Every year brings different challenges to the nation’s farmers, and 2004 is no different. This year among the challenges are production cost that are drastically different from those in 2003.
Delton Gerloff, an economist with the University of Tennessee Agricultural Extension Service, says the 2004 planting season is facing fuel and fertilizer prices that are certain to go up.
“The fuel prices have increased 23% over 2003 prices,” Gerloff said. Compared to last year, the economist says the fuel costs will add between $1-1.50/acre to the expense of growing corn, depending on the tillage system. The increased fuel prices will add between $1-2/acre to soybean expenses, and about $1.50/acre for wheat production expenses. Gerloff expects cotton fuel expenses to increase between $3-4/acre.
Fuel prices, however, don’t tell the whole story. “Nitrogen fertilizer prices generally increase along with fuel prices. Higher nitrogen fertilizer prices would impact corn and cotton more than soybeans because soybeans generally don’t require nitrogen fertilization,” Gerloff said.
Depending on the nitrogen source, nitrogen fertilizer prices have risen between 35 and 45% compared to 2003. Gerloff says this increase could add as much as $12-16/acre to the expense of growing corn in 2004, and could increase cotton expenses as much as $10-12/acre over last year. “Other fertilizer prices have also risen over the past year, with phosphate and potash prices rising close to 27% and 13%, respectively,” he said.
Higher output prices are helping to reduce the impact of the higher input prices. “Based on early season price expectations in 2003 and April 1, 2004, harvest cash contract prices, corn and soybean net returns are projected to increase over $70/acre compared to 2003,” Gerloff said. “Wheat net returns would be expected to increase close to $20/ acre compared to income expectations last year,” he said.
While cotton prices rose sharply last fall, Gerloff says current income expectations for cotton have not changed significantly from last year.
The bottom line is price, however. “While the fuel and fertilizer price increases are certain because the farmers are currently buying them to produce this year’s crops, it remains to be seen if grain prices will remain at current levels until this fall’s harvest,” Gerloff said.
The economists cautions producers to consider locking in higher harvest time grain prices to offset the increased input expenses. “Risk management tools such as options and cash forward contracting help to reduce price risk by establishing a floor price for expected 2004 production,” he said.