Minding Ag's Business

Soybeans Run on Cost Treadmill

Land costs have moved steadily higher since 2008, but fertilizer actually ballooned 17% and seed and chemical costs also gained, AgriSolutions found in a client study. (Chart courtesy of AgriSolutions Inc)

Soybean farmers like Ron Moore of Roseville, Ill., say their biggest challenge is juggling the cost balancing act -- trying to offset rapid increases in production cost with slower increases in productivity. That's a nationwide predicament: A typical grower in southwest Minnesota spent $11.75 to grow a bushel of soybeans in 2012, up from a mere $4.55 per bushel in 2005, according to the state's farm business association records.

Sudden affluence in the farm community the past few years encouraged growers to spoon feed every acre. "When soybeans were $14 or $15, it was pretty easy to justify a $15- to $20-per-acre expense for aerial fungicide application. Some of my neighbors were applying it up to twice a year," Moore said. "If it meant you got an extra couple of bushels, you were money ahead." Ditto Moore's extra applications of P and K in 2012, "to bring soybean yields to a higher level of management." His soybean yields climbed to a five-year average of 60 bpa as a result.

But if bean prices should contract to $8 or even $10 over the next few years, "we'd have to rethink everything," Moore said. "At $11 soybeans, we could maybe pay the bills, but we wouldn't be buying new combines or meeting our financial goals. Our local suppliers would suffer. Nobody wants to trend backwards."

Average direct cost for soybean production galloped at 5.7% annually between 2008-2012, a recent AgriSolutions Inc. study of several hundred commercial farm clients found. Those figures don't include labor and equipment charges, but do reflect the $29-per-acre increase in cash rents, $20-per-acre increase in fertilizer, $21 boost in seed costs and $7-per-acre hike in chemicals. (Average crop insurance costs slipped about $10 per acre during this timeframe, largely due to a one-time revision in Midwest crop insurance rates, which offset inflation in other areas.)

Given enough time, 2012's grower margins will thin, economists and financial consultants warn. "When you look at the structure of the market for corn and soybean -- suppliers, producers, processors, and the distribution channel -- farmers sit in the weakest position," points out AgriSolutions Sam Bachman. "Farmers will always find that any profit swings in their direction are quickly extracted by the much stronger suppliers. That's why they need to be vigilant in keeping their costs under control."

Roundup weed resistance means more Midwest soybean growers face a larger challenge. Four or five years ago, one or two simple applications of Roundup handled all weeds in Moore's conventionally tilled fields. "If you did it yourself, that was maybe $25/acre," said Moore, who is about 60 miles west of Peoria. "I don't have any Roundup-resistant weeds yet, but I'm adding another mode of action to my herbicide program because I don't want any either."

Resistant waterhemp is already a problem in much of Illinois and he wants to make sure the weed doesn't get a foothold on his farm.

Follow Marcia Taylor on Twitter@MarciaZTaylor



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