September 7, 2004

Ag input prices on the rise, but so is average farm income

WEST LAFAYETTE, Ind. - In what's become par for the course, agricultural input costs are up for the 2005 growing season.

Alan Miller, a Purdue Extension ag economist said, "Fertilizers, chemicals, seed, drying fuel and machinery fuel, all those things are up, they're not up very much, but certainly they're up enough that they will get people's attention."

Total ag production expenses in the United States increased at an average rate of 2.1 percent from 1995 through 2004 with only feed and livestock input prices likely to be lower among the major categories.

"That sounds fairly bleak," Miller said. "In fact, it's not that bad. Even with the higher costs and lower prices that we're going to see in 2005, total net farm income in Indiana will still be above average."

Still, farmers should be prepared to deal with higher prices.

Corn, soybeans and wheat are expected to be more expensive to produce. Miller said that the per-acre cost of growing crops on average quality land is expected to increase around $16 for continuous corn, $12 for rotation corn and beans, $11 for second-year beans, $11 for double crop wheat and beans and $3 for wheat.

Miller said energy prices continue to be a prominent factor.

"There's a limited ability to increase oil production worldwide on a short-term basis, so that makes us really susceptible to any kind of disruption in supply or even a threat of disruption," he said. "It's going to be an interesting period. We're going to have to get used to prices being all over the place."

Gas and diesel prices have increased more than 25 cents per gallon during the past year and are expected to be higher in 2005. Farmers, however, can lessen the impact of fuel price increases, Miller said.

"A lot of farmers buy fuel in bulk, so that's one thing that can mean a pretty significant discount on fuel," he said. "The other advantage is that it gives you a half year or more in which to pick the most favorable period to buy."

Natural gas prices have been more stable this year.

"The natural gas is high priced, and that causes problems from the standpoint that we use natural gas to produce anhydrous ammonia," Miller said. "Our concern is that, while the price is too high now, if we look at futures for natural gas, January is $1.50 higher per million BTU, so this is going to get even more expensive and more problematic."

Miller expects to see higher average prices for nitrogen fertilizers.

"It doesn't help that we've also got some shortages in other types of nitrogen fertilizers," he said. "From a management strategy standpoint, what I've been pushing is keep in mind this $1.50 carrying premium for natural gas. The best opportunities to buy may be this fall."

With fertilizer and fuel being expensive, it's even more important to select good seed.

"Seed is expected to be available in adequate supplies, but seed prices are expected to be 5 to 10 percent higher for technology seeds," Miller said. Prices of non-GMO varieties also will increase, but more moderately, he said.

"More seed varieties will carry seed treatments as a matter of course and as an element of price, rather than as an optional extra-cost treatment," Miller said. In some cases there is no reduction in cost for purchasing non-treated varieties.

Writer: Kay Hagen, (765) 494-6682, kjh@purdue.edu

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

Ag Communications: (765) 494-2722; Beth Forbes, forbes@purdue.edu
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