Crop Input Costs Increasing

According to most farm management specialists in the Midwest, crop input costs for seed, fertilizer, chemicals and fuel are expected to rise about 15-20 percent for 2005, as compared to 2006. This follows a 10-15 percent increase in crop input expenses from 2004 to 2005 for corn and soybean production. Most of the increase in the cost of fertilizer, fuel and corn drying costs are directly linked to the worldwide increase in crude oil prices in the past two years. There has been a steady increase in seed costs in recent years, with advanced seed genetics for weed and insect control. This reduced chemical costs initially, but these costs have increased slightly in the past couple of years.

In the Midwest, the biggest increase in chemical costs is due to most soybean growers budgeting an extra $15-20/acre for the potential need of fungicides to control soybean diseases, and for the possibility of needing insecticides to control soybean aphids. Both soybean diseases and aphids have the potential to greatly reduce soybean yields, if left untreated. In addition to the rising crop input costs, the projected market prices for corn and soybeans in 2006 are lower than a year ago.

Land Costs Also Rising
We continue to hear stories of land sales in southern Minnesota that are higher than a year ago, with several sales of prime crop land in excess of $3,500/acre. A regular Land Value Survey by Iowa State University showed an increase in Iowa land values of 10.8 percent in 2005. This followed increases in land values of 15.6 percent in 2004, and 9.2 percent increase in 2003. Iowa farm land values have increased 57 percent since the year 2000. Based on actual land sale results, it is likely that land value increases in southern Minnesota would be very close to the increases documented in Iowa.

Cash rental rates on farmland have also continued to increase in the past couple of years; however, most increases have been in the $5-10/acre range, which is far below the percentage increase in land values. The extremely high cash rental rates are probably the exception, rather than the norm in South Central Minnesota. Increasing land cost is a major issue to farm operators, especially to operators that have a high percentage of their land in cash rental arrangements, and for younger farmers that are trying to get established.

Farm Program Payment Reductions
Congress is in the process of finalizing a Bill with major adjustments in Federal spending to address the rapidly growing Federal budget deficit. The legislation would reduce $39.7 billion in Federal spending from 2006-2010, including $2.7 billion reduction in spending on USDA programs. The biggest reduction in farm commodity programs would be a reduction of the direct advance payments from 50 percent to 40 percent for 2006, and to 22 percent in 2007 and beyond.

The current Federal Budget Reduction Bill does not include across-the-board reductions in commodity program payments. However, because of the rapid pace at which the Federal budget deficit continues to grow, many observers feel that Congress will need to make further reductions in the outlay of government farm program payments in the coming years.

Editors note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at kent.thiesse@minnstarbank.com.