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2015 Ag Input Prices

As harvest 2014 comes to a close, farmers are already thinking ahead to next year’s crop production. With tumbling grain prices, many farmers are anticipating tighter profit margins in the near future, and are scrutinizing their input costs more carefully as a result. With many analysts expecting higher input costs, farmers may have their work cut out for them.

As producers look to trim down where they can and maximize where they will see the biggest return on their dollar, it seems as if many are taking a wait-and-see approach to find out if some inputs, such as fertilizer prices, will moderate in the spring. As a result, some farmers are waiting to apply their fall fertilizer, or even skipping it altogether. University of Illinois agriculture economist Gary Schnitky says farmers are looking closely at phosphorous (P) and postassium (K) needs. For nitrogen (N), some farmers are gambling that prices will drop in the spring—a reasonable gamble, since many producers will be switching their corn acres to beans. Soybeans, with their lower need for inputs such as nitrogen, will likely lower demand, thereby moderating the price. While NPK fertilizers are still the rule, many producers are also looking into alternative fertilizer sources, such as manure, to save on fertilizer costs going forward.

For other producers, trimming their input costs will mean buying older seed hybrids with less technology and a lower price tag. Many are also evaluating their planting population rates and locations, planting higher populations in higher-yielding areas and lower populations in low-yielding areas. This would readily translate into less cost for the grower. While seed prices have continued to rise over the last several years, seed producers will have to moderate a bit due to high inventories—welcome news for producers.

While moderating on fertilizer and seed costs results in more immediate savings outcomes, many farmers are hoping for cash rents to moderate as well. As harvest comes to a close, farmers are talking with their landlords about farm rent, and the pressure is on for landowners to come down on rents to make them better reflect the current market climate. According to Iowa commodity broker David Kruse, much stiffer cuts should be in order. In his recent crop comments, he says, “If they were paying $400 per acre, a 5% or $20 per acre reduction to $380 per acre would be like tinkling on a bonfire resulting in not much effect. Without a much more significant reduction in cash rent, farming will be a losing proposition for many tenants next year.”

While cash rent prospects are less likely to change significantly, one bright spot is falling fuel prices, which are expected to stay low for the duration of the next growing season. This, coupled with projected lower levels of machinery depreciation, may ease the pain of higher input costs for 2015.

Do you have concerns or questions about your farm operation going into the next growing season? Let the experts at UFARM lend you a hand. UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Sources consulted: Caldwell, Jeff. “Machinery Depreciation Most Likely Leader of Lower Input Costs.” Agriculture.com. 23 Sep. 2014. Web. 17 Nov. 2014. Hoskins, Tim. “Drop in Grain Prices Prompts Review of Input Prices in 2015.” Iowa Farmer Today. Iowafarmertoday.com. 18 Oct. 2014. Web. 17 Nov. 2014. Taylor, Marcia Zarley. “Spooky Forecasts for Grain Income.” DTN: The Progressive Farmer. Dtnprogressivefarmer.com. 07 Nov. 2014. Web. 17 Nov. 2014.

 

input costsAs farmers reach their last rounds in the combine harvesting 2013’s crop, most are already thinking ahead to 2014. One of their top concerns is input costs and how best to manage them to maximize their bottom line.

The drought of 2012 and its resultant high-demand and low supply of crops led to high commodity prices, but with some drought-relief in major corn and soybean areas of the country in 2013, it is expected that commodity prices will adjust to reflect a better grain supply. With grain prices on the general decline, farmers expect to contend with potentially tight profit margins in the coming harvest year. As a result, analysts expect changes in the money they pay for 2014 input costs such as fertilizer, fuel, chemicals, and seed.

On the whole, fertilizer costs have declined. In particular, potash and phosphate are down 15-17% since last spring, and nitrogen has declined 22% this fall. Depending on how much the weather will allow farmers to get their fertilizers applied this fall will further determine the price of fertilizers next spring. The decrease in the price of nitrogen reflects potential lower corn acres in 2014, as well as an increase in domestic production of nitrogen.

Likewise, fuel costs are expected to be down slightly in 2014. The price of the diesel fuel that runs most farm machinery is expected to be down by 4%. Similarly, the price of natural gas, which is commonly used to dry corn, is projected to be down by 4% as well.

The price of chemicals—in the form of herbicides, insecticides and fungicides—will be mixed. Purdue University farm business management specialist Alan Miller contends that chemical prices will be up slightly, with a 1% increase, with the exception of herbicides, which will remain flat. Experts urge farmers to try to buy chemicals in bulk when possible in order to cut costs. Another way to cut input costs is to consider purchasing seed and chemical package deals when making seed-buying decisions.

Seed prices are predicted to be up in 2014, perhaps as much as 2-3% for the 2014 planting season. However, while producers always attempt to watch their pricing inputs, they will not cut corners when it comes to selecting the type of seed they choose to grow. With the technology that goes into seed genetics and the beneficial ways these hybrids can maximize yields and overall profits, farmers realize that it is in their best interest to choose the right type of seed for their ground, regardless of cost.

Finally, experts predict land and rent prices to remain where they are in 2014. Machinery costs, which have increased an average of 7% per year from 2002-2012, could fall as a result of lower commodity prices, especially if these lower prices are sustained for a longer period of time.

While it is impossible to predict yields and prices for the 2014 growing season, it is necessary for farmers to make input decisions now in order to maximize profit and lower risk where possible.

If you have questions about how input costs will affect the profitability of your land or operation, please contact one of the professional farm managers at UFARM for a free consultation.