 "If crude oil prices continue to rise, production costs for corn
and soybeans likely will continue to rise," said Gary Schnitkey,
a U of I Extension farm financial management specialist. "Rising
energy costs have brought into existence an era of high
production costs for corn and soybeans."These higher costs
necessitate higher corn and soybean prices for farmers to be
profitable."
That is the conclusion of Schnitkey's report,
"Impacts of Rising Crude Oil Prices on Corn and Soybean
Production Costs," available on Extension's farmdoc site.
The report's co-author is Anuj Gupta, a former undergraduate
student in the U of I Department of Agricultural and Consumer
Economics.
"Crude oil prices, corn production costs and soybean
production costs have tended to move together over time,"
Schnitkey explained. "Recently, for example, crude oil prices
and production costs have increased dramatically.
"Between 2003 and 2007, crude oil prices increased by $39 per
barrel, a 138 percent increase; corn production costs in central
Illinois on high-productivity farmland increased by $100 per
acre, a 42 percent increase; and soybean costs increased by $45
per acre, a 28 percent increase."
Looking at the relationship among these prices since 1972,
Schnitkey and Gupta found that each $1 increase in crude oil
price increases corn production costs by $1.51 per acre and
increases soybean production costs by 90 cents per acre.
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"Between 2003 and 2007, crude oil price increases accounted for 58
percent of corn cost increases and 79 percent of soybean cost
increases," said Schnitkey. "From 1972 through 2007, inflation
accounted for an average yearly increase in production costs of
$3.78 per acre for corn and $4.26 per acre for soybeans.
"Due to crude oil price increases, corn costs in 2008 are
expected to be $48 per acre higher than in 2007, and soybean costs
are expected to increase by $29 per acre."
The report also notes that model results can be used to predict
corn and soybean costs based on anticipated crude oil prices.
"Forecasts of costs should be viewed with caution, as oil prices
are outside the range of prices used to estimate the model,"
Schnitkey said. "Often, poor forecasting experience occurs in these
cases. Given this caution, our model suggests that large increases
in crude oil prices could lead to significantly higher corn and
soybean costs.
"For example, a $120 crude oil price implies a $78 increase in
corn costs, a 23 percent increase over 2007 corn costs. Soybean
costs would increase by $47 per acre given the $120 crude oil price,
a 23 percent increase over the 2007 soybean costs. A $150 crude oil
price results in a $124 corn cost increase per acre, 36 percent over
2007, and a $74 per acre soybean cost increase, 36 percent over 2007
levels."
[Text from file received from
University of
Illinois Extension] |
