Consider higher costs and additional risk when negotiating 2008 cash rents, says University of Illinois Extension economist Gary Schnitkey.
“Much larger farmer margins will need to be in place for similar risk levels as compared to 2001-05.”
Schnitkey's study can be accessed at www.farmdoc.uiuc.edu/manage/newsletters/fefo07_12/fefo07_12.html.
“Higher production costs and lower government payments will offset some of the revenue increases from higher commodity prices. Moreover, additional risk suggests that farmers should receive a larger portion of the returns,” he says.
In central Illinois, for example, Schnitkey says farmer margins need to more than double for growers to be in the same risk position in 2008 as compared to 2001-2005.
“A $3.50 corn price and an $8.50 soybean price are used in 2008 budgets. Yet total non-land costs for corn production are projected at $314/acre in 2008, up $57/acre from the 2001-05 level.
“The largest increases come from fertilizer at $27/acre, seed at $11, fuel and oil at $5 and crop insurance also at $5,” Schnitkey says.
Total non-land costs for soybeans are projected at $199/acre in 2008, up $28/acre, with the highest increases coming in seed ($9), fertilizer ($8), fuel and oil ($5) and interest ($5).