By Doug Schmitz
AMES, Iowa – Although input costs continue to rise, there are ways farmers can still cut expenses, while locking in prices this fall – and even into 2022.
“Each operation is different, so no blanket recommendations will apply to all farmers,” said Alejandro Plastina, Iowa State University associate professor of agricultural economics. “However, one thing all farmers can do to better manage raising input prices is developing or updating their enterprise budgets, and evaluating how different technological packages, crop insurance combinations, and management practices could affect yields, break-even prices, and long-term rotations.”
Mark Licht, Iowa State University assistant professor of agronomy and extension cropping systems specialist, said reducing costs goes back to focusing inputs on proven practices that are cost-effective.
“Paying attention to product effectiveness and what amount of yield protection is needed to cover the cost of the practice/product,” he said. “No-tilling soybean into corn residue can reduce labor in the spring (sometimes unrealized cost), as well as fuel and equipment costs.
“This could be a $10-20 per acre cost-saving and have zero impact on yield,” he added. “Or, it could be focusing on foliar (applied to leaves) biological or insecticide applications to determine if yield protection or yield boosts are actually happening at a level to more than pay for the application.”
Barry Ward, Ohio State University agricultural economist, said each year, producers tend to purchase inputs over a period of several months leading up to planting for a variety of reasons.
“Some farmers look to spread risk by pricing fertilizer over several months, some purchase inputs early to take advantage of early buying discounts, while many will pre-pay for certain inputs to manage income taxes,” he said.
“On-farm fuel and fertilizer storage tend to give producers more flexibility in spreading their purchases over a longer period to take advantage of possible lower prices,” he added. “This large input purchase window may have paid dividends this year – especially if producers priced fertilizer prior to big price increases.”
He said variable costs for corn in Ohio for 2021 are projected to range from $405 to $488 per acre, depending on land productivity.
“The trend line corn yield (177.9 bushels per acre) scenario included in the corn enterprise budget shows an increase in variable costs of 9.5 percent,” he said. “Variable costs for 2021 Ohio soybeans are projected to range from $227 to $253 per acre. Variable costs for trend-line soybeans (55.3 bushels per acre) are expected to increase 12.8 percent in 2021, compared to 2020.
“Wheat variable expenses for 2021 are projected to range from $173 to $207 per acre,” he added. “The trend line wheat yield (70.6 bushels per acre) scenario included in the wheat enterprise budget shows an increase in variable costs of 5.8 percent.”
He said returns will likely be positive for most producers, depending on price movement throughout the rest of the year.
“Grain prices used as assumptions in the 2021 crop enterprise budgets are $5 per bushel for corn, $13.20 per bushel for soybeans, and $6.30 per bushel for wheat,” he said. “Projected returns above variable costs (contribution margin) range from $307 to $579 per acre for corn, and $357 to $623 per acre for soybeans. Projected returns above variable costs for wheat range from $182 to $327 per acre.”
Mary Harrington, Landus Cooperative communications and marketing lead in Ames, said producers need to work with their retailers to find opportune times to lock in their inputs.
“The drastic swing in commodity fertilizer prices has resulted in significantly higher cost per acre,” she said. “One thing farmers can do to find a few dollars in the budget is work with retailers to find line products in their chemistry proposals to eliminate weeds at a fair price and save more money to spend on things that will increase yields (i.e., fungicide, plant health products, nitrogen stabilizers).”
On certain fertilizer products, she said there are opportunities to lock in those prices further out via a swaps market (i.e., liquid urea-ammonium nitrate, urea, diammonium phosphate).
“However, the best thing growers can do today is really work closely with their input supplier on a forecast or specific needs they have and look for guidance from them on when to lock their inputs in,” she said.
Licht said farmers can lock in prices for seed, fertilizer, and herbicide, as well as fungicides and insecticides. “The pre-pay/early booking can definitely lower costs,” he said. “The caution is to make sure those decisions fit into the cropping system practices being planned: Does pre-booking or pre-pay get you a better deal on a product that may have a questionable need? Stick with products you know you need.”
Plastina said it is important to evaluate financing alternatives for fall buying.
“In some cases, the overall cost of financing inputs purchased in the fall at ‘discounted prices’ through the input dealer might be higher than paying the full fall price and financing the operation through a local bank or agricultural lending entity,” he said. “Knowing that you have alternatives and evaluating them in advance is the best way to manage costs and risks.”
Andrew P. Griffith, University of Tennessee associate professor of agricultural economics, said, “Nitrogen, phosphorus and potash are extremely high, but they are beginning to plateau it seems. Thus, it may be wise for producers to be patient and see if prices may decline a little. I would hate to be purchasing next spring’s fertilizer today” at current prices.
From the feed standpoint, he said it is evident that demand for feed grains is strong, and it is doubtful that demand will slow.
“Thus, feedlots should probably be managing risk with futures and options right now,” he said. “Smaller producers don’t have many alternatives other than to accept the current price because most do not have a way to store the feed. I don’t imagine feed prices will escalate much in the next four or five months, so the risk is limited.”
He said hay prices are going to be strong in drought regions, but other regions of the country don’t have much to worry about right now. “I would get my hay needs taken care of as quickly as possible in all situations,” he said.
Despite the record-high costs, University of Illinois estimates suggested corn and soybean production could remain profitable next year, with current average crop price projections of $4.50 per bushel for corn, and $12.35 for beans.
“Those prices would lead to profitability as long as cash rents don’t go up too much,” said Gary Schnitkey, University of Illinois professor of farm management. “We’re going to see higher costs. And, eventually, we’ll see lower (commodity) prices. That’s when the squeeze will begin to happen.”
Plastina said, “At this point in time, most inputs for 2021 have been purchased, but there is plenty of time to prepare for next season.”