|
"Of the $50 increase in per-acre costs between 2003 and 2005,
less than half are directly attributable to rising energy
prices," said Gary Schnitkey, who co-authored the study with
Extension colleague Dale Lattz. The complete report, "Cost
Increases: It's Not Just Energy," can be read online at
http://www.farmdoc.uiuc.edu/
manage/newsletters/fefo06_11/fefo06_11.html.
The report examines production costs for grain farms in the
northern, central and southern sections of Illinois, based on
data provided by the Illinois Farm Business Farm Management
Association.
"Per-acre costs are divided into 'energy-sensitive costs' and
'energy non-sensitive costs,'" Schnitkey explained.
"Energy-sensitive costs are those whose prices are directly
influenced by changes in energy prices. These include
fertilizer, fuel and oil, drying, and utilities.
"The remaining costs are placed in the non-sensitive
category."
For northern Illinois grain farms, per-acre financial costs
have increased from $349 per acre in 2003 to $399 in 2005, an
increase of $50 per acre.
"Since 1980, no other two-year period has had as large an
increase in costs as between 2003 and 2005," he noted. "Of the
$50 increase, energy-related items account for $22 per acre, or
44 percent, of the cost increase. Fertilizer is the leading cost
increase category, with a $16 per-acre increase between 2003 and
2005. Fuel and oil costs increased by $6 per acre during that
time.
"Energy non-sensitive costs have increased by $28 per acre in
that period. Costs in this category with large per-acre
increases include cash rent, seed, pesticides and interest."
Schnitkey pointed out that northern Illinois is not unique.
[to top of second column] |
"Central Illinois grain farms have cost increases of $42 per acre,
with 47 percent of the increase coming from energy-sensitive items.
Southern Illinois grain farms have costs increases of $69 per acre,
with 34 percent coming from energy-sensitive items." The report
has a number of implications, he added.
"Energy-sensitive costs have the possibility of declining in the
future if prices for oil and natural gas decrease," Schnitkey said.
"At this time, energy price decreases seem unlikely. However, oil
and natural gas are commodities, and commodity prices are
notoriously sensitive to supply-and-demand changes.
"In the future, energy prices could decline with findings of new
supplies or reductions in demand. Declines in energy prices are not
unprecedented, as illustrated by energy prices during the 1970s
through the 1990s."
Production costs that are not as energy-sensitive, such as cash
rents, seeds and pesticides, have less chance of declining, he
noted.
"The increases in the non-sensitive cost categories signal a
general, permanent higher level of costs," he said. "This higher
level of costs introduces heightened risks, as revenue declines
could lead to lower levels of income than in previous years."
To date, Schnitkey said, corn and soybean prices appear like they
will be higher in 2006 than in recent years.
"Given cost increases, these higher levels of prices do not
necessarily signal higher profitability to grain farms," he said.
"Overall, higher revenue caused by rising prices may counter cost
increases, leaving per-acre returns near recent levels."
[University
of Illinois College of Agricultural, Consumer and Environmental
Sciences news release] |
