcasts that has come up. So we were talking about the American agriculture movement that was this, the farmer strikes in the 70s and 80s where we were, we overproduced and price. The loan price, the guaranteed price was low and it was, they say, 40% of what it cost you to grow it. So how much of that is driven by. I mean, I know it's complicated, but how much of the situation we're in right now do you think is related to overproduction? Do you think we're. Because I. So I'm a big fan of Damien Mason. I don't know if you know Davey Mason, business of agriculture, but this is something. He's an ag economist that he thinks is really driving a lot of that. We have too much. We're producing. We don't need to be producing as much as we are producing.
• 21:06
  Speaker A: Okay. I suppose an argument could be made for that. I don't know. I've never really thought about, about prices and where they are in terms of overproduction.
• 21:22
  Speaker B: Yeah.
• 21:23
  Speaker A: And, and we, I think we have to remember that a lot of our, of the commodity prices that, that for these crops are. Well, they're global prices. These are goods that are produced everywhere. You know, for cotton, you know, the United States, I think, is the fourth largest producer behind, I think, Brazil, India, China. And so because of, you know, because of that, If we were, you know, if the United States were to cut back and produce less, there's some markets that it might have an impact on the price and bring the prices up. I don't know how much it would. I honestly don't know how much an impact it would have. And, and, you know, at the end of the day, I think we, you know, our producers. Our producers are going to follow market signals. I think, you know, you could make an argument that maybe some of our policies and I, I don't, you know, you again, you could. I don't know that I would make this argument.
• 22:40
  Speaker B: Right. Yeah.
• 22:42
  Speaker A: Might incentivize more production than we would have if, if we, you know, if we didn't have it. But.
• 22:47
  Speaker B: Yeah.
• 22:48
  Speaker A: How much more or if it, if it'd be any more at all? I, I really don't, I don't know.
• 22:52
  Speaker B: Yeah.
• 22:52
  Speaker A: I don't know about that.
• 22:56
  Speaker B: Well, it's an interesting. I, I think that it's a, I guess what you mentioned, I mean, we're really, we're on, we Have a global competition is what we have. And just like all the other manufacturing that has left here and, and gone somewhere else because it's cheaper. It's the same with agriculture. And maybe it's not necessarily cheaper, but there's more support, like in the eu, you know, there's better subsidies, better support for them than there is for farmers in this area or in the United States, you know, and so when you're competing on a global scale, you really would like to have. In a level playing field.
• 23:42
  Speaker A: Sure, absolutely. Which is that. That's a. As much a political.
• 23:49
  Speaker B: It is. It's hard. Yeah.
• 23:50
  Speaker A: And very difficult.
• 23:51
  Speaker B: Yeah. But it's. Food security is national security. I argue, I've argued for a little while. I think that this, the insurance and the things that we have that are keeping farmers on the farm should be out of the defense budget because we have to have food, we have to have the things that we are growing, you know, And Tom, I know Tom Sells said yesterday it was like 80% of all, everything that we grow is Grown by like 230something farmers. 230something thousand farmers. Well, it wouldn't. I mean, you lose half of those, you know, again. Do you know what I'm saying, though? Like, it'd be nice.
• 24:41
  Speaker A: Yeah, I don't know. I'd have to think about that. I think that. I think that when we start to talk about making big policy changes like that, I think that the thing to remember is that is to be careful of the unintended consequences.
• 24:57
  Speaker B: Very true.
• 24:58
  Speaker A: And I don't know. The unintended consequences.
• 25:01
  Speaker B: No, that's such a good point. Yeah.
• 25:03
  Speaker A: And that, you know, that's probably the. One of the, One of the things that I hope good economists point out more than anything is.
• 25:10
  Speaker B: Yeah.
• 25:11
  Speaker A: You know, it's easy to focus on what you see, but there's so much out there around the issue that you don't see so many different linkages and incentives that you end up changing in ways that you don't predict. So we need to. So I think we have to be very, very careful about making big sweeping changes or arguments like that.
• 25:35
  Speaker B: So what you're saying is the problem is complex, so the solution will not be simple.
• 25:43
  Speaker A: Correct.
• 25:44
  Speaker B: And I guess it's true. I mean, I think about. When I think about what it takes to be. This is probably why God knew I should not be an economist is because you really have to look at like the tiny everything, all the things, not just the big things that make the headlines.
