Farmers face high costs when planting crops
April 30, 2012
Planting is in full swing, as farmers across Colorado 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.
“This issue of cost of production is often so overlooked by those who only tap into the commodity price, or revenue, side of things. In today’s agricultural commodity climate, things are stronger than they have ever been in history. It’s important to recognize that as the revenue opportunities present themselves, it’s important to realize that the costs of production have gone up as well,” said Mark Sponsler, CEO of Colorado Corn.
One of the big issues farmers are facing right now is higher land values, both for purchase and for rent.
“Land costs affect overall costs profoundly. Land values and cash rent values have significantly gone up. When commodities were pretty stable for 40-50 years, cash rent values ran from $90-$135 per acre depending on the quality of the land. Largely, since about 2005, we have seen some really creative cash rent situations, where they may be using cash rent and crop share. Now we are looking at $150-$300 acre for cash rent values,” said Sponsler.
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.
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“It makes it more of a challenge because for new and beginning farmers, access to capital is such a huge hurdle. It was an issue 10 years ago, and now that costs are higher, it’s even more difficult. If they don’t have some kind of connection or a family member to help, the hurdles are much higher. The risk of loss is still there, so that young farmer has higher costs of production and it’s going to take some good years to be able to convert revenue to offset expenses,” he said.
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. “I am skeptical, along with other farmers, on why it’s so high. There is a lot of evidence that the price has gone up because the demand is so high. If a farmer is looking to have some skepticism, I would not center that at the retailers at the state. The competition is very fierce for fertilizer retailers in Colorado,” said Sponsler.
Seed prices have also increased, and this year, farmers are worried about a possible shortage of the type of seed they want to plant. The seed that is grown for planting corn is grown from specialized plants, and it is estimated that corn seed is down 25 percent or more heading into the planting season.
Seed production was down due to several reasons, including the drought in the Upper Midwest and Great Plains, and by drought conditions in South America. Many seeds are grown there during the winter, and shipped to the U.S. in the spring for planting.
However, this should not be an issue in Colorado. “There is plenty of seed out there. There will be enough seed to plant, but farmers may not have as broad of varieties this year,” said Sponsler.
The main shortage is in new varieties, which many farmers may want to plant. “This whole variety thing is very complicated. A farmer may plant more than one variety to try them out, and there may not be as much of one as another. It’s all part of the decision making process,” he said.
The particular varieties that many farmers are looking to use this year are drought resistant varieties. This increase is due not only to the threat of drought, but also due to the increased number of dryland acres that are being planted across the country.
“Water is always an issue, but especially this year because the snow pack is significantly below average. We are facing a year where we are likely to be very dependant on natural rainfall, and that’s always a gamble. If a farmer is planning out his production system, a key factor in all that is to realize that a farmer may not get the water that he needs,” Sponsler said.
Fuel prices are also a concern for farmers, with diesel prices ranging from $3.78-$4.39 as of mid-day on Friday, April 27. This increase in prices has changed the way many farmers are prepping their fields.
“The most significant shift that isn’t being made just for fuel costs is a shift from conventional tilling to reduced tilling. It saves trips over the field. The things that do change a season’s fuel use is different tilling practices, more so than buying a newer, more efficient tractor,” he said.
Even with some decreases, farmers are still expected to spend over $400 per acre to get crops planted, according to estimates by Sponsler. This will result in over $592 million in investments by farmers over the 1.48 million acres of corn that is expected to be planted in Colorado this year.
Sponsler estimates that over the course of the season, farmers will spend $800-$1,000 per acre. “Even in today’s market, if farmers don’t do a good job managing the different pieces of the puzzle, they can still lose money,” he said.
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.
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. It is a balance though when managing an operation. “There are still opportunities to lose money. It always involves a balance. Every farmer has to pay attention to the market, keep an eye on inputs and be a crop management specialist. It’s a complicated and risky way to make a living,” said Sponsler.
He added, “As a farmer today, the odds of having a profitable year is better than it was in the past, however.”