Big 5 corn costs ramp up

Markets
Apr 27, 2012
by DTN
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It’s no shock that input costs for corn production have staged four years of sizable price increases. But unlike past seasons, higher overheads will be exposing producers to more serious marketing risks in 2012, cautions financial adviser Sam Bachman with AgriSolutions.

Bachman bases his concerns on studies of compounded growth in corn production costs for dozens of corn producers from Ohio, Indiana, Illinois, Wisconsin, Iowa, Minnesota, Nebraska and the Dakotas who enroll in the AgriSolutions database. On average, the group handled more than 1,000 acres of corn in 2008, but grew 7 percent compounded annually during that period. As a group, they represent a sample of more than 500,000 corn acres.

Newly released returns for the 2008 to 2011 crops show actual AgriSolutions’ clients seed corn outlays have risen faster than any other input cost, with 10.5 percent compound annual gains and total outlays of $94 per acre in 2011. However, average cash rents of $176 per acre and fertilizer costs of $163 per acre still dominate growers’ cost structure.

“Throughout the Corn Belt, $300- to $500-per-acre cash rents are quite common for arm’s length transactions in 2012,” Bachman said. But when averaged in with rents for family-owned land, overall land costs don’t seem so extreme for the producers in this sample.

Double-digit surges in urea prices the past month could also take a swipe out of 2012 corn profits. “We haven’t managed our margins as well as we’d hoped, but fertilizer makes it hard,” a western Tennessee farmer told DTN last week. He had booked about 75 percent of his 2012 urea needs last year at about $400/ton, but faced the prospect of paying $800/ton on the remainder when he priced his local retailers last week. Some suppliers were temporarily out of product at any price, he noted.

A major shift in hedging habits also could mean fewer growers have pre-priced 2012 crop production. Brokers report farmer futures and options trading is off by 50 percent since the collapse of MF Global last fall, Bachman said, a fact confirmed by at least one central Illinois commodities firm. The plunge even affected brokerages that did not clear through MF Global, the broker said, since ADM handled his trades.

Evidence that MF Global confiscated funds from private accounts soured growers on futures markets, Bachman added. But corn prices slid almost 70 cents per bushel since August 2011 while inputs are on the rise. Bottom line: Margins will definitely be tighter in 2012, so now is not the time to ditch normal risk management habits. — Marcia Taylor, DTN

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