Production costs seen rising 30 percent by 2009

Cattle Market & Farm Reports, Editorials
Sep 12, 2008
by DTN

U.S. farmers will have to spend roughly 30 percent more next spring to plant corn and soybeans due to soaring energy prices driving up the cost of fertilizer, according to a University of Illinois study.

As a result, consumers will likely pay higher prices for everything from bread to milk to meat.

The cost to plant corn next spring will be $529 per acre, up 36 percent from 2008 and up 85 percent from the five-year average $286 per acre, said Gary Schnitkey, an agricultural economist who conducts the annual survey of expenses excluding land costs.

At $321 an acre, soybean input costs are projected to rise by 34 percent from 2008 and more than 78 percent from the 2003-2007 average of $180 an acre.

Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in central Illinois based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel based on yields of 54 bushels per acre.

Schnitkey predicts 2009 prices significantly above break-even prices. Based on futures markets, corn should sell for about $6 a bushel next year, with soybeans in the $13 to $14 range, he said.

Corn, soybean and wheat prices at the Chicago Board of Trade hit record highs this year amid increased global demand for food, rising oil prices and government mandates for biofuels.

Fertilizer drives
up cost

Farmers are seeing the cost to grow corn and soybeans soar due to higher fertilizer prices.

Fertilizer prices have risen by 82 percent for corn and 117 percent for soybeans, Schnitkey said.

About 80 percent of the cost to produce nitrogen fertilizer comes from natural gas. In addition, higher energy prices have driven up the cost to mine phosphorus and potassium.

The price of crude oil soared 70 percent in the past 12 months and 105 percent in the last 18 months. U.S. crude oil futures hit a record high above $147 a barrel on July 11.

However, a World Bank study released last week said that only 25 to 30 percent of higher food prices was due to the rise in energy costs and fertilizer. The study said that large increases in biofuel production in the U.S. and Europe contributed 70 to 75 percent of the increase in food prices.

The food-versus-fuel debate heated up as U.S. food prices last year saw their biggest increase in 15 years and are forecast to rise by 5 percent this year. World food prices rose by 40 percent last year, causing food riots, hoarding and bread lines in some countries. — DTN