• 26:03
  Speaker A: Well, and there are a lot of variables to all of these different questions, I sat in, I went to the Beltwide Cotton Conferences a couple of weeks ago and participated in their economic section. And one of the questions that came up was, how much have tariff policies over the last year? How much has that impacted agriculture? And, and, and, you know, if you, if you talk to an economist, they'll say, oh, tariffs, they're, they're terrible. They're going to reduce demand. But then you look at, like, global consumption and, and what we've actually sold over time, and it really hasn't been impacted. Well, a lot of, as an economist, you know, a lot of our different cause and effect relationships that we talk about and we like to highlight, they're based on an assumption we call ceteris paribus, all things equal. In other words, nothing else changes. But everything's always, always changing, always changing. And.
• 26:57
  Speaker B: Right.
• 26:58
  Speaker A: And, and so it's, it's, it's looking at, and saying, you know, if, if we did A, we caused B. Well, yeah, except that maybe C and D changes and that. And that blows up that entire.
• 27:10
  Speaker B: Well, that is a logical fallacy that just because A comes before B does not mean that A caused B. That is a logical fallacy. So. But it's so easy to think that, though.
• 27:21
  Speaker A: It is. Yeah. We like, we like, simple.
• 27:24
  Speaker B: Absolutely. Let's just make this one policy change. It'll fix it all.
• 27:28
  Speaker A: Like you said, let's just find that magic wand. And yes, the reality is there's not. And so, you know, going back to the question of, you know, is it an oversupply problem or this or that? I'm never going to tell a farmer to stop farming. That. That's for sure. It's, it's a, it's a way of life and.
• 27:49
  Speaker B: Oh, absolutely. Yeah, it is a. Yep, it is. And it's the backbone of our culture and the backbone of, of our economy.
• 27:58
  Speaker A: You know, it's more than, you know, it's more than just a job. Like I said, like, oh, yeah, my granddad. I know it's a, it's family, it's tradition.
• 28:08
  Speaker B: Yes, we went through, we went through bankruptcy in about 2007, and it's so hard to be like, you don't even know anybody as far back as the generations go, that, you know of that have done anything else, and you were the one who blew it.
• 28:28
  Speaker A: And that. And that is a, that is a challenge. I mean, from a, from just a mental health standpoint and everything else.
• 28:38
  Speaker B: It is. But I will say we. My husband and I did a podcast Going through, like, you know, discussing breaking down what it was like to go through that time, because there is. It's amazing. Like, it's terrible. Wouldn't wish it on anyone, but it definitely was something that eventually was good for our family.
• 28:58
  Speaker A: Yeah.
• 28:58
  Speaker B: You know, and so it's hard to believe that, that something on the other side of something that you are so to the core of your being and the, the whole of your identity is attached to that, you can actually sever yourself from that and, you know, and still be okay. Still be okay. People. People will be okay.
• 29:25
  Speaker A: Sure.
• 29:26
  Speaker B: Yep. They will be. But I do worry about our region and I hear people say starting in the 90s, people were like, we have 50 years of water left, and now here we have 20. So we're right on target, hitting that goal. And so we always like to think about how can we hit that brick wall going 30 miles an hour and not maybe a hundred.
• 29:49
  Speaker A: Yes.
• 29:49
  Speaker B: Yeah. So any. Have you. Are you looking that far in the future and thinking about those things?
• 29:56
  Speaker A: Oh, absolutely. So we. There is a program that's operated out of USDA called the Oglala Aquifer Program. And so. And that is. That's researchers out of AgriLife, Texas Tech, West Texas A and M, Kansas State, just. And we're looking and asking that question, how can we develop the technology? How can we develop new cropping systems? How can, you know, what, what can we do in order to use the water that we have sustainably? You know, we know it's. We know the only way that we're going to save it forever is if we never use it. So how do we use it in the best way possible? And then with Agri Life, we're doing a lot of work in looking at different cropping systems that, or trying to find different cropping systems, different ways of, of. Of growing the, the crops that we, that we produce out here in ways that, that as water becomes less available, are still going to help, are still going to be profitable for the, for the producer. So that we're kind of. We're looking at it from both directions. One, okay, how do we, how do we. How do we make that transition? Or when that time comes, when we hit that brick wall, how do we keep going? And then, you know, how do we maybe push that brick wall back a little bit for.
