Crunch the numbers to build a budget for 2013
Up, up and away probably brings Superman to mind, but it also describes input prices during the past decade. Fortunately, some input costs are leveling out while others are trending upward in small increments. As you pencil out your farm’s 2013 budget, take a few minutes to evaluate your input costs per acre. Knowing that information will help you better determine those all-important
Whether input prices go up or down in 2013, Larry Mussack says he is prepared. He buys inputs throughout the year and evaluates his input prices through what he describes as a large window of opportunity.
"This year I purchased half of my anticipated 2013 nitrogen in July and decided to wait until later in the year to buy the rest of my nitrogen and other fertilizer," says Mussack, who grows corn and soybeans near Decatur, Neb. "Right now, that looks like a good move," he adds.
Farmers who aren’t as proactive as Mussack about pricing inputs might luck out. Economists expect land, seed, fuel and crop protection product prices to increase only slightly this coming year, says Steve Johnson, Iowa State University Extension farm management specialist.
On average, Pro Farmer estimates variable input costs will total $456 per acre for corn and $280 for soybeans.
Fertilizer. After a 30.2% jump in fertilizer prices in 2011, farmers should be thrilled to hear that prices for 2013 might decrease, says Gary Schnitkey, University of Illinois Extension farm management specialist.
Harry Vroomen, vice president of economic services for The Fertilizer Institute, says fertilizer prices are tricky to forecast because they are affected by numerous supply and demand factors. Supply factors include energy and raw material costs, transportation costs and the value of the
U.S. dollar. Demand factors, particularly globally, have a significant impact because 88% of nutrient demand is outside the U.S.
Vroomen expects U.S. farm demand for nitrogen to be flat to down 1% and phosphate and potash demand to remain stable or even drop as much as 4% during the next year.
"Demand is more difficult to forecast this year than in previous years because of the drought and how it will affect the carryover of nutrients," he says. "Record-high corn and soybean prices should raise nutrient application rates, but that may be partially or even completely offset by the carryover nutrients remaining in the soil."
According to Pro Farmer, per-acre costs for fertilizer are likely to run $85 for ammonia, $63 for diammonium phosphate, $31 for potassium and $78 for potassium oxide. Lime will cost $8 per acre for corn and $10 for soybeans.
Mussack plans to dial down corn input costs with best management practices, especially those related to fertility.
"Soil test, don’t guess," advises Mussack, who also serves as the natural resources committee chairman for the Nebraska Corn Growers Association.
Herbicide. Along with increased land prices, farmers can look for crop protection products to cost more in 2013. Chinese manufacturers are expected to increase costs between 3% and 5% because they have fewer plants in operation. That, in turn, is likely to impact availability and pricing for both glyphosate and glufosinate.
Crop protection per-acre costs are expected to total $50 for corn and soybeans, according to Pro Farmer.
Fuel. Diesel fuel prices are expected to average $3.99 a gallon, retail, in 2013, roughly a dime more than in 2012, according to the Department of Energy. Long-term, many economists expect the diesel market to be bullish for demand and relative prices.
As a whole, Pro Farmer predicts, fuel costs will tally $33 per acre for corn and $26 for soybeans.
Seed. A 5% to 10% increase in seed corn translates into a per-acre range of $91 to $127.50, says Iowa State University Extension farm management economist Michael Duffy. This range is based on a 160 bu. per acre yield potential at 25,000 seeds per acre, 180 bu. at 30,000 seeds and 200 bu. at 35,000 seeds.
Pro Farmer expects soybean seed to cost $54 per acre.
Land rents. Land prices will continue their upward trend across the Corn Belt as well. Johnson says that Iowa farmers are likely to pay 5% to 10% more for cash rent on premium ground, for an average of $276 per acre. Pro Farmer estimates the fixed cost for land at $350 per acre.
However, Barry Ward, Ohio State University Extension production business management leader, says that he expects cash rental rates in droughtimpacted areas to be fairly flat.
Farmers and landowners in droughtstricken areas who have yet to arrange their 2013 rental agreements might want to consider a flexible cash lease option, he says.
"Flexible leases allow for flat rental rates if crop production is stunted, or potentially increase the rate if crops thrive," Ward says. "This reduces some of the producer risk while offering income upside for landowners."
The good news, Johnson says, is that farmers who lock in land and fertilizer prices have covered two of the largest and most important crop production costs for growing corn. "These two prices added together for land and fertilizer likely represent nearly 50% of the total costs," he says.
Johnson advises farmers to not dwell on input prices. Instead, he advises that they keep their focus on profit margins for 2013.
"Plan to make consistent preharvest sales with the consideration of your 2013 profit margins," Johnson tells farmers. "While input costs are expected to remain relatively flat, plugging in the 2013 harvest prices that are available today is already providing attractive margins."
To test drive the new Pro Farmer Inputs Monitor, which tracks the input prices of more than 300 retailers in the Midwest, visit www.InputsMonitor.com