UI economist: farm production prices will continue to climb

By David Mercer

CHAMPAIGN, Ill. – Crop prices are high, but a University economist says the cost of the fertilizer, fuel and other things needed to grow them will go up sharply next year, too.

And while farmers will absorb most of the increased costs through the good prices they’ll get for their crops, some of the increases will filter through to consumers already burdened by high food prices, agricultural economist Gary Schnitkey says.

The culprit, he projects, will be continued high oil and natural gas prices.

“It’s almost all totally related to energy cost increases,” said Schnitkey, who projects farm costs for the state’s grain farmers every year. “If you don’t see crude oil or the energy complex coming down, these costs aren’t going to come down either.”

Aside from the cost of buying or renting land, Schnitkey projects a typical Illinois farmer will have to spend $529 to grow an acre of corn next year, up 36 percent from about $388 this year and just $286 as recently as 2003.

The biggest reason? He expects anhydrous ammonia, a key fertilizer used in corn production, to cost about $1,000 a ton next year. That’s almost double the $536 a ton on average this year.

Similarly, Schnitkey projects farmers will spend $321 an acre to grow soybeans next year, 34 percent more than this year and almost 80 percent more than the $180 they averaged between 2003 and 2007.

Schnitkey expects crop prices to stay high next year, meaning farmers should still bring in strong profits.

But farmers are, as he says, price takers – they can’t raise their asking price, which is dictated by buyers and the market for their crops.

“Most of this, it looks to me like it’s going to come off what was profit,” Schnitkey said.

Mark Reichert, who grows corn, soybeans and wheat with two relatives near Auburn, Ill., has heard similar projections for much higher fertilizer, fuel and seed prices for next year. Auburn is about 15 miles south of Springfield.

Including land, Reichert says it costs $800 an acre or more this year to plant corn. For his family’s 1,300 acres of corn, that works out to a cost of $1.04 million.

A 36 percent cost increase would take that cost to $1.4 million. If he harvests 200 bushels an acre and sells them at $6 a bushel – that’s just over the current futures market price – he’d sell his crop for $1.56 million, netting $160,000.

Some costs, though, will have to trickle through to consumers, particularly if crop prices drop off at some point and don’t fully cover farmers’ costs, Schnitkey said.

“Consumers are going to face continued rising prices as these costs catch up,” he said.

Consumers have paid more over the past year for a range of food affected by high crop prices – from meats raised by farmers who use corn and soybean as livestock feed to drinks and snacks that use corn syrup as a sweetener.

A variety of factors have driven up crop prices, from rising energy costs to heavy demand for corn to make ethanol and growing overseas demand for animal feeds.

Reichert worries that when crop prices come down – and he’s sure that will be “when” and not “if” – his costs will stay high.

“That’s what has a lot of people worried,” he said. “You know as well as I do that your input prices are not going to be quick to follow.”