Total variable input costs for this year’s corn and soybean crops are likely to stay about the same as last year. Variable input costs are the costs of production like fuel, fertilizer and seed but don’t include fixed costs like cash rent. Alan Miller, a Purdue Extension farm business management specialist says costs this year are a mixed bag and some costs will go up.
“We’re expecting that seed will be higher. Nitrogen fertilizer will definitely be a little bit higher, but there are going to be other things that offset that. One thing we’ve been talking about recently is crop insurance premiums and we are expecting that those actually will be down and so overall the ups and downs sort of cancel each other out. So for now it looks like the variable costs will be relatively stable. That’s the good news.”
And yes, there is some bad news. Miller says that would be projected increases in those fixed costs.
“You know things related to the cost of the land farmers use and the machinery. Those things are going up so I’ve got my corn fixed costs up 10 percent for average yield corn. I’ve got soybeans up 7 percent and so the total cost of producing these crops is more expensive.”
Miller estimated seed costs per acre on average-yield farmland would increase by $8 for corn and $7 for soybeans. He says production challenges and resulting tight supplies factor into higher corn and soybean seed prices.
“Commodity prices are relatively high so you can really see that in the seeds. When you look at those seeds like soybeans where the commodity itself is a larger percentage of the total cost of that seed, that’s probably the biggest driver. Then second is the challenge seed producers have had for at least the last two years in terms of actually producing seed. There was drought last year obviously but the year before wasn’t a great year for producing seed in the Midwest and so the tighter supplies always lead to higher prices.”
He adds diesel fuel prices will be down, but propane will be up slightly. Propane prices are forecast at $1.60 per gallon for the fall of 2013 and that is up 8 to 10 percent from the fall of 2012, but down significantly from the fall of 2011. Diesel fuel will be down a projected 2 to 3 percent from last year, according to the most recent U.S. Energy Information Administration forecast.
“The state of the global economy and higher domestic oil and gas production are factors driving the forecast for diesel fuel prices,” Miller said.
The rise in nitrogen fertilizer prices is attributable to tight supplies and transportation problems and there could be an increase of about 2 to 5 percent over last year’s already pricey nitrogen fertilizers, such as urea, liquid nitrogen (28 percent), or anhydrous ammonia.
But some nitrogen price relief could be on the horizon as the domestic fertilizer industry considers expanding production capacity to take advantage of abundant supplies of relatively cheap natural gas in the U.S., Miller said.
The price of another common fertilizer – potash – is down about 8 percent from last January because of abundant North American supplies. Those prices are expected to remain stable into planting season.
Phosphate fertilizer prices, while down almost 4 percent from last January, are expected to increase as spring planting season approaches.
“Ammonium phosphate products account for a large part of the phosphate fertilizer market in the U.S.,” Miller said. “Phosphate prices are expected to increase 1-3 percent into the spring of 2013 as suppliers rebuild inventories, and due to the influence of nitrogen in phosphate products.”
Prices paid for chemicals, such as fungicides, herbicides and insecticides, are expected to hold fairly steady, Miller said.
The decline in crop insurance premiums could reach 4 to 5 percent in 2013 and interest rates remain flat and relatively low in Purdue’s variable cost estimates for 2013.
Source: Purdue Ag Communications