April 8, 2004
Every year brings different
challenges to the nation’s farmers, and 2004 is no different.
This year among the challenges are production cost that are
drastically different from those in 2003.
Delton Gerloff, an economist with the
University of Tennessee
Agricultural Extension Service, says the 2004 planting season is
facing fuel and fertilizer prices that are certain to go up.
“The fuel prices have increased 23 percent over 2003 prices,”
Gerloff said. Compared to last year, the economist says the fuel
costs will add between $1.00 and $1.50 per acre to the expense
of growing corn, depending on the tillage system. The increased
fuel prices will add between $1.00 and $2.00 per acre to soybean
expenses, and about $1.50 per acre for wheat production
expenses. Gerloff expects cotton fuel expenses to increase
between $3.00 to $4.00 per acre.
Fuel prices, however, don’t tell the whole story. “Nitrogen
fertilizer prices generally increase along with fuel prices.
Higher nitrogen fertilizer prices would impact corn and cotton
more than soybeans because soybeans generally don’t require
nitrogen fertilization,” Gerloff said.
Depending on the nitrogen source, nitrogen fertilizer prices
have risen between 35 and 45 percent compared to 2003. Gerloff
says this increase could add as much as $12 to $16 per acre to
the expense of growing corn in 2004, and could increase cotton
expenses as much as $10 to $12 per acre over last year. “Other
fertilizer prices have also risen over the past year, with
phosphate and potash prices rising close to 27 percent and 13
percent respectively,” he said.
Higher output prices are helping to reduce the impact of the
higher input prices. “Based on early season price expectations
in 2003 and April 1, 2004, harvest cash contract prices, corn
and soybean net returns are projected to increase over $70/acre
compared to 2003,” Gerloff said. “Wheat net returns would be
expected to increase close to $20/ acre compared to income
expectations last year,” he said.
While cotton prices rose sharply last fall, Gerloff says current
income expectations for cotton have not changed significantly
from last year.
The bottom line is price, however. “While the fuel and
fertilizer price increases are certain because the farmers are
currently buying them to produce this year’s crops, it remains
to be seen if grain prices will remain at current levels until
this fall’s harvest,” Gerloff said.
The economists cautions producers to consider locking in higher
harvest time grain prices to offset the increased input
expenses. “Risk management tools such as options and cash
forward contracting help to reduce price risk by establishing a
floor price for expected 2004 production,” he said.
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