Farmers face high costs when planting crops
May 1, 2012
Planting is in full swing, as farmers across Nebraska plant for the upcoming season. The fields are prepped, and farmers are putting down fertilizer and seed as farmers prepare for another record crop year.
However, with record prices also comes record expenses. Increases in seed, fuel and fertilizer have aggravated farmers who feel the increases are not always necessary.
“If you look at any input, we are seeing an increase in that area such as deed, fuel and fertilizer. However, another increase we have seen have been in regards to new purchases and cash rents of land,” said Kelly Brunkhorst, Director of Research for the Nebraska Corn Board.
He continued, “There are higher cash rents offered out there now. I think over the years what we have learned and seen is that farmers aren’t leveraged as hard in debt as they were in the past. Even though we are seeing higher land costs, it isn’t being put in debt. We also don’t have high interest rates, which helps as well.”
These higher cash rents and land purchase prices are putting the most pressure on new and beginning farmers, who usually don’t have the capital that older, more experienced farmers have. Many of these farmers will be forced to rent for longer than before, and land prices have also seen a dramatic increase.
“New farmers always struggle because they don’t have a way to pay for the land,” said Matt Stockton, Assistant Professor and Agricultural Economist for the University of Nebraska-Lincoln.
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Land is not the only high cost. Fertilizer costs have left many farmers frustrated and confused, as the cost of producing fertilizer has decreased.
Anhydrous ammonia, which is a nitrogen-based plant food, sold for nearly $800 last year, and now sells for nearly $700 per ton. The biggest issue that farmers have is that the cost of making fertilizer has dropped, due mainly to the decrease in natural gas.
According to Kevin Dhuyvetter, farm management specialist at Kansas State University, if the drop were passed onto farmers, they would be paying $231 per ton.
Many analysts believe that the cost remains high because the demand is so high, both domestically and internationally. “With the price levels we are seeing across the world, it has created an interest in corn demand. They are competing for the same resources all over the world. If you have a stable supply and more demand, prices will increase,” said Brunkhorst.
Fuel prices are also a concern for farmers, with diesel prices ranging from $3.83-$4.27 as of mid-day on Thursday, April 26. This increase in prices has changed the way many farmers are prepping their fields.
“I think what we are seeing a change in is in regards to tillage practices. We are going from conventional to minimal and no-till. Also, as we have seen new technology in terms of GPS and precision farming, that has also contributed to lower fuel use. The biggest change is in new equipment, in terms of engines and their fuel efficiency. A lot of technology is being adopted,” said Brunkhorst.
Even with some decreases, farmers are still expected to spend $270 per acre to get crops planted, according to estimates calculated by the University of Nebraska Extension. This will result in a nearly $2.8 billion investment by farmers over the 10.3 million acres of corn that is expected to be planted in Nebraska this year.
“Farmers make this multi-billion dollar investment every spring in the hope of producing more corn per acre, as they strive to get better every year,” said Brunkhorst. “USDA’s planting intention numbers today, if realized; show how farmers respond to market signals with the investment necessary to meet demand.”
Nationally, USDA said farmers intend to plant 95.9 million acres this year, up 4 percent from last year’s 91.9 million acres. If realized it will be the most planted acres in the United States since 1937 when an estimated 97.2 million acres were planted.
The estimate given does not include land costs, labor or equipment. This is just the cost of fertilizer and seed.
“Those are the things farmers buy every year from their cooperative or other companies,” Brunkhorst said. “If you figure a 2.5 multiplier, the full economic impact of planting reaches some $7.0 billion. Yet the economic value of that crop is even greater, when harvested and that corn is converted to meat, milk and eggs, ethanol, distillers grains, bioplastics and more. Corn is the foundation for all of that, so getting the crop in the ground and off to a good start this spring is critical. Then it’s up to the weather through the growing season to harvest.”
Nationally, farmers are estimated to spend $333.8 billion on agricultural production expenses this year, which is a 3.9 percent increase from last year, according to the USDA. The major 2012 crop-related expenses (seeds, fertilizer, pesticides) are projected to increase by about 1 percent.
Net farm income, or the total income from production in a single year (even if the product is not sold), is forecasted to be $91.7 billion in 2012, which is down 6.5 percent or $6.3 billion from last year.
Net cash income, or what is reflected in cash transactions when they take place, is expected to be $96.3 billion, down 11.5 percent or $12.5 billion from last year. However, it would still be above the 10-year average of $80.3 billion.
According to the USDA, “Increases in sales of corn, most other feed grains, and peanuts are predicted to offset declines in wheat, hay, vegetables/melons, and fruits/tree nuts.”
Even though farmers are seeing increased input costs, they are still seeing good prices for their products. “I think we have a positive and great future,” said Brunkhorst.