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Sizing up the economic benefits of crop rotation
November 14, 2002 -- from MSU News Service
BOZEMAN -- Crop diversification may be both a good agronomic and economic practice, but its economic benefits are limited by the hazards all crops face, a Montana State University economist said at the Montana Farm Bureau Federation's annual meeting Tuesday.
MSU's Gary Brester told those at the Farm Bureau meeting in Bozeman that new federal legislation helps reduce price risk on some alternative crops by creating a price floor in the form of loan rates. On the other hand, the overall price variability of Montana alternative crops such as oilseeds, peas and lentils, is similar to that of wheat and barley. In addition, all crops face agronomic risks.
"When you have a drought or get hail, one crop may do better than another, but all of your crops face increased risk. That's why diversification of crops isn't a guarantee of increased profit," said Brester.
Alternative crops are often grown under a contract with a buyer. Having that contract ahead of time can significantly reduce price risk, but it also means that the spot market for those same crops are limited, said Brester. Also contributing to the risk of growing alternative crops is that the U.S. share of these markets is small, so prices are largely driven by production factors in other countries.
"When you are the residual supplier rather than the primary player in a market, you are much more exposed to market fluctuations," said Brester.
MSU is pairing its studies of the agronomic benefits of increased crop diversification rotations with studies of the economic impact of such rotations.
"Producers know the importance of crop rotations for crops such as potatoes and sugar beets. We are trying to understand the economic costs and benefits of crop diversification in traditional wheat/fallow rotations. Factors such as price variability and the availability of crop insurance, weed and disease controls are all important factors," said Brester after the meeting.
"The basic question is whether a combination of a variety of crops makes for a more stable or higher level of income, and if so what is the most effective combination of crops. An important aspect of this issue is the price behavior of alternative crop markets" he concluded.
Contact: Gary Brester (406) 994-7883
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