Minding Ag's Business

Inflation Creeps Into Corn Costs

Variable expenses for corn production across the Midwest ballooned almost $250/acre between 2008-2012, actual records of several hundred AgriSolutions clients show. Only cro insurance premiums bucked the trend.

Only five years ago, corn growers across the Midwest would have made hay with $5 corn. But with input inflation and land rents eroding their margins, profits at those prices could be slim in 2013, two recent studies show.

No overhead cost has been more corrosive than fertilizer outlays, which climbed at an annual clip of 10.9% per year between the 2008-2012 crops and topped cash rent as a typical corn grower's biggest expense for the first time last year, a study of several hundred actual farm customers in the AgriSolutions IQ database shows. At last count, AgriSolutions corn grower clients spent an average of $197/acre to fertilize the 2012 crop, up from $120/acre in 2008. In contrast, the average grower spent $191/acre to rent land, up from $158/acre in 2008.

Cash rents may capture all the headlines in Iowa and Illinois, but not when you broaden the pool with producers from across the 12-state Corn Belt, include all types of land and blend all types of leases in a grower's operation , AgriSolutions analyst Sam Bachman said. "That $191 may seem like a low number but in many ways it is more reflective of reality than is what’s talked about and reported."

AgriSolutions methodology asks producers to charge themselves a fair market rent for any owned land. It also includes actual rents charged by family members and related parties, who often bill below the sensational $500 rents that make headlines at public auctions. AgriSolutions excludes rent leased on a crop-share basis; that renter would simply reflect higher input costs for his contribution on his share of production.

"We tend to anchor our impression of going land rents to the highest, most talked about, and most recent rents we have heard about," said Bachman. "Many people still rent from Mom or other long term relationships that are not chasing or forcing top dollar rents on the tenant." Even so, cash rents have edged up 6.1% per year, an inflation rate that would have consumers screaming in the housing industry, he added.

By AgriSolutions count, crop insurance premiums offered the only relief on variable expenses, slipping from an average of $32/acre in 2008 to $24 in 2012. The advent of rate adjustments along with trend-adjusted yields likely accounted for some of those savings.

Using slightly different measures, data from the Illinois Farm Business Farm Management Association released this week shows that non-land costs in central Illinois on high productivity farmland averaged $581 per acre for corn in 2012, up another $78/acre from 2011. Growers have been experiencing a "string of large increases" that began in 2005 and are up more than 100% since, University of Illinois economist Gary Schnitkey reported on farmdoc daily (www.farmdoc.com). Fertilizer, seed and machinery depreciation account for three-fourths of the runup for non-land corn costs, Schnitkey noted.

Input inflation could pressure profits in 2013, since these variable costs have continued to inch upward again this year and may take some time to adjust if commodity prices languish. Long-term, Schnitkey is hopeful that fertilizer costs will offer some relief: "Nitrogen fertilizer capacity is being built which could lead to lower nitrogen fertilizer prices" when new plants come on stream, he said. Likewise, any slowdown in the farm economy will curb new machinery purchases, and slow the run-up in depreciation costs.

Growers in both studies spent about $100/acre on seed in 2012, a significant increase from the $43/acre Illinois corn growers spent in 2005. However, that's one area where Schnitkey sees little chance technology companies will reverse the trend even as corn prices cool.

Follow Marcia Taylor on Twitter@MarciaZTaylor

Comments

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H. Clay Daulton
6/18/2013 | 2:08 PM CDT
Interesting comments above but some a little short on courtesy. The CNBC/USDA prediction makes an interesting but unstated point, Ms Taylor, that I've written before: We farmers and ranchers -- for almost every major commodity -- produce far past maximum returns to each of our industries. At common levels of production, every additional pound produced in any year moves us further DOWN the gross and net industry receipts curve in that year. We'll all make more if less is produced. That was in the article, clear as day, when read in its entirety. When "price elasticity of demand" is below 1.0, we're all losers. I thought these economic facts were incorporated in everybody in agriculture's thinking, but it seems not so sometimes.
Bonnie Dukowitz
6/18/2013 | 8:20 AM CDT
I realize some some will only be critical and attempt to pick this apart. Information from professional farm management summaries indicate in our area, in 2012, 3.6% of the farm incomes were a result of the Food Program. On our year end summary, what we paid in crop insurance premiums amounted to just over 7% of the crop input cost. Therefore , coming out behind about 3.4%. This is not ment to be in favor of the Food Bill or against it. It is just a simple fact. Statements such as the above is just not intelligent or appropriate. But why should we use factual numbers when EWG and CNBC are available for information. Maybe Connie Chung could provide an update on Chevy van fire hazards for the reliable media sources.
Unknown
6/17/2013 | 8:45 PM CDT
Thanks, John for standing up to these welfare queens
Unknown
6/17/2013 | 8:40 PM CDT
Thanks, John for standing up to these welfare queens
Bonnie Dukowitz
6/17/2013 | 5:46 AM CDT
C'mon John, you or anyone else have ever read or heard me whine. The fact is that you, like most everyone would grab whatever was available when it comes to insurance or a free lunch.
John Olson
6/16/2013 | 11:51 AM CDT
If I listed all the nearly endless media sources and search tools all delivering the same facts regarding record farm profits and record farm subsidies you would still find time to jump to ridiculous conclusions and whine Bonnie.
Bonnie Dukowitz
6/14/2013 | 1:40 PM CDT
Good grief John! Google and CNBC as a basis in reaching and expressing an opinion. Good grief! Try experience, intelligent thought, facts and other related business enterpize.. Google and cnbc. Good grief! And we wonder why there seems to be a huge zoo in D.C.
John Olson
6/14/2013 | 10:36 AM CDT
Try googling record farm profits Paul. See http://www.cnbc.com/id/48822850
Paul Beiser
6/12/2013 | 11:55 AM CDT
if farming profit was so easy to get why isn't average age of a farmer 32? every farmer over 55 should be sittin on a beach with toes in the sand john. who is gonna start crying first if there isn't enough food or fuel ? probably not a farmer with 50 years of experience.
Bonnie Dukowitz
6/9/2013 | 6:56 AM CDT
So John, If you incurred hail damage on your house, the adjustor estimated $10,00.00 damage, you would only accept $5,000.00 because of the AIG connection to the Government. Then, not fix the roof and hope it don't rain. How considerate of you. With your statements, I am sure you volunteer to pay twice the Medicare premium because of the government "Red Ink" in that fiasco.
John Olson
6/7/2013 | 6:54 AM CDT
Almost every one that can will harvest all the dollars they can when government is guaranteeing an investment or profits. No surprises here.