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September 20, 2002

Livestock producers to be hit hardest by added costs, expert says

WEST LAFAYETTE, Ind. – Rising feed prices and depressed livestock product prices will put livestock producers in a bind going into next year, according to a Purdue University farm management expert.

Both grain and forage will be in short supply this year due to drought, causing feed costs to go up significantly. Producers that use forage, such as hay, in their feed, will run into trouble. These input price increases and decreases will affect producers all across the United States.

"Hay is going to be in short supply, and many of those places we might turn to normally are worse off than we are," said Alan Miller, Extension farm business management specialist at Purdue.

He said feed grain prices are expected to be up around 30 percent compared to the previous year, and soybean meal prices are expected to be up about 16 percent.

While input costs increase, the livestock market is likely headed in the opposite direction. Feeder cattle prices are expected to go down 8 percent to 12 percent and feeder hog prices down 15 percent to 20 percent. The typical livestock operation will suffer the most, with an expected 10 percent to 15 percent cost increase depending on the type of livestock operation, Miller said. A 5 percent to 7 percent cost increase is expected for the typical crop-livestock operation and an increase of 2 percent to 3 percent for the typical grain operation, he said.

Other inputs hiking farm operation costs are the expected increases in the costs of nitrogen fertilizers, seeds and wages.

Miller said certain types of nitrogen fertilizers may increase as much as 6 percent due to higher than expected natural gas prices, expectations of increased corn production in 2003 and tighter supplies of nitrogen products – anhydrous, liquid nitrogen, ammonia nitrate and urea.

He said some seed varieties may increase up to 5 percent in cost. New technology is the reason for "periodic increases" in particular seed product prices, Miller said. The increases that were attributable to Roundup Ready soybeans, however, may have past.

"Seed prices have marched upward pretty steadily in recent years," he said.

However, Miller said the overall impact of seed prices on a typical farm is hard to assess because the technological changes introduced with new seed varieties may reduce other costs, such as chemicals.

Miller said wages are expected to increase 4 percent to 6 percent depending on the type of labor.

"If you're looking for skilled people, then you'll compete with plants in the local area for those employees and will have to offer competitive wages and competitive benefit packages," Miller said. "If you're looking for primarily unskilled labor, then those wages don't tend to increase as quickly and the impact will be less."

Miller also said other input costs that are likely to increase modestly are cash rents in areas not drastically affected by the drought and farm fuel costs. Interest rates and chemical prices, on the other hand, are expected to hold steady or decline slightly.

Writer: Michelle Betz, (765) 494-8402, news_students@aes.purdue.edu

Sources: Alan Miller, (765) 494-4203, millerwa@purdue.edu

Ag Communications: (765) 494-2722; Beth Forbes, bforbes@aes.purdue.edu; http://www.agriculture.purdue.edu/AgComm/public/agnews/

Purdue News Service: (765) 494-2096; purduenews@purdue.edu


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