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Expert: Production costs for corn, soybeans rising
By DOUG SCHMITZ
Iowa Correspondent

AMES, Iowa — An Iowa State University (ISU) ag economist has forecasted higher fuel and fertilizer prices - spiking the costs of raising corn and soybeans in 2006.

“The last few years, we’ve had good yields,” said ISU Extension Agricultural Economist Mike Duffy last week. “(But) when we looked at the five-year average yields, we felt it was more reflective to bump them up.”

Duffy prepared the data with ISU Extension Associate Darnell Smith to help U.S. farmers calculate costs on their farm operations. They estimated it would cost $3.40 a bushel to raise corn based on a 140-bushel average yield last year.

The data also forecasted low-till corn following soybeans would cost about $2.78; herbicide-tolerant soybeans following corn (45-bushel average yield) would cost $7.19 a bushel; and drilled herbicide-tolerant beans following corn would reach $7.24 a bushel.

Duffy said nitrogen costs would be nearly 30 percent more this spring, forecasted at $520-$550 per ton, up from $400 a ton in 2005, with diesel fuel costing between $2 and $2.20 per gallon.

What’s more, raising 155-bushel-per-acre corn on a central Iowa farm would cost about $2.83 per bushel, up from 2005’s cost of $2.76 a bushel calculated on 150-bushel-per-acre corn, Duffy added.

According to Duffy, higher energy costs are also reflected throughout the estimated costs from planting to combining to hauling and drying. Additionally, the cost for labor is higher; $10.50 per hour versus $9.50 per hour a year ago.

Anamosa, Iowa corn grower Gary Edwards agreed with Duffy’s estimates and went further by suggesting that energy costs may even trigger the next farm crisis.

“Mike is making some really important points that may escape the reader at first glance,” said Edwards, who also sits on the Iowa Corn Growers Assoc. board of directors. “It isn’t just the extra cost of fuel for the tractor and combine, but the combining factor when the extra cost in transportation and energy is considered in all input costs.

“The cost of anhydrous has gone up tremendously, but the cost of liquid fertilizer has also risen at about the same rate,” he said. Currently, the annual usage of corn for food is about 6 billion bushels. Corn for industrial uses, which includes energy, is 2.5 billion bushels. The volume is exported corn is at 1.5 billion bushels. There is currently more than 2.5 billion bushels of corn carryover - and climbing.

In another change, Duffy also calculated nitrogen at 100 units, at 35 cents a pound, for 135-, 155- and 175-bushel yields, which were based on a new nitrogen rate calculator developed by ISU Agronomist John Sawyer; the previous standard was 1.2 pounds of nitrogen for every bushel of corn.

“It doesn’t look at whether it’s 120- or 150-bushel ground,” Duffy said. “The more important factor is the ratio of the nitrogen price to the price of corn.”

Although there may be a few farmers at 100 units rate, Edwards said the majority is well above that rate.

“At 35 cents per unit, each extra 10 units will raise the cost of production over 2 cents per bushel,” he said. “So the farmer using the traditional method of calculating nitrogen will use about 150 pounds of nitrogen, which will raise the cost of production by almost 12 cents per bushel. That is a substantial amount in today’s competitive world.”

In addition, Duffy said the costs are up for phosphate by 4-37 cents a pound, and potash, up 5-23 cents per pound, with cash rent calculated at $145 per acre, up $5 per acre from 2005.

U.S. farmers are also putting on more liquid nitrogen rather than anhydrous because of the rising cost of anhydrous, which may result in reduced nitrogen rates this year, Duffy said.

“I’ve heard more that farmers will look at manure and take an N credit. I haven’t heard of anyone cutting back,” he said.

Edwards said another factor spiking prices is land costs, which are at or over $1/bushel produced or nearly one-third the cost of production.

“At these levels and as we move into the global economy, agriculture becomes more highly dependent on the government to even the playing field,” Edwards said.

“While the demand for protein, meat in particular, continues to rise in the Asian and developing markets, the demand is not expected to offset increased production in the U.S., let alone increased production on a world scale,” he said.

In the short term, Edwards said the cost of energy may increase production costs by 2.5 percent to 7 percent.

But in the long run, Edwards said the sale of renewable energy may be the saving grace for agriculture’s survivability. “It makes economical sense to utilize this excess agricultural production capacity to create the needed renewable energy in the form of ethanol and biodiesel,” he said.

But as increased energy costs are realized, Edwards said the cost of corn and soybean production are going to continue to rise at a rate greater than what Duffy forecasted.

This farm news was published in the February 8, 2006 issue of Farm World.

2/8/2006