• 31:17
  Speaker B: Exactly. I think it's. And I think it's important for companies to know that one of the retail brands did risk risk assessment and we were like number two for their cotton. So supply chain, you know, and that makes people nervous because, I mean, I think that this is one of the best areas where you can get, legitimately get organic cotton that you might not have to worry about fraud.
• 31:49
  Speaker A: Right, right.
• 31:50
  Speaker B: And because we don't really have to, we don't have as much bug pest as other places when it doesn't rain. You don't, they don't really like to live here in the desert. So we use a lot less. Oh, chemicals. Yes. Huh. Yeah. So, so I think there is, you know, some, some nervousness there and what can we do and how can we help support, you know, and ensure that we have, you know, a longer access. But also, wait, we can't, you know, just turn off an economic, the basis of our economic system here, you know, and, and then say you're like, well, we were out of water, so we, we can't grow cotton in five, six, seven counties. And then seven or eight years later the water comes back up and what's happened to the infrastructure? We're not going, oh, now we could grow cotton again, but we've lost all of our gins. This is such a complicated issue and it's going to take a lot of coordinated efforts like you guys looking into the future.
• 33:01
  Speaker A: Yep.
• 33:02
  Speaker B: Into a very murky crystal ball.
• 33:03
  Speaker A: Into a very, very, very, yes. So, but we are, I mean we're, we're doing that work and, and that part of my job is, is getting that information out and hopefully providing farmers the information they need to make decisions. Ultimately. Talking to my, talking again back to my grandfather, I have some old letters and things that, of his that he wrote and his comment was where, you know, his, he believed that, that it was the farmers who were going to make the, ultimately make the conservation choices. And, and that they would, because those choices would be good for them in the long term. And so it's providing, hopefully providing enough good information that we get optimal decisions.
• 33:50
  Speaker B: Right? Yeah, exactly. Well, we talk a lot about triple bottom line economics. And I, I, this is what got me interested in economics. Okay. Because I have a friend who said, who in the world knows what sustainability means?
• 34:08
  Speaker A: Yeah.
• 34:09
  Speaker B: And I was like, murky definition. Why don't we know what that means? Where did that come from? Where did that word come from? And so that's where I kind of was like, where did this word start? And that's where I heard triple bottom line economics, which is in short version, people, planet, profits, impacting the positive impact of those three things. The overlap of that is sustainability, you know, so, because it might be great for the environment, but if it makes a farmer go broke, you've just lost this steward of the environment. And so there's so many things to, to consider and to take into, but you might be doing something that is terrible for the environment. And eventually we, we are definitely moving more and more in this direction. Like, the pressure will be there to stop this.
• 35:05
  Speaker A: Yes.
• 35:06
  Speaker B: People want clean water. And more and more people are watching everything you do.
• 35:12
  Speaker A: Yes.
• 35:13
  Speaker B: And they're putting it on Twitter and all the things. So to me, that, that is such a more holistic way of looking at choices that we make. And when we talk about asking people to steward in certain ways or have expectations for people, it gives you the language to say, yes, but what about happens, what happens to that? Because I at one point was in the hemp world and. Which is a very dirty, nasty place to be. But the. I had a lady was like, what is hemp to you? I was like, a potential crop. She's like, no, but to you personally. And I was like, I don't have any personal connection to this and it's just a potential crop. And she was like, it is cannabis sativa. It will save the world. And I said, well, if it makes a farmer go broke, not everyone's been saved. So tell us what you told people yesterday. What's the general outlook? What are you saying at these meetings?
• 36:33
  Speaker A: Right, so this early in the year, I, you know, it's hard to, there's still a lot that's up in the air. And so I talk a little bit about, you know, what, what are, what are my questions and what are the things that I'm going to be looking at as the, as, as the season progresses and as we get into planting, that's going to help, help me get an idea about maybe what's going to happen right now. I think the big question on, on a lot of people's mind is going to be, you know, what, what are we going to plant? How much are we going to plant? And so across the nation especially, you know, if you're, if you're in the Midwest and you're a grain farmer, you're looking at maybe you're choices of, of maybe corn versus soybeans versus trying to. Those are probably the.
