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Study: Energy Prices Will Drive Significant Crop-Production Cost Increases in 2009

Soaring energy prices will result in significant cost increases for corn and soybean production next year, according to a new University of Illinois study.

Costs to get crops in the ground will jump by about a third in 2009, fueled by fertilizer prices expected to surge 82% for corn and 117% for soybeans, said Gary Schnitkey, an agricultural economist who conducts the annual survey of input costs.

Fertilizer—the biggest non-land expense for corn and soybean farmers—is tethered to the same cost spiral that has driven steep gasoline and heating price increases over the last few years, said Schnitkey, a professor of agriculture and consumer economics.

Roughly 80 percent of the cost of producing nitrogen fertilizer is natural gas, so as natural gas costs have gone up so have the costs of those inputs. Phosphorus and potassium are mined, and as energy costs increase, mining costs increase.

—Gary Schnitkey

With commodity prices high, the increased production costs should merely trim farm profits rather than sinking balances into the red, said Schnitkey, who predicts farmers will likely post solid earnings again in 2009.

While farmers will likely absorb some of the added costs, Schnitkey says consumers also should expect to pay more for products ranging from cereals and syrups to grain-fed beef.

Along with fertilizer, grain farmers also will see hefty cost increases next year for inputs ranging from seed to fuel for tractors and other machinery, according to the study.

The study projects non-land production costs for corn will total $529 an acre next year, up 36% from 2008 and nearly 85% higher than the average of $286 per acre from 2003 to 2007. At $321 an acre, soybean input costs are projected to rise 34% from 2008 and more than 78% from the 2003-2007 average of $180 an acre.

The per-acre costs are based on high-producing farmland in Central Illinois, but corn and soybean farmers across the country will see similar increases.

Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in Central Illinois, based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel, based on yields of 54 bushels per acre.

Schnitkey says 2009 prices should be significantly above break-even prices. Based on futures markets, corn should sell for about $6 a bushel next year, with soybeans in the $13 to $14 range.

Comments

HarveyD

When raw material price goes up, the final product eventually goes up even more, as everybody up the line tries to keep the same (20% to 30%) profit margin.

The current trend could be reversed if we manage to significantly reduce liquid fuel consumption. If we do, (with PHEVs and BEVs and more efficient vhicles), oil price and grain ethanol production would both go down thus reducing the pressure on commodities price.

Massive production of non-grain cellulosic ethanol could also help.

arnold

The biological farmers must be smiling at the p4ice rise of chemical fertilisers. They know that the increased use of these products is as damaging to soils as bringing up kids on a sugar diet.
Corn in particular is only viable for a few years of intensive farming before the soil depletes.
The Australian experience (with our older soils ) has been most graphic with corn production.
Whats the percentage of nitrogen oxides from agriculture?
From chemical fertilisers?
Oh dear!

ToppaTpm

What means you Arnold? The non-robotic farmers are free from soil depletion?
Only if you eschew all modern farming technologies will the soil stay fertile - and each hectare will feed 3 people.
The convenient truth is that as rising energy costs threatens us with a runaway cost of living, our best hope is to concentrate on our carbon footprints and block all efforts to obtain any energy that is not carbon-zero. If we start getting oil from sand, where will we stick our heads?

carman electra

What would happen if super efficient electrolysis was possible? If you could produce syngas from nearly any feedstock, e.g. water at around 95% efficiency? The resultant H2 could be burned to produce electricity.

Would that be helpful? Or stepping on too many toes??

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