Input Prices to Stay Steady, Go Slightly Higher in 2013

November 1, 2012 01:39 AM
Input Prices to Stay Steady, Go Slightly Higher in 2013

Fertilizer prices may actually decrease next season, while land, fuel and crop protection prices are expected to trend higher.

For the past decade, the single largest contributing factor to higher on-farm expenses has been hikes in input prices. The USDA National Agricultural Statistics Service (NASS) reports the prices-paid index for production items, interest, taxes and wage rates has risen 82% since 2002.

Whether input prices go up or down in 2013, Larry Mussack says he is prepared. He buys inputs throughout the year and evaluates prices through what he describes as a large window of opportunity.

"This year I purchased half of my anticipated 2013 nitrogen in July anddecided 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 proactive pricing inputs might still luck next season. Economists expect land, seed, fuel and crop protection product prices to increase only slightly this coming year, says Steve Johnson, Iowa State University (ISU) Extension farm management specialist.

Fertilizer. After a 30.2% jump in fertilizer prices in 2011, farmers will probably be thrilled to hear that fertilizer prices for 2013 might actually decrease, says Gary Schnitkey, University of Illinois Extension farm management specialist.

Larry Mussack

Whether input prices go up or down in 2013, Larry Mussack says he is prepared.

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 up to 4% during the next year.

"Demand is more difficult to forecast this year than previous years because of the drought and how it will affect the carryover of nutrients," he says. "The record high corn and soybean prices received by farmers should raise nutrient application rates, but that may be partially or even completely offset by the carryover nutrints remaining in the soil."

According to Pro Farmer, 2013 per-acre costs for fertilizer are likely to run $85 for ammonia, $63 for diammonium phosphate and $31 for potassium. Lime will likely run $8 per acre.

Mussack plans to dial down his overall corn input costs with best management practices, especially those related to fertility.

"Soil test, don’t guess," advises Mussack, who serves as the natural resources committee chairman for the Nebraska Corn Growers Association.

Hungry for land. Farmers can expect land prices to continue their upward movement across the Corn Belt next season. Johnson says farmers are likely to pay 5% to 10% more for cash rent on premium ground, about $276 per acre. Pro Farmer estimates the fixed (opportunity) cost for land at $350 per acre.

However, Barry Ward, Ohio State University Extension production business management leader, expects cash rents in drought-impacted areas to be fairly flat.

He says farmers and land owners who’ve yet to arrange 2013 agreements may want to consider a flexible cash lease option in drought-stricken areas. "Flexible leases can allow for flat rental rates if crop production is somehow stunted during the year, or potentially increase the rate if conditions are favorable and crops thrive," Ward says. "This reduces some of the producer risk while offering additional income upside for landowners."

Fuel, herbicide and seed hikes. 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 U.S. availability and pricing for both glyphosate and glufosinate.

Diesel fuel prices are expected to average $3.99 a gallon, retail, in 2013, roughly a dime more than in 2012, according to the U.S. Department of Energy. Long-term, many economists expect the diesel market to be bullish for demand and relative prices. According to a recent USDA farm sector income forecast: "This market is volatile, so it is difficult to pinpoint where prices will go during the year."

Farmers can look for seed corn prices to trend upward for 2013 as a result of the historic drought this season. Economists predict price increases of up to 8% across the board, with per acre seed costs averaging $95.

ISU’s Johnson advises farmers to not dwell on input prices. Instead, he advises that farmers keep their focus on profit margins for 2013.

"Plan to make consistent pre-harvest sales with the consideration of your 2013 profit margins," Johnson says. "While input costs are expected to remain relatively flat, plugging in 2013 harvest prices available today is already providing attractive margins."


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