How Extreme Heat is Impacting Farm Income

Jul 28, 2023

The cornbelt region, including Kansas, Missouri, and Nebraska, faces moderate to severe drought conditions, with some experiencing extreme drought. This combined with increasing heat frequency poses challenges for Kansas farmers. A study by the Kansas Farm Management Association reveals the impact of extreme heat on farm profitability and the effectiveness of mitigation strategies.

Over the last forty years, Kansas has experienced a worrisome increase in extreme degree-days (EDDs), indicating temperatures above a certain threshold (32 degrees Celsius or 89. 6 degrees Fahrenheit in this study) for extended periods. During the April-September growing season, EDDs rose from an average of 54 in 1981-1990 to 57 in 2011-2020. Unpredictable weather and droughts raise concerns about farm income.

The research investigates the historical correlation between extreme heat and farm income. It found that every 1˚ C increase in temperature led to a 7% reduction in gross income and a 66% reduction in net income. This results in a significant decline of $34,650 in gross income and $54,119 in net income for average farms. This disparity can be attributed to tight profit margins, where a small reduction in gross income significantly impacts net income.

Despite the adverse impact of extreme heat, the study identifies two essential factors that have historically mitigated its effects on farm income:

Crop Insurance: Crop insurance payouts show a strong relationship with extreme heat in the current year, effectively buffering approximately 51% of the net income loss resulting from extreme heat. The timely indemnities offered by crop insurance alleviate the financial burden on farmers during challenging years.

Farm Practices and Inventory Adjustment: Drawing down inventories after experiencing extreme weather has been a common practice among farms. By selling off inventory from the previous marketing year to compensate for low yields, this strategy shields 16% of the net income loss caused by extreme heat.

Farms with access to irrigation facilities seem to be less affected by extreme heat. Notably, highly irrigated farms experience around 37% less net income loss compared to other farms. The future availability of irrigation may face challenges due to declining groundwater resources and regulatory limitations on water usage.

Source : kansasagconnection

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