Indiana producers will see a noticeable increase in the overall costs of crop production in 2004, according to a Purdue University expert.

"For the average corn and soybean grower, the variable costs of production have increased as much as 7 to 10% since January of 2003," said Alan Miller, a farm business management specialist.

Increased fertilizer prices, followed by seed price hikes, account for the largest per-acre crop production cost increases this year, Miller said.

"In fertilizer costs, the price of nitrogen has increased by 26-30%, phosphate by 10% and potash has increased by 8% since last January," he said. "Because of these increases, the cost of fertilizer will show the biggest overall increase in input costs in 2004, adding $11/acre for corn and $2/acre for soybeans over last year's cost."

Miller said the higher fertilizer costs are due to tighter nitrogen, phosphate and potash supplies.

Miller said producers also face an 8% hike in soybean seed costs due primarily to an increase in the technology fee associated with Roundup Ready seed.

In addition, farmers will pay up to 5% more for chemicals, depending on which herbicides, insecticides and other chemical products they use. Miller said chemical costs overall have remained fairly constant in recent years but individual product prices are more variable. Higher energy prices are one factor that will drive selected chemical prices higher, he said.

Also, higher crop production costs will cause a slight increase in the amount of interest accrued on operating costs this year.

"Since all input costs are up, that causes interest costs to rise with the increase in operating costs," Miller said.

Farm wages and the cost of new farm equipment also are expected to move higher in 2004. Wages will increase 3-5% and machinery 1-2%, Miller said.

Another adjustment in operating costs is caused by the volatility of energy-related prices.

"Natural gas futures prices have bounced up and down from $5-7 since Dec. 1, 2003," Miller said. "Also, since weather is the current driving force in energy markets, if we have a 10% percent colder winter than average, that would drive nitrogen fertilizer prices up to March 2003 levels."

In general, there is a tight supply of crude oil in the U.S., which is likely to prop up the price of propane fuel used for crop drying, he said. Moreover, high natural gas prices resulted in a lower production of propane from natural gas in 2003 relative to production from crude oil.

What this means for producers is that because of tight supplies and growing demand for natural gas and crude oil, the prices of these commodities will be very sensitive to changes in the weather for the remainder of this winter, Miller said.

"The good news for producers is that profit opportunities appear to have improved in 2004 relative to 2003 despite the higher input costs," he said. "This year, rotation soybeans look more favorable than they might otherwise because of the higher price of nitrogen."

Fertilizers used for soybeans do not include nitrogen. However, Indiana soybean yields were disappointing last year, which may cause some growers to think about growing more corn.

Miller advises producers to stick with long-term rotation of crops, because it is still economical for producers to maintain crop rotation. The estimated returns for a 50-50 corn-soybean rotation on average land for 2004 are approximately $165/acre after deducting production costs.

More information is available online in the 2004 Purdue Crop Guide at http://www.agecon.purdue.edu/extension/pubs/.