Profits To Rise With Input Costs

Last week we reported that Rabobank was projecting higher input prices for 2009. A new University of Illinois also expects increased input costs, but says your growers will still make money (barring any major yield drops) — good news for your business.

The Illinois study finds that soaring energy prices will yield sharp increases for corn and soybean production next year, cutting into grower profits and stretching already high food costs.

Costs to get crops in the ground will jump by about a third in 2009, fueled by fertilizer prices expected to surge 82 percent for corn and 117 percent for soybeans, says Gary Schnitkey, an agricultural economist who conducts the annual survey of input costs. Along with fertilizer, grain growers also will see hefty cost increases next year for inputs ranging from seed to fuel for tractors and other machinery, according to the study.

With commodity prices high, the increased production costs should merely trim farm profits rather than sinking balances into the red, says Schnitkey, who predicts growers will likely post solid earnings again in 2009.

The study projects non-land production costs for corn will total $529 an acre next year, up 36 percent from 2008 and nearly 85 percent higher than the average of $286 per acre from 2003 to 2007. At $321 an acre, soybean input costs are projected to rise 34 percent from 2008 and more than 78 percent from the 2003-07 average of $180 an acre.

Schnitkey says the per-acre costs are based on high-producing farmland in central Illinois, but corn and soybean growers across the country will see similar increases.

Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in central Illinois, based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel, based on yields of 54 bushels per acre.

Schnitkey says 2009 prices should be significantly above break-even prices. Based on futures markets, corn should sell for about $6 a bushel next year, with soybeans in the $13 to $14 range.

Input prices will have doubled in just a few years and that’s a major investment for growers. “If something bad happens that hurts yields, their downside risk is much higher now,” he says.

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