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 Major inputs being impacted
by increased costs include seed, crop chemicals, equipment, labor
and land. Rising prices are a cause for concern in the agricultural
industry.
In July 2021 the Purdue University/CME Group Ag Economy Barometer,
which surveys agricultural producers each month, shared its mid-year
findings. CME’s principal investigator James Mintert said, “Farmers
expect their input costs to rise much more rapidly in the year ahead
than they have over the last decade, contributing to their concerns
about their farm finances and financial future.”
Reasons for input costs rising
A variety of factors have led to rising input costs.
For example, higher yields of corn and soybeans leads to higher seed
prices. As farmers plant more acres, there is more demand for seed,
which results in high prices for feed commodities.
Soaring prices on new and used equipment used in the fields also
contribute to escalating costs. Technological advancements and
equipment maintenance are part of the issues. Getting the parts to
fix the tractors can be a problem due to transportation and supply
chain issues.
Higher diesel prices have driven up fuel and oil expenses used for
the equipment.
Increases in minimum wage have driven up costs for hired labor.
Increased supply chain issues during the pandemic have led to
shrinking inventory and shortages of products in many sectors. The
fertilizer market has been especially impacted.
Labor shortages in companies transporting fertilizer add to the
supply chain issues and increased costs.
Higher raw material, energy and freight costs are other factors
contributing to the higher costs of chemicals.
Additionally, many sources say the chemical market has been affected
by shortages of glysophate, sanctions on producers of potash and
China halting phosphate exports.
These factors are projected to continue having an affect on prices
into 2022.
Results of rising input costs
The rising input costs have had several adverse impacts that cause
concern for farmers.
The affect of higher costs and their impact on 2022 crop budgets is
one area of concern. These costs were projected in a July 2021
FarmdocDaily report by Ag Economists Gary Schnitkey, Krista Swanson,
Nick Paulson and Carl Zulauf.
One of the predictions is that “non-land costs for 2022 corn and
soybean production are projected to be at all-time highs. "For corn,
total non-land costs in 2022 are anticipated to be $677 per acre,
which is a $70 per acre increase from the $607 per acre in 2021. For
soybeans, total non-land costs in 2022 are expected to be $413 per
acre, which is a $42 per acre increase from the $378 per acre in
2021."
Summary findings from the USDA’s September outlook provide
additional predictions on rising costs and their results:
• Feed expenses “are forecast to increase by $6.2 billion (11.0 %)
in nominal terms to $63.1 B in 2021” in connection to higher prices
for feed commodities.
• Fuel and oil expenses may see a $3.3 billion, or 27.1 % increase.
It would raise the amount to $15.2 B. The U.S. Energy Information
Agency's August forecast of higher diesel prices in 2021 factors in.
• Labor expenses are forecast to increase to $39.0 billion. This
increase is due to $2.1 B increase in hired labor expenses.
• Net rent to landlords is forecast to increase by in 2021 to $19.2
billion. It is a $1.1 B, or 6.1 % increase.
• Fertilizer-lime-soil conditioner expenses are expected to grow by
3.9 %.
• Seed expenses are expected to and 1.4 %.
With higher seed costs, some farmers are using lower acreage due to
the costs of seed. This can affect their returns.
Some say the chemical market has had some of the most significant
impacts. Dow Jones writer Kirk Maltais reported in late September,
“The cost for fertilizer is at its highest level since 2008 at
nearly $900 per short ton.” With these increased costs Maltais said
farmers are “concerned about higher input costs going into the next
crop year.”
These increases in prices for crop chemicals are making some rethink
their acreage allocation. Some farmers are switching to wheat and
other plants needing less fertilizer.
Additionally, sources show some farmers are cutting application
rates of certain fertilizers or not using fertilizer. As a result,
some believe the price of fertilizer may continue to rise next year.
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Along with non-land
costs being impacted, land costs increased from 2020 to 2021. As the
August 17, Farmdocdaily showed, “The average cash rent in Illinois
was $227 per acre, a $5 increase over 2020 levels.” Sources indicate
the increases were the largest since 2013.
The increase on cash rents may continue into 2022, further impacting
farmers. Schnitkey, Paulson, Swanson and Zulauf said, “Increasing
2022 cash rents could lead to low and negative farmer returns if
prices return to their average levels experienced in the
late-2010s.”
The rising prices pose threats to farmers’ incomes who are banking
on good profits with crop prices increasing.
The impact is being felt beyond farming as higher costs affect
everyone with surging food prices. For example, in July, the Labor
Department’s Consumer Price Index found costs for apples and milk
rose 6% from last year. Meat prices went up about 11%.
Some do not expect the rising costs to stop any time soon. Purdue
University/CME Group’s Ag Barometer September survey showed the
continuing concerns. In the survey, “one-third of respondents” said
they “expect input prices to rise by more than 12% in the coming
year.”
This amount “is six times the average farm input inflation rate of
the last decade.” Additionally, “Inflation expectations were higher
this month across the board with the percentage of respondents
expecting input inflation to rise above 12% doubling since July with
an increase to 34%.”
Fortunately, there is hope on the horizon for improved outlooks.
As we move toward the end of 2021, the USDA’s September Farm Outlook
projected higher farm income this year. This could help offset
increased expenses. The USDA says, “in inflation adjusted dollars,
the 2021 net farm income projection of $113 billion, if realized,
would be the highest since 2013.”
Projections are showing a positive trend, too. Schnitkey, Paulson,
Swanson and Zulauf say, “Even with rising costs, projections are for
positive 2022 returns to farmers of $24 per acre for corn and $150
per acre for soybeans on cash rented land.” If high commodity prices
stick around, they feel “farmers could remain profitable even given
rising input costs.”
Resources:
Goodwin, Kami and James Mintert. “Ag Economy
Barometer falls for second month; rising input costs causing concern
for farmers.”
https://www.purdue.edu/newsroom/releases/
2021/Q3/ag-economy-barometer-falls-for-second-month-rising-input-costs-causing-concern-for-farmers.html
Good, Keith Higher Fertilizer Prices Could Impact
U.S. Acreage Allocation, as Power Issues in China Impact Feed Costs
September 30, 2021
https://farmpolicynews.illinois.edu/2021/09/
higher-fertilizer-prices-could-impact-u-s-acreage-allocation-as-power-issues-in-china-impact-feed-costs/
Schnitkey, Gary, Kristi Swanson, Nick Paulson and
Carl Zulauf. “2022 Crop Budgets Contain Higher Costs.” Farmdocdaily
(11):112. Department of Agricultural and Consumer Economics,
University of Illinois and Urbana-Champaign, July 27, 2021.
https://farmdocdaily.illinois.edu/2021/07/
2022-crop-budgets-contain-higher-costs.html
Schnitkey, Gary, Kristi Swanson, Nick Paulson and
Carl Zulauf
“Cash
Rents Rise in 2021 with Implications for 2022.”
U.S. Department of
Farmdocdaily (11):120. Department of Agricultural and Consumer
Economics, University of Illinois and Urbana-Champaign, August 17,
2021.
https://farmdocdaily.illinois.edu/2021/08/cash-rents-rise-in-2021-with-implications-for-2022.html
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