Urbana, Illinois
July 15, 2008
Significantly higher production
costs in 2009 are facing Illinois corn and soybean farmers,
according to a University of
Illinois Extension study.
"These cost increases will lead to higher breakeven prices for
both corn and soybeans," said Gary D. Schnitkey, U of I
Extension farm financial management specialist. "Higher costs
will cause farmers to more closely examine how much to adjust
cash rent bids. Higher costs also may influence marketing and
crop insurance decisions."
Schnitkey's report, "Dramatic Increases in Corn and Soybean
Costs in 2009," is available on U of I Extension's farmdoc
website:
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo08_13/fefo08_13.html
The cost increases were projected for central Illinois farms
having high-productivity farmland.
"Input prices, particularly for fertilizers, are uncertain and
could be different than those we used in the study," he said.
"It is safe, however, to estimate large production cost
increases for both corn and soybeans in 2009."
For corn, non-land production costs for 2009 are projected at
$529 per acre, a $141 per acre increase from 2008 levels of $388
per acre. Between 2003 and 2007, non-land production costs
averaged $286 per acre. Production costs for 2009 are projected
to be $243 per acre higher than the 2003-07 average, an increase
of 85 percent.
For soybeans, non-land production costs for 2009 are projected
at $321 per acre, up by $82 over 2008 costs of $239 per acre.
Between 2003 and 2007, non-land costs for soybeans averaged $180
per acre. Productions costs for 2009 are projected to be $4141
higher than 2003-07 levels, an increase of 78 percent.
"Fertilizer is the input with the large cost increase," said
Schnitkey. "For corn, fertilizer costs in 2009 are projected at
$215 per acre, an increase of $97 per acre over the 2008
projected level of $118 per acre.
"For soybeans, fertilizer costs in 2009 are projected at $98 per
acre, a $53 increase over the 2008 level of $45 per acre."
He noted that projected 2009 fertilizer prices are significantly
above fertilizer prices in recent years.
"Besides fertilizer, seed costs are projected to increase," he
noted.
Also up in the 2009 projections are insurance and power costs.
Based on yield expectations of 191 bushels per acre, the 2009
breakeven price for corn is $3.82 per bushel. The soybean
breakeven price is $9.65 per bushel.
"These breakeven prices are significantly higher than historic
commodity prices," Schnitkey said. "Corn, for example, averaged
close to $2.40 per bushel between the mid-1970s to the middle
2000s.
"Large income losses would occur if commodity prices returned to
historical averages."
Urbana, Illinois
July 23, 2008
Study predicts
crop-production costs will jump dramatically in 2009
Soaring energy prices will yield
sharp increases for corn and soybean production next year,
cutting into farmers’ profits and stretching already high food
costs, according to a new University of Illinois study.
Costs to get crops in the ground will jump by about a third in
2009, fueled by fertilizer prices expected to surge 82 percent
for corn and 117 percent for soybeans, said Gary Schnitkey, an
agricultural economist who conducts the annual survey of input
costs.
Fertilizer – the biggest non-land expense for corn and soybean
farmers – is tethered to the same cost spiral that has driven
steep gasoline and heating price increases over the last few
years, said Schnitkey, a professor of agriculture and consumer
economics.
“Roughly 80 percent of the cost of producing nitrogen fertilizer
is natural gas, so as natural gas costs have gone up so have the
costs of those inputs,” he said. “Phosphorus and potassium are
mined, and as energy costs increase, mining costs increase.”
With commodity prices high, the increased production costs
should merely trim farm profits rather than sinking balances
into the red, said Schnitkey, who predicts farmers will likely
post solid earnings again in 2009.
“But it’s one of those things,” he said. “When are the good
times going to end? Could it be next year? And what happens if a
drought or some other disaster cuts yields dramatically?”
While farmers will likely absorb some of the added costs,
Schnitkey says consumers also should expect to pay more for
products ranging from cereals and syrups to grain-fed beef.
“There’s not going to be a reduction back to lower food costs as
long as we have these higher production costs,” he said. “Energy
prices are driving a lot of what’s going on and ultimately that
hits the consumer.”
Along with fertilizer, grain farmers also will see hefty cost
increases next year for inputs ranging from seed to fuel for
tractors and other machinery, according to the study.
The study projects non-land production costs for corn will total
$529 an acre next year, up 36 percent from 2008 and nearly 85
percent higher than the average of $286 per acre from 2003 to
2007. At $321 an acre, soybean input costs are projected to rise
34 percent from 2008 and more than 78 percent from the 2003-2007
average of $180 an acre.
Schnitkey says the per-acre costs are based on high-producing
farmland in Central Illinois, but corn and soybean farmers
across the country will see similar increases.
Assuming cash-rent fees of $200 an acre, the study projects a
break-even price of $3.82 a bushel for corn in Central Illinois,
based on an average yield of 191 bushels an acre. Soybeans would
break even at $9.65 a bushel, based on yields of 54 bushels per
acre.
Schnitkey says 2009 prices should be significantly above
break-even prices. Based on futures markets, corn should sell
for about $6 a bushel next year, with soybeans in the $13 to $14
range.
“Looking further ahead, though, a lot of things could happen to
bring that down,” he said. “Demand could bring on more land in
Argentina and Brazil, or the Ukraine might get its act together
and increase production.”
Higher production costs will likely force farmers to try to hold
down cash-rent payments, monitor commodity markets closely to
sell at the best price and consider increasing crop-insurance
levels, Schnitkey said.
“Input prices will have doubled in just a few years and that’s a
major investment for farmers,” he said. “If something bad
happens that hurts yields, their downside risk is much higher
now.” |
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