• 37:23
  Speaker B: That's probably it.
• 37:25
  Speaker A: You know, if you're in the Southeast, you might have a choice in some places you might have. Be able to throw maybe rice or, or peanuts into that, maybe cotton. And, and so it's a lot of looking at, okay, what are the, what are the, the price signals right now? And what are they telling producers to plant? And, and that, that, you know, obviously prices are going to go, go up and down anytime. What I can say right now is that it looks like we're in a really similar place with a lot of these commodity prices this year compared to where we were last year. I think soybeans are a little bit higher prices a little bit higher. Corn might be a little bit lower. Cotton might be maybe half a cent lower. Not, not a whole lot difference.
• 38:08
  Speaker B: Yeah.
• 38:08
  Speaker A: So, so in terms of, of some of those different relative prices that you're looking at, I think that a lot of producers are seeing fairly similar economic incentives or price signals to tell, tell them what to plant. So I don't know, it's hard to, to say that we're going to see a lot more or a lot less planted of, of any crop. I think we might see a little bit more soybeans and a little less corn. And I mean, last year we planted, I think, about 7 or 8 million more acres of corn than ever before. So I would, I would, I would naturally expect that to, to pull back just to kind of progress more to the average.
• 38:56
  Speaker B: So is, so does that have to do with biofuels? Do biofuel subsidies go to soy and corn? Are they commodity specific?
• 39:09
  Speaker A: I think so. I think that the, the biofuel subsidy goes to the biofuel. Right.
• 39:17
  Speaker B: And so it doesn't matter what the feedstock is, right?
• 39:20
  Speaker A: No, you know, where it matters what the feedstock is, is what are you trying to know? You know, normally if it's, if you're talking ethanol, that's gonna be a corn product, if you're talking soy, that's probably going to be more of a biodiesel of some sort.
• 39:33
  Speaker B: Okay. Okay.
• 39:35
  Speaker A: And I don't, you know, those are out there, but I don't know if they're changing. Like the, the subsidies themselves, as far as I know, haven't changed all that much. So there's, there's not really.
• 39:45
  Speaker B: And the farmer's not necessarily getting the subsidy. Not, not, not directly, but directly.
• 39:51
  Speaker A: Yeah, but you know, if it increases.
• 39:52
  Speaker B: The market demand, right?
• 39:53
  Speaker A: Well, yeah, so, yeah, if an ethanol plant can, can produce ethanol more cheaply because of the subsidy, then they're going to want to buy more corn and that's going to.
• 40:01
  Speaker B: Right, exactly.
• 40:02
  Speaker A: That's how that money gets into the producer's pocket.
• 40:05
  Speaker B: Yeah, yeah.
• 40:08
  Speaker A: So the, yeah, that's going to have an indirect impact, really. I mean, what we're looking and really the question that we're trying to ask and figure out every year is as we, as we get past, past harvest and we start to actually use this year's crop, how much are we going to have and how much are we going to want to use? That's supply and demand.
• 40:28
  Speaker B: And that's. And it's hard to like, as a producer. Like, it'd be nice to know how many acres of, does Brazil have planted of corn and how many acres of soy. What's the projections? And we might have some of that information.
• 40:47
  Speaker A: So, and, and that is where USDA comes in. They, they, they, they publish monthly their world agricultural supply and demand estimates. We call it the wasde. And that pretty well takes in all of that information that the Foreign Ag Service is collecting and what they're getting out of other nations.
• 41:05
  Speaker B: And the Foreign Ag Service.
• 41:07
  Speaker A: A good idea. Yeah.
• 41:08
  Speaker B: Is those, those are people that are there on the ground.
• 41:11
  Speaker A: I believe so, yes.
• 41:12
  Speaker B: Yeah. So they're representing certain commodities and some of them, they're living in these different places as well. And so I know we had, when I was in with Tall in Brussels, we did a couple of days education on the eu and Foreign Ag Service was there and came and helped, you know, give us an understanding of what they're doing there, you know. And so there we have people really on the ground all over, trying to collect this data on behalf of farmers. So, okay, this could be like a long topic, but. But I'm not going to make it long.
• 41:46
  Speaker A: Okay.
