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What will it cost to raise the 2009 crops?

Agriculture.com Staff 01/06/2009 @ 12:58pm

The U.S. economy's in trouble, and those woes are trickling into the ag sector. Fuel prices are lower and fertilizer costs are expected to slide this year, and a looming battle for 2009 acres between corn, soybeans and wheat -- along with grain prices -- will hinge largely on factors like these.

But, these are volatile times for markets like fuel and fertilizer, and that's translating to a cloudy crystal ball with 2009 corn and soybean production costs, says Iowa State University (ISU) Extension economist Mike Duffy. It's important to get a handle on production costs now, but that's going to be a tall order.

"Farmers need to know their costs of production so they can tell where to concentrate for trimming expenses. Too often in such times the strategy is simply cutting back but this can do more harm than good if cuts are made in the wrong area," Duffy says. "Farmers need to be prepared for volatility in input prices and commodity prices. Risk management is going to take on a new meaning and urgency in the years ahead.

"Now is the time when we need to know our costs. Average estimates and estimates from other farms can be good guidelines but nothing substitutes from knowing our own costs of production," he adds.

So, what's the outlook for the "Big Three" variable input costs -- fuel, fertilizer and land -- in the coming year?

The U.S. economy's in trouble, and those woes are trickling into the ag sector. Fuel prices are lower and fertilizer costs are expected to slide this year, and a looming battle for 2009 acres between corn, soybeans and wheat -- along with grain prices -- will hinge largely on factors like these.

Volatility is higher than ever for most inputs, Duffy says, and it will be important for farmers to find ways to hedge against this volatility, especially on the high side.

With the recent news that wholesale fertilizer prices had started to turn lower, it seemed the factor on which many acreage decisions have been based in the last two years had finally ended its cost squeeze on farmers. That price decline isn't yet reaching the farm level, though.

The dramatic rise in farmland prices and values is expected to slow in 2009. That's not to say it's totally leveling off, however; Duffy expects an eight-percent increase in land rents over '08 levels in the coming year. But, a lot depends on other variables weighing on grain prices.

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