- Farmers will need higher returns to offset a spike in variable crop production costs
- Much of the projected cost increases are tied to a recent surge in fertilizer prices
- There's not a lot most farmers can do to soften the blow of higher production costs
Grain prices moved higher this year and the costs of growing them are likely to do the same in the year ahead, according to Purdue University estimates.
The 2011 Purdue Crop Cost & Return Guide projects that farmers could see double-digit increases in variable costs, which include fertilizer, seed, pesticides, fuel, machinery and other expenses not related to labor or land rental.
While prices for corn, soybeans and wheat are up from this past spring, farmers will need those higher returns to offset a spike in variable crop production costs, says Bruce Erickson, Purdue's director of cropping systems management and a crop guide contributor.
"For rotational corn, which is most of the corn in Indiana, our estimates show variable costs in 2011 up around 13% compared with 2010," Erickson says. "Soybean production costs will be up around 6%, and for winter wheat we're estimating that costs will be 13% higher. If you grow continuous corn, you can expect to spend about 14% more next year."
Much of the projected cost increases are tied to a recent surge in fertilizer prices. An April USDA survey of Illinois retail fertilizer prices – a benchmark for Indiana – reported average per-ton costs of ammonia at $520, diammonium phosphate at $503 and potash at $501. This month those prices are $736, $661 and $526, respectively.
After years of incremental movement in fertilizer prices, the market has been much more volatile since 2007, Erickson says.
"Crop production around the world, and the demand associated with that, still seems to be the primary driver," he says. "And fertilizer is more and more a world market now. Producing fertilizers is an energy-intensive business, so producers often source outside the U.S., where energy costs can be a fraction of what they are here."
There's not a lot most farmers can do to soften the blow of higher production costs, Erickson says. They can shop around to find the best deal for fertilizer and other crop inputs and buy in bulk and store if they think prices are heading up, he says.
Erickson reiterated that the crop guide contains cost estimates, and that a lot could happen in the market between now and when the 2011 crop is planted.
"We offer these estimates to provide a relative benchmark to help farmers, landowners and those working with them some perspective on the economics of producing a crop," Erickson says. "The situation for an individual farm can be much different than this depending on how and when crops were sold, how purchases were made, etcetera.
"While costs are back up, most crop producers are managing to stay ahead of the curve. This is in contrast to the situation with livestock producers, though, where an increase in their feed prices further pinches returns. I'm old enough that I remember those long stretches of lean years on the farm, so we'll take this for now and ready ourselves for whatever the future holds."
The Purdue Crop Cost & Return Guide is prepared annually by Purdue's departments of Agricultural Economics, Agronomy, and Botany and Plant Pathology.