Volatility in the agricultural marketplace has shifted more and more risk onto the shoulders of the American farmer, an unsettling paradigm when we look at their long-term viability.

The volatility comes from increasing world demand for crude oil and other commodities, weather-related disasters that affect the food supply, and a commodity futures market that seems to be on performance-enhancing drugs.

Although commodity prices across the board, from cattle futures to corn prices, are admittedly high — in some places historically high — the farmer’s share of those high prices seems to shrink each year. Meanwhile, the cost to produce crops and raise animals is rising at rates never seen before.

As each of you well know, higher fuel costs are hitting the average Arkansas family squarely in the pocketbook. Stop, though, and think about how fuel costs must hit the farmers who drive a tractor over hundreds or even thousands of acres to rake and bale hay, plant their crops or run a diesel engine full-tilt for days on end to draw water from a deep well for irrigation.

Additionally, the costs of fertilizer and crop protection products, mostly derived from petroleum, have increased three-fold in just the past five years.

In fact, farm expenses for 2008 are 8.6 percent higher than for 2007 and 33 percent higher than final figures from 2004. Who among us can add one-third to our business costs in just four years?

Here’s a quick look at how those input costs have increased to the farmer this year:

• Purchased feed: up 16.1 percent.
• Seed, fertilizer and crop-protection chemicals: up 15.1 percent.
• Capital upkeep and replacement: up 10.1 percent.
• Farm labor: up 9.8 percent.
• Interest and property taxes: up 9.2 percent.
• Fuel and electricity: up 6.5 percent.
• Purchased livestock: up 6.2 percent.
• Farm services: up 5.4 percent.
• Repairs/maintenance: up 5.3 percent.
• Rent: up 4.3 percent.
• Miscellaneous: up 11.8 percent.

Farming and ranching have always been a very risky way of making a living — always dependent upon favorable weather conditions to plant and grow a crop or to produce the forage and grains needed to feed the livestock. However, with costs of production skyrocketing, the risks of making a return on investment have risen substantially in today’s economic environment.

The family farmer and rancher have few places to spread their risk. Historically, commodity futures markets provided a risk management tool for the agricultural community. Nevertheless, non-farm investors, often through index funds, are influencing the market and treating it as an investment where volatility provides opportunities for high returns, rather than as a price risk-management tool it once offered to farmers.

That’s played a significant role in pushing grain prices to record levels — not unlike the situation with the oil market. Not only has this limited the viability of a valuable tool farmers once had to help them, it has increased their risk due to price volatility for the commodities they produce.

At some point, though, logic tells us that those index funds will take their profit. As an agricultural economist who’s watched the market my entire career, my personal fear is that once the market starts down, the rush for the funds to get out and take their profits will mean a sharp decline in prices, just like we saw a big rise in prices.

Through all of this, the share of the food dollar that makes its way back to the farm is shrinking. Only 19 cents out of every $1 spent on food gets back to the farmer, a figure that pales in comparison to 1980, when he received 31 cents of every $1 spent on food eaten at home or away.

While financial and risk-management decisions always have been challenging aspects of farm and ranch work, the extreme volatility in the marketplace makes it even more difficult for farmers and ranchers.

All of us are feeling a squeeze in our home budgets due to higher energy and food costs. However, we all need to keep in mind that squeeze is even tighter on Arkansas farmers and ranchers who are trying to make a living while continuing to provide us safe and affordable food and fiber.