• 41:47
  Speaker B: I would like for you to give a little economics overview of what are subsidies to farmers. Like, what exactly is that as a farmer? Every year, for every acre of cotton I grow, I am going to get a check from the government. That is because that's what people think when they think of what farmers are getting, they are thinking they're getting paid. And regardless of, they're always going to get paid. And so we have this big farm bill. And this farm, Farm bill is like giving billions and billions of dollars in subsidies to farmers. So kind of approach that in a.
• 42:39
  Speaker A: For, for some folks, I mean. So there are. So the largest part of the Farm Bill that provides support to producers is going to be tight. The title one, the farm bill is, it has, I think, 12 different titles.
• 42:54
  Speaker B: Which is basically chapters.
• 42:56
  Speaker A: Chapters. Right. And they, they each focus on something different. So there's one that's related to crop insurance, and there's one that's related to international trade. There's one that's related to conservation. So title one of the Farm Bill is focused on risk management. And so primarily when people are thinking about subsidies. Those are really not subsidies. Those are risk management programs. They are designed to provide essentially sort of safety net for farmers. The two main programs are going, are called the price Loss Coverage PLC and what's it called the ARC Area Risk coverage.
• 43:41
  Speaker B: Okay.
• 43:43
  Speaker A: And they both approach risk two different ways. PLC is what we call a deep loss program. And so it's designed to protect against really, really large losses called caused by a, A, a big drop in price.
• 43:57
  Speaker B: Okay.
• 43:58
  Speaker A: And and so for every single covered commodity there is a, A, A, A statutory so bylaw defined reference price for.
• 44:07
  Speaker B: That crop which can be a problem when they don't update that.
• 44:10
  Speaker A: Right.
• 44:11
  Speaker B: Which often they just did.
• 44:12
  Speaker A: They just stood in the one big beautiful act.
• 44:15
  Speaker B: Yes.
• 44:16
  Speaker A: And so for example for, for, for cotton I think it seed seed cotton which is kind of a, an average of your cotton seed and your, your cotton lint price, it went from 36 cents roughly to 42 cents. So which is a, a pretty, pretty significant increase. But what that says is, is if, if the, if the market price, the, the year, the, the market year average crops are sold or at least considered on a marketing year, which for a lot of our crops starts sometime around say July or August, September somewhere in there and goes through the year. If the average price over that time is below that reference price, the, the farmer gets paid the difference. And so this is not a program that's designed to help somebody like make money. It's just to because to shore up to make sure they're making at least some bottom line.
• 45:10
  Speaker B: So for reference cover costs, what, what does the price need to be to break even like for this next year, what do you estimate?
• 45:21
  Speaker A: So so in our budgets and in you know again our planning budgets which are very, very broad based for a 20 county area.
• 45:30
  Speaker B: Right.
• 45:31
  Speaker A: I think that, that they're going to tell you to break even on your operating costs. Trying to think not you know, probably a price depending on, on how much water you use, how much fertilizer, you know, how, what your fertilizer plans are things like that for cotton maybe high high 50s, low 60s just to break even. But then you have your, your fixed costs, your, your overhead costs and, and.
• 46:00
  Speaker B: Once you attractor payment, your land payment.
• 46:02
  Speaker A: Mid mid to high high $0.70. And right now if we're looking at the, the December contract which is what a lot of our risk management programs are based on in the futures market, it's, it's sitting. I haven't looked at it today but it's been sitting right around the 67 to 69 cent range for a while and you know for the. For the 25 at the end of 25 season it was sitting more 63. But again that's a futures price, you know.
• 46:29
  Speaker B: Right.
• 46:30
  Speaker A: Probably are the cash price that a farmer around here is going to get will be anywhere from 5 to 10.
• 46:35
  Speaker B: Cents below below that. So so. So then taking that back to that that price that's in the one big beautiful bill. Right. Which even though it's like a big jump.
• 46:49
  Speaker A: Right.
• 46:49
  Speaker B: They still have to be. It has to be below. Yes that before it triggers any any help.
• 46:59
  Speaker A: You know at 30 you know it probably and so it's probably it with the increase in in the reference price it's more likely to trigger with where cottonseed prices are right now. You would probably start to get a payment somewhere with with the market year average price below. I'm just gonna. I'm gonna have to I don't know this for example.
