Crop input prices increased dramatically during the past year.
Fuel and fertilizer are the main culprits and these price increases promise to shrink profits severely in 2006. Therefore, it is imperative that anyone who raises cash crops or livestock feed exercise tight control over inputs applied and fuel used.
Barry Ward, Ohio State Extension leader, production business management, Department of Agricultural, Environmental and Development Economics, provides some information you can use to update your crop budgets for 2006.
While you may already have applied some of your fertilizer, purchased seed and other inputs, there is still time to re-think some of your plans in order to reduce costs.
Fuel. As fuel prices (and oil company profits!) continue to rise, this has a major impact on crop production inputs.
Off-road diesel fuel was projected (in December 2005) to average $2.20 to $2.50 per gallon, a 19 percent to 35 percent increase over 2005.
Propane gas prices were expected to increase 17 percent in 2006, on top of a 20 percent increase last year.
Expect propane to average $1.40 per gallon in 2006.
Anything you can do to combine operations or otherwise reduce trips over the fields will help reduce the use of expensive fuel.
Modern crop dryers can reduce LP Gas use by as much as 60 percent, plus there may be some Department of Energy incentives (grants) to help pay the cost of new, more energy-efficient drying equipment.
Contact equipment suppliers for information.
Fertilizer. As you know, fertilizer prices have increased too, largely due to fuel price increases, primarily natural gas.
Fertilizer prices are also increasing because of strong world demand and devaluation of the U.S. dollar.
All major nitrogen fertilizers begin with the fixation of nitrogen into ammonia.
Anhydrous ammonia is made from natural gas and air. Urea is manufactured from anhydrous ammonia and carbon dioxide.
Urea ammonium nitrate solutions (28 percent) are made by combining urea and ammonium nitrate in water.
So, all of these fertilizers have natural gas as an important ingredient.
Ward expects nitrogen prices to increase 22 percent for 2006, on top of the 15 percent increase experienced in 2005.
Phosphorous fertilizers originate from rock phosphate deposits in North Carolina and Florida, which is treated with sulfuric acid to form phosphoric acid.
Phosphoric acid is treated with anhydrous ammonia to form the major phosphate sources mono-ammonium phosphate, di-ammonium phosphate, and ammonium phosphate.
More on fertilizer. The U.S. is the world’s largest exporter of phosphorous fertilizers.
Ward says we can expect an increase in phosphorous fertilizer cost around 5 percent, on top of the 24 percent increase in 2005.
Mono-ammonium phosphate prices are projected at $325 per ton for 2006.
Potassium fertilizers are primarily made from salt deposits in Saskatchewan, Canada.
World demand for potash fertilizers is increasing faster than production capacity, which along with increased transportation cost (fuel) will result in a 32 percent price increase for 2006, on top of an 18 percent increase for 2005.
Potash (0-0-60) prices are expected to exceed $250 per ton.
Interest Rates. Increases in prime lending rates have caused operating loan interest rates to climb.
Expect 7.5 percent operating loans in 2006, instead of the 6.5 percent average we saw in 2005.
Seed. Expect seed prices to reflect inflation and transportation cost increases of about 2.5 percent over 2005.
Bottom line. Ward has prepared corn and soybean production budget adjustments for 2006 to reflect these price increases.
Corn budgets show cost increases for 2005 of about $16 per acre or about 10 cents per bushel over 2004 budgets.
For 2006, increases are about $22 per acre or 14 cents per bushel over 2005 budgets.
Soybean budgets show an increase of about $10 per acre or 18 cents per bushel in 2005 and $6 per acre or 10 cents per bushel for 2006.
Get details. You can read Ward’s entire article on line at: http://aede.osu.edu/programs/outlook/2005-06outlook/CropInputsOutlook.pdf.
You can view and download all the Extension Crop, Livestock and Specialty Enterprise Budgets at: http://aede.osu.edu/programs/FarmManagement/budgets/.
Feel free to use these budgets, but remember that, except for the ones updated by Ward, they will not reflect the updated cost figures for 2006.
(The author is an agricultural extension educator in Columbiana County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)