September 10, 2008
Crop input costs continue upward for 2009 growing seasonWEST LAFAYETTE, Ind. - A Purdue University agricultural economist recently gazed into his crystal ball and saw big dollar signs representing input costs for fertilizer, seed genetics, energy and land costs.
"The cost of growing corn, soybeans and wheat increased dramatically for the 2008 crop and substantial increases are expected again for the 2009 growing season," said Bruce Erickson, Purdue Extension Cropping Systems Management director.
"Our preliminary budgets, based on an assessment of the seed, chemical and fertilizer industries, show variable costs for rotational corn increasing by 29 percent, compared to 40 percent for soybeans and 39 percent for wheat."
He said that last year's bigger increases came from the cost of nitrogen fertilizers and fuels, which affected the cost of growing corn relatively more than soybeans.
"Those inputs are not expected to increase at the same magnitude they did last year," he said. "Other inputs such as phosphorus and potassium, seed genetics and some herbicides will cost more, so the cost of putting in a soybean crop is projected to increase more than corn."
Along with increasing costs come thoughts of cutting back, Erickson pointed out. While input prices are up substantially, market prices for crops are up too, he said.
"For instance, if we look back a couple of years at the ratio of the cost of nitrogen per pound to the market price received, it might look something like nitrogen at 25 cents per pound and $2.50 per bushel for corn," Erickson said. "Now it looks more like 60 cents nitrogen and $6 per bushel corn."
Both costs and market prices received have been elevated, he said. Even though margins look good for the 2009 year, the relative return of each input should be evaluated because of the different price changes for various inputs, Erickson said.
For the 2009 crop, potash prices could exceed $900 per ton, anhydrous ammonia more than $1,000 per ton and diammonium phosphate or DAP around $1,100 or more per ton, Erickson said. In the preliminary budgets, these numbers translate to fertilizer costs of $200 per acre for corn and more than $100 per acre for soybeans.
"We're seeing fertilizer prices skyrocket, primarily because worldwide market prices for crops are high, which increases the demand for fertilizers," he said. "The higher market prices are not only causing an influx of demand for fertilizers, but adding value to seed genetics and precision ag technology in the form of increased yields."
When selecting next year's seed, growers will see prices at or above the $300 mark for the highest-performing, most fully equipped corn hybrids and at or above $50 per unit for select soybeans. Seed budgets for 2009 are expected to be between $80 and $100 per acre for hybrid corn, and between $50 and $70 per acre for soybeans, Erickson said.
"The dramatic increase of input costs will drive the adoption of precision ag technologies because the potential payback for using auto-guidance systems, sprayer boom control or variable rate technology improves efficiency and margins by minimizing input costs," he said.
Other inputs that were factored into the preliminary budgets include energy and land costs. Erickson noted that fuel prices have dropped from the summer highs and does not believe we'll see a repeat of the past year. As for diesel, the Energy Information Administration predicts prices for 2009 will be similar to 2008 prices and the Purdue budgets are at $4. Propane prices are expected to be 10 percent to 15 percent higher this fall and winter from last year and then drop 2 percent to 6 percent the rest of 2009.
The ag economist pointed out that land values and cash rents also have seen large increases. The most recent survey, conducted by Purdue, shows that Indiana farmland value increased by 13.5 percent to 15 percent from this time last year, while cash rents increased 12 percent to 13.5 percent. For more information on farmland value and cash rents, go to http://www.agriculture.purdue.edu/agcomm/aganswers/
"Even though margins look decent for the 2009 crop year, farmers still need to manage their risks," Erickson said. "Production risks can be managed through crop insurance and market risks can be managed through contracts, futures and options.
"The input side still leaves margins at considerable risk, but if you're confident in the seasonal variability purchases can be made accordingly. Having the ability to store inputs on the farm in bulk can help you take advantage of fluctuating prices."
Erickson also advises that farmers use today's margins to pay off debt or build up working capital. This would allow a farm to be in a better financial position and ready to take advantage of opportunities that might come along, he said.
Writer: Julie Douglas, (765) 496-1050, firstname.lastname@example.org
Source: Bruce Erickson, (765) 494-9557, email@example.com
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