2009 crop has highest production costs ever
Jean Caspers-Simmet
Date Modified: 12/01/2009 11:35 AM
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Agri News staff writer
DUBUQUE, Iowa -- The crop coming out of the field this fall has the highest production costs ever, said Jim Jensen, Iowa State University Extension field specialist for farm and ag business management.
Luckily, production costs are projected to be down for 2010, but prices will also be down.
"The stuff coming out of the field, if farmers haven't sold ahead, they're a little underwater," Jensen said at the recent Tri-state Ag Lenders Conference in Dubuque. "If they sold some ahead, they might come out all right. Next year, they're going to have to watch for pricing opportunities because right now, it's pretty much at break-even. There's just not a lot of potential profit like we've seen in the last couple years."
This past year there was a lot of variability in costs.
Last spring Jensen talked to two farmers who lived next door to each other, and one paid $800 a ton for anhydrous, the other $500.
"They both bought it from the same company, but it depended when they booked it," Jensen said. "There is a lot of variation in farmers' cost of production."
Fertilizer and fuel prices are down quite a bit with the exception of potash, Jensen said. Herbicide costs are down, but seed prices continue to go up. ISU's estimated production costs for 2010 are $3.50 to $4 for corn. Continuous corn costs are $4.04, down from $5.10 a year ago, Jensen said. Soybean production costs are projected to be in the upper $8-range.
Jensen said farmers are more likely to see a return to seasonal price trends in the coming year.
"The past couple of years farmers have been rewarded for not marketing ahead, but that's an anomaly," Jensen said.
Farmers need to keep seasonal patterns in mind with the highs coming in the spring, the lows at harvest and some strengthening into the end of the year, Jensen said. The funds are moving back into commodity futures markets bringing more volatility. Basis patterns, which have been distorted the past few years, are also headed back to more normal trends.
Projected economic recovery will be key for crop prices for the 2009 marketing year, Jensen said. As the economy improves, demand for meat will grow. A weaker dollar will help improve exports.
Jensen urged farmers to watch harvest progress, which finally moved forward the past several weeks after being the most delayed ever in many parts of the country. Farmers need to watch crop production figures as harvest winds down and pay attention to feed demand.
The 2009 season average price for corn is around $3.50 and $9.30 for soybeans.
Jensen said farmers need to look at marketing tools to moderate risk. If they expect to see futures prices increase and basis weaken, they should look at basis contracts, selling cash and buying futures, buying call options, minimum prices contracts or fixing the basis. If they expect strengthening basis and decreasing futures, they should look at hedging, hedge to arrive contracts or put options.
Renewable fuels standard goals will mean increasing corn demand through 2015, Jensen said. Ethanol margins are back at profitable levels with lower corn prices and higher crude oil prices.
Exports, which plummeted in the past year, are moving upward and should strengthen in the coming year.
Last week, the USDA forecast the national corn crop at 12.9 billion bushels, down 1 percent from the Oct. 1 estimate, but 7 percent higher than the 2008 crop.
Soybean production is expected to be a record 3.32 billion bushels, up 2 percent from the October forecast and up 12 percent from last year.
In Iowa the USDA lowered its projected yields for corn from 188 bushels last month to 183 bushels as of Nov. 1 and the total production from about 2.5 billion bushels to 2.44 billion bushels. The numbers lead the nation.
Iowa soybeans will average 51 bushels per acre, down from 52 bushels per acre anticipated Oct. 1. Iowa's total soybean production estimate has been cut from 506 million bushels last month to 486 million bushels.
Yields this year in Iowa are above 2008, which averaged 171 bushels per acre for corn and 46 bushels per acre for soybeans.
The USDA said last week that Iowa's harvest is about three weeks behind schedule but farmers finally got a dry stretch of weather and made good progress at getting the crop out.