Input costs nix next year’s profits

After reaping bumper profits for corn and sobyean crops during the past two years, some U. S. farmers face potential losses for their 2009 crop even before they have finalized their planting strategy.

Prices for corn and soybeans have tumbled so much that growers who already locked in input costs for next year’s crop when prices were booming need a rebound to earn a profit.

“In a sense… you could look at it that you are locking in a loss (if you booked when input prices were high),” said Garry Niemeyer, a farmer in central Illinois. In northern Ohio, farmers would need to receive $5 per bushel for corn to break even, according to an informal study of current input costs provided by a grain dealer in that area. That would require prices to rise about 42 per cent from the current cash corn price in northern Ohio of $3.52 a bushel.

The break-even soybean price was $9.83 a bushel, about 14 per cent above the current cash price of $8.64 a bushel, the study said. Fertilizer, the biggest input cost for corn production, came in at $242.17 per acre, according to the study. Fertilizer cost $83.73 per soybean acre.

Scrambling

Labour costs came to $44.85 per corn acre and $39 per soybean acre. Farmers have seen the costs of key inputs such as the price of fuel for tractors and fertilizer swing wildly amid global economic weakness. Fertilizer prices surged in the first half of 2008 as demand boomed on tight inventories and record grain prices that left farmers scrambling to seed as many acres as possible.

Prices have tumbled during the past few weeks but have not matched the nearly 54 per cent plunge in corn futures or the nearly 47 per cent drop in soybean futures from record highs. Some fertilizer producers were cutting production to keep prices from falling further. Some growers were planning on voiding fertilizer contracts booked during the summer, Niemeyer said.

But farmers who do not fertilize their cornfields before the ground freezes for the winter face the prospect of lower yields next harvest. U. S. Midwest farmers were finding that the size and condition of their recently harvested corn and soybean crops were having little impact on the prices that grain dealers were offering for their supplies, farmers and agricultural economists said.

Fundamentals

Most growers were getting prices based on non-agricultural factors such as the ups and downs of the U. S. dollar, weakness in crude oil and the performance of equity markets. “I think there is a realization that those are the fundamentals of the market,” said Darrel Good, professor of agricultural marketing at the University of Illinois. “We continue to call those outside markets but what goes on there is fundamentally important for demand for corn and other commodities.”

Some farmers were maintaining traditional practices to ensure some level of predictability amid the wild gyrations of both the inputs and the crop prices. “I’m sticking with my regular rotation,” said Daryl Haack, a farmer in northwest Iowa. “To try and outguess those markets is pretty tough.” Haack locked in prices for his fertilizer in June.

Although Haack is sticking to his traditional planting strategy, the weakness in the cash prices of corn and soybeans may cause him to hold on to his recently harvested crops a little bit longer than usual to see if prices rise as planting season gets closer. “This is a roller-coaster ride,” Niemeyer said. “We’ve had higher highs than we should have had. We have probably had lower lows than we should have.”

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