Thursday, April 14, 2011

The 2011 Farm Season

Robert Blair photo

Input costs take a sharp hike, farmers looking for ways to save money

Boise--Just as Idaho farmers were getting to the point of making a decent living thanks to favorable market prices, another dark issue has come into play that could topple the fragile balance between farmer profit and debt.

Input costs have climbed so dramatically that many farmers are scrambling to cut corners in order to break even, despite projected favorable markets across the board.

Farmer Mike Garner of Raft River, Idaho started the season under the input cloud. “They’re up significantly everyone knows what fuels done at the pump versus last year, we have to live with those prices and it’s not going to be easy. Commodity prices are higher and we’re thankful for that, but it seems we can never get the break we need to make money.”

The United State Department of Agriculture projects that farm expenses this year could top the $286.6 billion, the second highest mark on record while Purdue University Ag economists say that costs are up 13-percent from 2010. Most of the input hikes are coming from skyrocketing fertilizer prices.

“For rotational corn, our estimates show variable costs in 2011 up around 13 percent compared to 2010,” said Bruce Erickson, director of cropping systems management at Purdue. “For winter wheat we’re estimating that costs will be 13 percent higher.”

Idaho farmers like Garner are looking at their options. “We cut where we can without cutting production, we’re trying to do things more efficiently. We look at everything we do and make cuts, we will apply elemental sulfer every other year, we can skip a year without much problem, we can do things like that. If I can cut a pass across a field, Im going to, we can save $15 to $20 bucks and acre there and we will look at minimal tillage.”

Average per-ton fertilizer prices from April to November jumped from $520 to $736 for ammonia, $503 to $661 for diammonium phosphate, and $501 to $526 for potash, according to USDA.

Commodity prices have risen “but when you start looking at input costs, our margins are the same but the risks are exponentially higher,” said Ron Moore, chairman of the Illinois Soybean Association. “Fertilizer prices have gone up 50 percent in our area since last summer.”

Farmers are doing research online and flooding sites with tried and true ways to save money. The University of Nebraska is offering tips to farmers listing 5 ways to hedge against rising input costs:

Prepaid Inputs. Seed, fertilizer, fuel, chemical, and others offer discounts and attractive financing terms for purchases before planting. For fuel, many dealers allow farmers to split price fuel for planting and harvesting and sign contracts for future delivery. Some will give the farm a better price if there is storage for a season’s worth of fuel to be delivered during the off season. Full tanker loads that can be delivered to the farm also may be discounted. Fertilizer dealers may offer some of the same opportunities for early delivery and/or truckload quantities.

Bulk Containers. Buying seed or crop protection chemicals in bulk containers also means lower prices.

Group Purchasing Power. Some farmers are pooling their input purchases to get price breaks. The key is to get a pool large enough to get a quantity discount, such as with tanker loads or bulk containers.

Competitive Pricing. The competition among dealers is getting tighter, it's good to see who can deliver your products at the most competitive price and in a timely manner.

Price Guarantees. With the 2011 crop, locking in input prices will help nail down profit margins. If input prices are unsure, the margins could be much smaller when the crop is actually delivered and sold after harvest. With increasing volatility and more interest in forward marketing, early pricing of inputs is becoming more important to the bottom line.

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