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Big in 2010: Input costs, grain market volatility top farm issues for new year

Agriculture.com Staff 12/23/2009 @ 10:34am

The squeeze of input costs, making outdated infrastructure work, and a possible fuel fight on Capitol Hill are just a few of challenges waiting for farmers and others in the ag industry as the last page of the 2009 calendar's torn away.

2009 was anything but a typical year in a lot of ways: The economy slumped into a recession that "had the most dramatic impact on consumer wealth and income since the Great Depression," says Rabobank Food and Agribusiness Research and Advisory director Stephen Rannekleiv. Though many economists say the economy's catching up and the recession's ending as 2009 comes to a close, it hasn't stopped the downturn from hitting agriculture.

One area where that's happened is in the grain markets. While other traditional investments spent much of '09 on shaky footing, the grain futures trade offered opportunity for investors, who began to return to the CBOT grains. That will likely mean the grains will be a volatile marketplace in 2010.

"Price volatility is expected to continue at historically high levels -- making price and capital risk management more difficult. Price risk management for margin and capital protection is an increasingly important aspect of managing a business in this industry," according to a Rabobank report, whose assistant vice president Erin FitzPatrick adds "prices for all three major grains and oilseed crops are expected to continue above their long-term average levels, and lower input costs, should provided some support to on farm margins."

Even if input costs do trend lower in the next year, a lot of farmers still will likely face some voluntary cost-cutting to get them below the breakeven point and avoid cutting traditionally "untouchable" costs like land values and rental rates, says Mississippi State University Extension crop specialist and certified crop adviser in Kosciusko, Mississippi, Ernie Flint.

"We have one choice, and that is to reduce costs," he says. "In the past, every time a good piece of land became available there has always been someone there to pick it up; but we may actually see farmers dropping some of their more distant parcels, those with the higher rental rates, and those with marginal profitability. We will also see voluntary reductions in all other inputs including labor, pesticides, fertilizers, equipment, and seed. Tillage operations will be all but eliminated as a further cost saving."

Even if farmers don't have to make major management changes like these, caution is the theme for a lot of farmers as they look ahead to securing crop inputs for the next year.

"Growers are cautious in every purchase descision they make and have a belief that cost associated with soil fertility, crop protectants, and seed will soften if they are patient," says Alcolu, South Carolina-based Southern States Cooperative certified crop adviser David Wallace.

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The squeeze of input costs, making outdated infrastructure work, and a possible fuel fight on Capitol Hill are just a few of challenges waiting for farmers and others in the ag industry as the last page of the 2009 calendar's torn away.

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