Input costs edging up for 2011 crop
Did last week's big USDA numbers cause you to question your acreage decisions for your 2011 crop? If you're still on the fence, maybe the expense side can help you decide.
Non-land costs (fertilizer, seed, pesticides, drying, storage, crop insurance, power and overhead) for the coming crop year look to be higher than last year, but still not quite at 2009 levels, according to University of Illinois ag economist Gary Schnitkey. Numbers the economist released Tuesday show per-acre expenses will average just under $500 ($492, to be exact) for "high-productivity farmland" like in central Illinois. Once you add in land costs -- which Schnitkey says will average around $230/acre -- and total per-acre costs are $722/acre.
Leading the charge, Schnitkey says, is fertilizer. "Since August, anhydrous ammonia prices have increased and were reported at $777 per ton in January 6, 2011 report," he says. "During this same time frame, diammonium phosphate (DAP) prices increased by $163 per ton, reaching $672 per ton on January 6, 2010. Potash prices increased $74 per ton, reaching $565 per ton on January 6."
And, with the current outlook for grain futures, it's safe to say the fertilizer market will move in one direction between now and planting time. "In recent years, fertilizer prices have exhibited a positive correlation with corn prices. Theoretically, this relationship could exist because higher corn prices signals higher corn and wheat acres, leading to higher demands for fertilizer," Schnitkey says. "Whatever the cause, corn and fertilizer prices are not likely to decrease through spring 2011."
What do these higher prices mean to corn production in 2011? As of right now, prices are well above the break-even range Schnitkey says will be likely through this year, from $3.80 to $4.00 per bushel. So, corn still looks like a safe bet despite projected higher input costs.
"Given current corn prices, corn production looks to be profitable in 2011 even with higher production costs. While profitable, rising production costs have increased the break-even price necessary to cover costs," he says. "Continued cost increases will raise break-even levels in 2012. These high break-even prices suggest the need for continued prices above $4.00 per bushel in order for profitability to continue."