Read information and parallels about farming, commodity prices and Washington’s reaction.
Washington, DC (www.thehandthatfeedsus.org) -Critics of farm policy like to reference high commodity prices when making the case for another raid on the farm budget—which has already sustained up to $15 billion in cuts in the past six years. But what good are high commodity prices, if the input costs are rising even higher? Furthermore, what good are high crop prices, if there is no crop to harvest, as was the case in many parts of rural America this year, which were hit with drought, floods, and heavy winds that left the land unproductive.
“They talk about the $7 corn, the $13 soybeans…but they never mention the cost of input—the cost of the seed, the fertilizer, the herbicide, the land, the machinery, the parts, and the fuel,” said Representative Leonard Boswell (D-IA) in a recent radio interview. “The cost of input is right up there… I think for $7 corn, you’ve probably got $6 worth of investment toward input costs.”
A recent white paper titled, “Cost-of-Production Report: the Rising Costs of Inputs,” which was written as an update to the Fuel and Fertilizer Report released in April 2011, addresses the rise in various agricultural input costs and how they truly effect the price of commodities.
“The most certain thing about economics,” the report begins, “is uncertainty.” And paired with the high-risk and unpredictable nature of the agricultural industry, farm economics tends to take uncertainty to a whole new level.
There are several issues around the globe—seemingly unrelated to what is grown in a field in middle America—that have spurred across-the-board increases in agricultural input costs. Conflict throughout Northern Africa and the Middle East, combined with natural disasters and booming demand in Asia, and a weakened U.S. dollar, have sent oil prices soaring.
And because diesel is a byproduct of crude oil, farm diesel prices have risen right along with the oil.
Input costs for corn, related to fuel and fertilizer, are expected to rise once again from 2010 to 2011 as well, the report says. Fertilizer will cost $127.00 per acre, fuel will cost about $46.65 per acre, and seed will run about $94.72 per acre. The total operating cost projected to plant just one acre of corn is $324.96.
And while soybeans are less energy and labor intensive than corn, they are still expected to cost growers $149.62 per acre—a 13 percent increase from the previous year.
And the same goes for growers of wheat, rice, and cotton, all of which are expected to see input costs rise over the next year.
American Farm Bureau Federation Chief Economist Bob Young released a statement on the heels of this latest white paper, saying that while it is true that the higher commodity prices are encouraging for the U.S. farm community, they have not necessarily lead to higher profit margins.
“It’s important to remember that farming is still a very capital intensive occupation and that high input costs affect the bottom line, even in good times,” Young said.
Matt Huie, a young Texas farmer is reminded of that every day.
“The amount of capital involved to get a farm or ranch operation off the ground is staggering. We borrow more money each year to cash flow our operations than most Americans borrow in a lifetime,” said Huie.
“Some cotton farmers spend $600,000 for a single piece of equipment. That’s just one machine—it doesn’t’ even take into account land costs, fuel costs, seed costs, labor costs, and all the other inputs needed to grow a crop.”
At the time of the report, an Illinois-based grower with a 270 gallon diesel fuel tank in his tractor fills up for $967. That’s 33 percent more than the $726 that it cost in 2010, and a 64 percent increase from the $588 in 2009.
What’s worse? During planting season, when the tractor burns the most fuel, fuel costs were even higher, costing farmers $1,041 to fill-up that same tractor.
“We are at a crossroads right now,” said Huie. “World population is exploding. Developing countries like China and India are adding wealth and demanding more food. We must increase agricultural production between 70 and 100 percent to keep pace. And our farm workforce is aging.”
Agricultural economics are more than just uncertain, they are scary. Yet another reason why we must stand by the “thin green line” of American farmers who will meet the needs of today and tomorrow.