November 29, 2010

 

US soy and corn production to cost more in 2011

 

 

US grain prices increased more this year and the costs of growing them are likely to be higher in the following year, according to Purdue University estimates.

 

The 2011 Purdue Crop Cost & Return Guide forecasts that farmers could see double-digit increases in variable costs which include fertiliser, seed, pesticides, fuel, machinery, and other expenses unrelated to labour or land rental.

 

Although prices for corn, soy, and wheat are up from this past spring, farmers will require those higher returns to offset an increase in variable crop production costs, said Bruce Erickson, Purdue's director of cropping systems management and a crop guide contributor.

 

"For rotational corn, which is most of the corn grown in Indiana, our estimates show variable costs in 2011 up around 13% compared with 2010," Erickson said. "Soy production costs will be up around 6%, and for winter wheat, we are estimating that costs will be 13% higher. If you grow corn continuously, you can expect to spend about 14% more next year."

 

Most of the projected cost increases are due to a recent surge in fertiliser prices. After years of incremental movement in fertiliser prices, the market has become more volatile since 2007, Erickson said.

 

"Crop production around the world and the demand associated with crops seem to be the primary driver," he said. "And fertiliser is becoming more and more like a world market now. Producing fertilisers is an energy-intensive business. As a result, producers often source outside US where energy costs can be a fraction of what they are here," he said.

 

Most farmers cannot do much to soften the blow of higher production costs, Erickson said. They can shop around to find the best deal for fertiliser and other crop inputs and buy in bulk and store if they think prices are heading up, he added.

 

Erickson reiterated that the crop guide contains cost estimates and a lot could happen in the market between now and when the 2011 crop is planted.

 

"We offer these estimates to provide a relative benchmark to help farmers, landowners and those working with them some perspective on the economics of producing a crop," Erickson said. "The situation for an individual farm can be more different than this depending on how and when crops were sold, how purchases were made and so on and so forth," he said

 

"While costs are back up, most crop producers are managing to stay ahead of the curve. This is in contrast to the situation with livestock producers where an increase in their feed prices further pinches returns. I am old enough to remember those long stretches of lean years on the farm so we will take this for now and ready ourselves for whatever the future holds," he said.

 

The Purdue Crop Cost & Return Guide is prepared annually by Purdue's departments of Agricultural Economics, Agronomy and Botany, and Plant Pathology.