Production Costs To Keep Rising
July 31, 2008 Bet this latest Rabobank finding won’t come as a surprise: Crop input prices just keep going up. What does this mean for next year?
The report, “U.S. Crop Inputs,” notes that a lot of attention has focused lately on the run-up in the production of agricultural commodities and its effect on food prices. Additionally, key crop input prices are also rising and show no sign of slowing.
"Farmers’ use of key crop inputs is reaching record highs, while prices are also at record highs, which is putting the pinch on pocketbooks," said Associate Erin FitzPatrick with Rabobank’s Food & Agribusiness Research and Advisory (FAR) department.
During the current planting season, growers have seen a huge increase in the cost of fertilizer — in some case as much as double. Further increases in fertilizer prices will depend on the types and amounts of crops planted.
"How the picture plays out for individual farmers will vary depending on purchase times and location," said FitzPatrick. "Additionally, while 2008 price increases are painful, there would have to be an extreme change in the current marketplace for the price tag on fertilizers to lower in 2009."
Seeds, crop protection products, and farming equipment have also experienced changes that are driving costs up. For example, most key machines are sold out for the season, leaving many growers with higher maintenance and operation costs. "While at first glance it may seem that this equipment shortage is due to what many are calling the ‘Ag Boom,’ that is only part of the story," said FitzPatrick. "There has been a structural shift to fewer farms with larger acreages, which need different types of machinery."
However, larger farms do not automatically equate to economic efficiencies as all growers and suppliers are poised to continue operating along a rising price curve well into 2009. Because of this steady increase in price, FitzPatrick advised that "while average crop farm incomes are at record highs, so too are total debt/equity levels. Farmers are identifying their costs and take profits as the market allows."
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