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September 25, 2003

Fertilizer costs biggest increase for farmers in 2004, says expert

WEST LAFAYETTE, Ind. – Farmers can expect higher expenses in 2004, with fertilizer making the biggest dent on pocketbooks, said a Purdue University expert.

Fertilizer costs won't drastically increase, but farmers wanting to prepay will notice the prices haven't gone down much this fall.

"Fertilizer will have the biggest impact on costs, because nitrogen prices haven't returned to normal fall price levels following the big runup in prices last March," said Alan Miller, farm business management specialist at Purdue.

He said farmers that prepaid caught a break, however.

"Many farmers escaped the full brunt of the high fertilizer prices this spring because they had prepaid for fertilizer last fall," Miller said. "Anhydrous ammonia is currently almost $100 per ton higher than it was at this time last fall."

Two factors causing high prices are tight supplies of nitrogen fertilizer and high-priced natural gas, which is the main hydrocarbon fuel used to produce ammonia fertilizers.

"Anhydrous ammonia inventories will be rebuilt with high-priced natural gas," he said. "The last time natural gas was this high at this time of year was in the fall of 2000."

Miller said higher gas prices will continue throughout the winter months, when heating demands boosts natural gas consumption. After winter, Miller said consumers can expect to see a 7 percent to 10 percent decline in gas, diesel and propane prices.

"If we can get past this winter, we may catch a break on the materials derived from crude oil," Miller said.

As a group, chemical costs have been essentially flat for several years despite ups and downs in particular product prices. Miller said farmers won't see much change in chemical costs for 2004.

Seed prices will be up between 3 percent and 8 percent, depending on the crop. Monsanto increased its fees for Roundup Ready technology, and those fee increases are being passed on to the consumer, Miller said. Roundup Ready soybeans will experience the biggest increase, at 8 percent. Non-genetically modified corn and wheat are expected to be up 3 percent, he said.

Machinery and wage rates also will rise, but neither will have a major impact on farmers this coming year, Miller said.

He said the 1 percent to 3 percent rise in the cost of machinery in 2004 is actually good news for farmers. The annual rate of increase from 1997 to 2002 was 3.9 percent.

Wage rates for farm employees are on the usual upward trend, around 5 percent. The numbers of farm employees has decreased, though. Miller found that the number of workers declined while the average hours worked increased.

Overall, he said most Indiana farmers with a 50-50 corn-soybean rotation can expect to see a 3 percent to 5 percent increase in total input costs in 2004, and farmers with continuous corn can expect an approximately 8 percent increase in total input costs.

Writer: Michelle Betz, (765) 494-8402, agnews-stories@purdue.edu

Source: 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/

Related Web site:
Purdue Agricultural Economics: http://www.agecon.purdue.edu


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