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  • From: "Tradingpost" <tradingpost@lobo.net>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Study predicts crop-production costs will jump dramatically in 2009
  • Date: Sat, 26 Jul 2008 07:54:19 -0600


Study predicts crop-production costs will jump dramatically in 2009
http://www.news.uiuc.edu/news/08/0723costs.html
7/23/08
Gary Schnitkey

Gary Schnitkey, an agricultural economist who conducts the annual survey of
input costs, says soaring energy prices will yield sharp increases for corn
and soybean production next year.

Jan Dennis, Business & Law Editor
217-333-0568; jdennis@illinois.edu

CHAMPAIGN, Ill. — Soaring energy prices will yield sharp increases for corn
and soybean production next year, cutting into farmers’ profits and
stretching already high food costs, according to a new University of Illinois
study.

Costs to get crops in the ground will jump by about a third in 2009, fueled
by fertilizer prices expected to surge 82 percent for corn and 117 percent
for soybeans, said Gary Schnitkey, an agricultural economist who conducts the
annual survey of input costs.

Fertilizer – the biggest non-land expense for corn and soybean farmers – is
tethered to the same cost spiral that has driven steep gasoline and heating
price increases over the last few years, said Schnitkey, a professor of
agriculture and consumer economics.

“Roughly 80 percent of the cost of producing nitrogen fertilizer is natural
gas, so as natural gas costs have gone up so have the costs of those inputs,”
he said. “Phosphorus and potassium are mined, and as energy costs increase,
mining costs increase.”

With commodity prices high, the increased production costs should merely trim
farm profits rather than sinking balances into the red, said Schnitkey, who
predicts farmers will likely post solid earnings again in 2009.

“But it’s one of those things,” he said. “When are the good times going to
end? Could it be next year? And what happens if a drought or some other
disaster cuts yields dramatically?”

While farmers will likely absorb some of the added costs, Schnitkey says
consumers also should expect to pay more for products ranging from cereals
and syrups to grain-fed beef.

“There’s not going to be a reduction back to lower food costs as long as we
have these higher production costs,” he said. “Energy prices are driving a
lot of what’s going on and ultimately that hits the consumer.”

Along with fertilizer, grain farmers also will see hefty cost increases next
year for inputs ranging from seed to fuel for tractors and other machinery,
according to the study.

The study projects non-land production costs for corn will total $529 an acre
next year, up 36 percent from 2008 and nearly 85 percent higher than the
average of $286 per acre from 2003 to 2007. At $321 an acre, soybean input
costs are projected to rise 34 percent from 2008 and more than 78 percent
from the 2003-2007 average of $180 an acre.

Schnitkey says the per-acre costs are based on high-producing farmland in
Central Illinois, but corn and soybean farmers across the country will see
similar increases.

Assuming cash-rent fees of $200 an acre, the study projects a break-even
price of $3.82 a bushel for corn in Central Illinois, based on an average
yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel,
based on yields of 54 bushels per acre.

Schnitkey says 2009 prices should be significantly above break-even prices.
Based on futures markets, corn should sell for about $6 a bushel next year,
with soybeans in the $13 to $14 range.

“Looking further ahead, though, a lot of things could happen to bring that
down,” he said. “Demand could bring on more land in Argentina and Brazil, or
the Ukraine might get its act together and increase production.”

Higher production costs will likely force farmers to try to hold down
cash-rent payments, monitor commodity markets closely to sell at the best
price and consider increasing crop-insurance levels, Schnitkey said.

“Input prices will have doubled in just a few years and that’s a major
investment for farmers,” he said. “If something bad happens that hurts
yields, their downside risk is much higher now.”





  • [Livingontheland] Study predicts crop-production costs will jump dramatically in 2009, Tradingpost, 07/26/2008

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