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Energy price increases fueling higher input costs

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Written Tuesday, September 20, 2005  

Indiana farmers should plan for a double-digit increase in the cost of producing next year's crops, according to a Purdue University farm business management specialist.

"The total variable costs of producing corn and soybeans in rotation on average Indiana farmland are forecast to increase at least 12 percent in 2006," said Alan Miller. He said the increase could be even more significant if Hurricane Katrina's impact on fuel and fertilizer prices is more than short-lived.

The out-of-pocket costs of producing corn and soybeans in Indiana have been consistently higher on a year-to-year basis since 2002, Miller said.

Diesel fuel prices jumped sharply in response to Katrina and are likely to stay high until the infrastructure situation in and along the Gulf improves. Miller said nitrogen fertilizer prices in the United States also will likely be higher this fall and next spring as a result of Katrina.

"The fact that much of our supply of nitrogen fertilizers is imported should somewhat buffer the direct impact of Katrina's damage to natural gas production capacity, but in the short run, nitrogen prices could increase as a result of Katrina," he said.

Miller said phosphate and potash fertilizer prices also are expected to be higher in 2006.

"Due to a sharp increase in worldwide demand, potash prices should increase by a greater percentage than phosphate fertilizer prices." he said.

Seed prices also are expected to increase again this coming year, although more modestly than the previous year. Miller said that the cost of seed for soybeans has increased more rapidly in the past five years than the cost of corn seed. For many growers, the per-acre seed cost for corn and soybeans are now about the same.

"One factor driving higher seed costs has been the increasing adoption of genetically modified seeds, which are generally more expensive than non-genetically-modified seeds," Miller said. More farmers are purchasing more expensive seed treatments and stacked varieties -- seeds with a combination of beneficial traits, he said.

Interest rates and machinery prices are expected to be higher next year, as well.

There is some good news in that the propane gas inventory in the United States as of last month was up 23 percent from one year ago, because of strong imports earlier in the year, Miller said.

"Most of the supply necessary for fall crop drying was probably already in the Midwest before Katrina hit," he said.

Miller advises farmers to carefully plan this year's production purchases.

"You can't just buy fewer inputs, because that could actually increase costs per bushel if yields decrease and revenues fall more than the cost of inputs," Miller said. "Prices can vary widely, so carefully planned input purchases can reduce production costs."


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