• 47:27
  Speaker B: Yeah.
• 47:27
  Speaker A: I would guess mid-70s somewhere but again it's only going to make up the difference difference that hopefully that break even range.
• 47:37
  Speaker B: Yeah. So that's really what it's about. It's about breaking even. Yeah.
• 47:41
  Speaker A: So now another program for along with PLC is is the the area Risk Coverage Program. It's it's more designed like an insurance program where it says you know we're gonna we're gonna protect a certain percentage of your revenue. It's more of a shallow loss. So at the top end and I'm not going to to get into the math of how those things.
• 48:05
  Speaker B: Yeah. That's yeah.
• 48:07
  Speaker A: But with so so it's it's a different program and you have to choose which one you want to be in. Do you go. Do you go the area revenue coverage. Do you go the the price loss coverage? This last year they did give producers the, the high the. The one that paid the higher of the two because they made all those changes.
• 48:26
  Speaker B: Yeah.
• 48:26
  Speaker A: After all of those the deadline to make those decisions were made.
• 48:30
  Speaker B: Right. Yeah.
• 48:31
  Speaker A: That's probably like a one one time thing.
• 48:33
  Speaker B: Right.
• 48:33
  Speaker A: That to happen again kind of deal.
• 48:35
  Speaker B: Yeah.
• 48:36
  Speaker A: And then that's gonna gonna feed into all that's also could be impacted to an extent by by what you you choose to do on the insurance side. So that's the other probably big. If we think about quote unquote subsidies maybe what people are thinking about.
• 48:52
  Speaker B: Right.
• 48:52
  Speaker A: I mean crop insurance doesn't work really any differently than than say health or car insurance. If I yes were to pull out if I were to pull out on the 34th street right. And get into a wreck. My insurance would pay to, to cover the value of my car.
• 49:08
  Speaker B: The value of your car. Right.
• 49:11
  Speaker A: Probably. And depending on how they assess that, I guess, I guess I could get really lucky and they could look at my little Nissan Sentra and say it's worth $50,000 and, and then I make money. But that's probably not gonna. Going to be what happens. Right, right. So crop, you know, revenue, crop insurance works the same way. It says that in a normal year, on average, you, you might make say $400 in revenue or a thousand dollars in revenue. And we're gonna cover 60% of that. We're going to protect 60% of that. And then there are different endorsements and add ons to that you can do to, to enhance that. Yeah, but again, you're not necessarily quote unquote, making money. You're protecting the revenue that you expect to earn because you're, you're making decisions right now based on, you know, on what you're going to plant and then you really don't know what's right. What's going to happen. Are you going to get the rain that you need or is it going to get hailed out? What's the price going to look like? Is anybody going to be buying?
• 50:04
  Speaker B: Right. And the, in the subsidy part of this comes in because what the government does is, helps to take some of the, they help cover some of your, your cost. And so what am I trying to say, not the deductible, but your premium.
• 50:22
  Speaker A: Premium.
• 50:22
  Speaker B: Thank you. Yes. Right.
• 50:23
  Speaker A: On the crop insurance.
• 50:24
  Speaker B: Right. Because imagine wanting to cover a crop. Yeah, yeah.
• 50:31
  Speaker A: That's a, that's a lot of, well, and the thing with, with the risk of that, it's. So, you know, when you think about insurance, the insurance works when say you have 100 people who are paying a premium in and one person has to pull out but, or has to, you know, get a payment. But when you're talking about some, you know, an area of farmers. Well, most likely if, if one, you know, you're gonna, you're gonna see some different differences from field to field, but.
• 50:57
  Speaker B: It'S like getting hail in one neighborhood.
• 50:59
  Speaker A: Right.
• 50:59
  Speaker B: You know, pretty much everybody's groups are going to have to be replaced.
• 51:02
  Speaker A: If one person is getting hit by drought, probably just about everybody in the area is getting hit by that exact.
• 51:08
  Speaker B: Right. And I think, I think one.
• 51:10
  Speaker A: Everybody has to pay at the same time.
• 51:11
  Speaker B: Yes. So that, but one of the things I think for people to think about is that people sometimes we've said this is the way to keep the cost of food down. I think when more for people to think in terms of. Because our economy is driven by agriculture here like that. It's really part of food security for them too. And not just that, but economic security in regions where we're so dependent on these ag systems.
