Ag inputs and credit costs headed higher
American agriculture made a big comeback in 2010. Net farm income was about $81.6 billion, up 31% from a year earlier — the second-largest on record.
• Near-record grain prices have already planted high input demand.
• Lock in inputs now. Waiting until spring may be a poor move.
• Fueled by grain prices, land prices are sure to rise.
Except for the dairy sector, Northeast farmers shared in that bounty. In general, ag income should continue to grow in the year ahead. But production costs are going to increase.
• Equipment: Combine and tractor purchases by farmers are up sharply in the fall. As farmers expand grain production, they’ll be looking to buy more equipment.
Prices of that equipment will rise as manufacturers face higher expenses. 2011 equipment sales may increase 10% to 12%.
• Fertilizer: Demand will be strong this year as producers push for increased yields on more acres, and fertilizer costs will rise. Some ingredients will be in shorter supply, reflecting strong U.S. demand and more fertilizer use in developing countries, such as India. Ingredients are being provided by fewer but much larger firms than in the past. These firms will exert more market control.
• Ag chemicals: As with fertilizer costs, we expect crop protection chemical costs to rise in 2011. There’s no point in delaying purchases until late spring. Demand will be strong. There are no indications that there’ll be excess supplies.
• Spring seed: Farm planting intentions for corn and soybeans won’t be surveyed until March. But acreage increases for both should be expected based on 2010 profitability. Seed costs will be higher. Some of the most sought-after varieties will sell out early. Genetic improvements in seed add to costs, but improve yields and reduce the need for some chemicals.
Dunn and Moore are ag economists for Penn State’s Department of Ag Economics and Rural Sociology.
This article published in the January, 2010 edition of AMERICAN AGRICULTURIST.