New Year Brings New Costs

Though farmers have a lot to be thankful for when celebrating next Thursday, they’ll be bracing for more business expenditures with the onset of the new year.

2012 promises to deliver what many have dubbed as “surging” agricultural input costs.

Agricultural inputs include:
  • Machinery and equipment
  • Labor
  • Pesticides/Chemicals
  • Fertilizers
  • Fuel
  • Interest expense/Debt
"Preliminary budgets show variable costs for rotation corn increasing by 16 percent, soybeans by 15 percent and wheat by 12 percent as compared with our January 2011 budgets," said Alan Miller, Purdue agricultural economist.

According to Miller and Ohio State Extension agricultural economist Barry Ward, seed prices will increase 5 percent to 10 percent, while pesticide prices will vary by product. There will also be ammonia price variability.

Because natural gas is a main component of anhydrous ammonia, when its production-cost fluctuates, so too, does the cost of producing anhydrous ammonia.

Illinois agricultural economist Gary Schnitkey explained the direct correlation between corn production and farm inputs, "As the price of [commodity market] corn goes up, production of corn and wheat also go up. There is more demand for nitrogen fertilizers, and fertilizer companies also have to take profits. If you’re watching the price of anhydrous and want to predict increases, look at what’s happening with corn prices. Keeping a close eye on that relationship could help corn growers hedge their prices.

The two main culprits of farmers’ tightened purse strings are farmland rental costs and fertilizer prices, according to the experts.

What can farmers do?
  • Request flexible lease agreements
  • Price 2012 fertilizer now, not during the spring
  • Lock in profit margins
  • Work toward being low-cost producers on a cost-per-bushel-produced basis
An AgWeb survey invites farmers to share their previous and projected input costs for further researcher analysis. Ohio State's Department of Agricultural, Environmental and Development Economics has a series of free farm management enterprise budgets that can be downloaded.

Photo obtained from:

No comments: