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.