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Association Perspectives What has a greater bearing on the long-term competitive of farms in the Northern Plains, commodity prices (income) or costs? That’s a “chicken or the egg” type question, since profit comes from managing both sides of the equation; earning more than what you spend. But the cost side of the ledger sure seems to sting more than it used to. Is it because farm costs seem to be rising faster than farm income? Is it because farmers have become more adept at managing farm income than farm costs? Maybe a bit of both. Fallouts in price are insulated in part by federal farm programs. These programs may look very different five to 10 years from now. But as long as Americans eat food, odds are good that some sort of commodity price or farm income support structure will remain in place to help ensure domestic food security. Many of today’s farmers are also adept at boosting net return by turning to different crops or livestock, producing more bushels, increasing product quality, or growing for niche/value-added markets. As well, many of today’s farm families are supplementing farm income through other means, such as side businesses or off-farm income. We might not always like the volatility of commodity prices, but there’s always hope in the fact that prices can go up as well as down (and they do both), in response to market demand and supply. There’s also flexibility in responding to the market by what you produce. If the price of one crop is poor, one can turn to another crop or if you have livestock, place more attention on that enterprise. But the farm expense side of the ledger is becoming increasingly exasperating. Oh, there might be fluctuations here and there, but not enough, it seems, to dent the long-term inflation of farm expenses compared to return. So while a shortfall in farm income may be reason to hang up the cleats, it seems just as likely for today’s farmers – a weathered group that has become increasing proficient at managing commodity price volitility – to examine the escalating trend in the cumulative price of land, machinery, and inputs and say “man, I can’t/don’t want to do this anymore.” A recent report by North Dakota State University (requested by the North Dakota Grain Growers Association) indicated how the rising cost of fuel and fertilizer is increasingly handicapping farm profitability. NDSU economists Richard Taylor and Won Koo concluded in their analysis that compared to last year, fertilizer costs will increase about 13%, gasoline, 28%, and diesel 55%. They figured that the typical producer in North Dakota will spend between $15 and $19 per acre more for energy products in 2005, depending on location, cropping and production patterns, and actual fuel price increases. The authors point out that higher energy costs affect the bottom-line of farms in other ways as well, inflating household living costs, as well as transportation costs. The report can be found in its entirety online at www.ag.ndsu.nodak.edu/capts – click on the “publications” link, then “Ag Policy Briefs.” See brief #5. We as leaders and members of our grain associations (you are a member, aren’t you?) are focusing on helping grain growers as much as possible to maximize profit potential, by doing what we can to influence issues that affect both farm income and farm costs. The NDSU analysis is one tool to that objective. It is a sobering yet useful reference in educating policy makers and media (as well as countering miscreants like Ken Cook of the Environmental Working Group): That rising farm costs loom as a threat to the viability of the U.S. farm production sector, and thus to domestic food security. As well, it points to the importance of advancing the development and use of renewable fuels. Over the long-term, renewable fuels hold the promise of both increasing grain use/consumption and thus supporting demand/crop price, as well as helping to reduce costs by lowering our energy dependency. Estimated Energy Costs for the 2005 Crop Year
2001 2002 2003 2004 2005* Survey Gas $/gal 1.50 1.24 1.44 1.45 1.86 Diesel $/gal 1.10 0.86 1.03 1.25 1.63 Futures Gasoline $/gal 0.95 1.30 Heating Oil $/gal 0.90 1.28 Natural Gas $/mmbtu 5.00 7.50 Fertilizer Cost Survey Nitrogen $/ton 280 210 260 350 409 Phosphorus $/ton 205 210 220 235 250 Fertilizer Production Cost mmbtu/ton 34 170 225 Estimated Increase in Energy Cost for
Percentage Increase Farm Usage Total Increase Gasoline 28 20 6 Diesel 55 80 44 Average 50 Nitrogen 17 60 10 Phosphorus 6 40 3 Average 13 |
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