• 51:46
  Speaker A: Sure. Yeah.
• 51:47
  Speaker B: Yeah. So it's not. And that's why I think sometimes too, like, it's important for us to, you know, when you're talking about water people, 60% of all of our water goes for ag. Well, who's using ag? Who's ag? Is it the farmer? Is it also the consumer who is consuming the goods and the food that are coming from this water? You know, so it's. I think we should have a term other than ag. It's more than ag. You know what I mean? It's water use for. Yeah, you know, you know what I mean? How are we going to live without that? You know? So anyway, I have a lot of crazy ideas, so thanks, Andrew. It's been great. I really appreciate it. I don't have a lot of enough knowledge to feel like I can ask really good questions, but I'm really curious about just, you know, the gathering of all that data and, and, and, yeah, yeah. Like gathering all that together and then figuring out, I guess with. Are you using machine learning now for some of this?
• 53:01
  Speaker A: Not me personally, I know that, that there are people who, who do that.
• 53:04
  Speaker B: Who do that. Yeah.
• 53:05
  Speaker A: You know, a lot of, A lot of the, the data that, that we. That I rely on is going, is coming out of different parts of usda.
• 53:15
  Speaker B: Usda.
• 53:16
  Speaker A: So that, you know, the National Agricultural Statistics Service, they're doing, they're doing producer surveys and they're going out and surveying like, specific fields to get information on yield, producer intentions. Farm Service Agency to participate in any of those, these programs that we've been talking about, a farmer has to certify.
• 53:39
  Speaker B: Their acreage, turn in and tell you.
• 53:41
  Speaker A: How much and that that data gets. Gets collected and published. And so gives us a good idea about. Okay, what, what, what does acreage look like around here? It's not perfect because maybe not everybody certifies everything.
• 53:54
  Speaker B: Right. But it's really close. I would say most people do. Yeah.
• 53:56
  Speaker A: Around here. Yeah. Probably. Probably depends on where you are and just how much you need to use. You know, if, if you, if you don't, if you don't need insurance and you don't need any of the Title 1 programs, maybe you don't.
• 54:04
  Speaker B: Right, right.
• 54:05
  Speaker A: There's, there's not a Whole lot of that going on around here, I would say. So.
• 54:08
  Speaker B: Yeah.
• 54:09
  Speaker A: So that's where a lot of, a lot of my data comes from as far as, and, and, and so, and, and there are, there are systems that are, that are, that have been developed. You know, for example, NASA has their quits. Quick stats which you can go in and pull.
• 54:25
  Speaker B: We love NASA, by the way. We love NASA. We're friends, we're friends with NASA Acres, so.
• 54:33
  Speaker A: Yep.
• 54:34
  Speaker B: Yeah, there's some good information. They've got some good information.
• 54:37
  Speaker A: Yeah.
• 54:38
  Speaker B: And it's getting better and better.
• 54:39
  Speaker A: Yeah, they're putting out, you know, weekly, monthly different reports and people pretty much any one of those reports going back for, for some of them back to the 60s or 70s and, and all of that.
• 54:52
  Speaker B: Yeah, we just recently partnered with them to host a develop program which is a remote sensing training program and they did identifying cover crops on the southern high plains. So for the first time we've done some remote sensing on that. So. Yeah. So in fact, we just got the video today of all of them. They're going through the program. Going through what the data that they got and all the conclusion and stuff. So. Anyway, well, thanks for joining us.
• 55:23
  Speaker A: You're welcome. Thanks for having me.
• 55:24
  Speaker B: I appreciate it. This is, this has done a lot for the nerdy side of my brain. And thanks, friends, for spending some time talking about numbers and economics and all of this stuff. I hope maybe that has answered maybe some questions for people who've wondered about subsidies and economics on the farm and maybe you can even take some time. We'll link to those enterprise budgets. Absolutely. On the very specific page. And so even people that aren't farming can go and look and see what those numbers are.
• 55:58
  Speaker A: Yeah, sure. It should be getting, we're getting all of that updated right now. We should have it updated by the end of next week, maybe into. Okay, the first part of February, but.
• 56:08
  Speaker B: Okay, great. Well, we hope you will join us again for another episode of Conservation Stories.