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"Variable costs for soybeans will be $20 per acre higher in 2006
than they were in 2002," said Gary Schnitkey, U of I Extension
farm financial management specialist and co-author of the report
with fellow Extension specialist Dale Lattz. "In percentage
terms, cost increases are 33 percent for corn and 19 percent for
soybeans over the four-year period. Increases of this magnitude
have not occurred in recent history and will cause reductions in
farm profitability."
The full report, "Variable Cost Increases for Corn and
Soybeans in Historical Perspective," can be accessed online at
http://www.farmdoc.uiuc.edu/manage/
newsletters/fefo05_18/fefo05_18.html.
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Data from farms enrolled in the Illinois Farm Business Farm
Management record-keeping program was used for the study. About
1,500 grain farms are included.
"Variable costs include fertilizer, pesticides and seed,
drying and storage, and machinery-related -- fuel, repairs,
machine hire -- items," said Schnitkey. "These variable costs do
not represent all costs faced by grain farms, which also include
farmland rent, depreciation, overhead, interest and labor."
The study noted that large declines for pesticides and seed,
drying and storage, and machinery-related costs for either corn
or soybeans have not occurred during the study period, which
began in 1981.
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"This experience suggests that it is not likely that decreases in
these categories will occur," Schnitkey said. "If variable costs
decline in the near future, it will likely be caused by a reduction
in energy prices, leading to lower fertilizers and fuel prices. At
this point, energy prices do not appear likely to decline."
These cost increases will have a detrimental impact on
profitability in 2006 for Illinois grain farmers, he added.
"High crop revenue in 2006 -- caused by high yields, high prices
or some combination thereof -- could cause 2006 to be a profitable
year," he said. "However, even if revenues in 2006 are as good as in
2003 and 2004, two exceptional years in terms of crop revenue, 2006
will not be as good as either of those years, because of cost
increases."
Schnitkey noted that costs have increased more for corn than
soybeans.
"This suggests re-evaluating cropping decisions, perhaps shifting
to more soybeans," he said.
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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