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Costs and profits on the rise for crops in 2012

By Barry Ward, Leader, Production Business Management, Ohio State University Extension, Department of Agricultural, Environmental and Development Economics

 

Crop profitability prospects for 2012 are positive for the three major row crops in Ohio. Input costs have increased from last year but high futures prices for 2012 crops allow producers to plan for positive margins for next year. OSU Extension Enterprise Budget projections show positive returns for corn, soybeans and wheat in 2012.

But, with that in mind, it is also important to note that OSU Extension Budgets show projected variable (cash) costs for corn, soybean, and wheat production to all be 10% higher in 2012 versus 2011. The higher commodity prices and higher costs lead us to a riskier production year as the cash investment in an acre of corn will top $400 (excluding land, machinery and labor costs) and in some production scenarios be closer to $450 per acre. The cash investment in an acre of soybeans or wheat will be in the $200 to $250 range.

 

Fuel

The Energy Information Administration (EIA) estimates the average price for West Texas Intermediate Crude Oil at $88 per barrel for 2012, which is a 4.7% decrease from 2011. This is due to slightly lower oil consumption growth projections for 2012. The EIA projects natural gas prices to increase 4.3% in 2012. Expected tightness in the market is the reasoning, but this projection is harder to reconcile with the increased production capabilities in the U.S.

 

Fertilizer

Fertilizer continues to be the most volatile of the crop input costs and cost management of this important input may be the difference in being a low cost or high cost producer in 2012. The different fertilizer products have seen significant price increases over last year and likely will continue to increase due to higher crop commodity prices and positive profitability prospects for 2012. Healthier farmer balance sheets and continued positive crop profit prospects have signaled the global marketplace to increase acreage (if possible) and maintain or increase fertilizer rates and led to strong global demand driven markets. On the flipside, the E.U. and U.S. sovereign debt issues and potential economic slowdowns are factors, if unresolved, may lead to a slowdown in fertilizer demand and flat to lower prices.

The retail price of nitrogen (N) in October in Ohio was $900 to 950 per ton for anhydrous ammonia (24% increase over year ago), $400 to 425 per ton for UAN (28%) (32% increase over year ago), and $595 to 665 per ton for urea (40% increase over year ago). Spring prepay NH3 is running $20 to $25 per ton more than spot delivered tons in many markets.

Nitrogen fertilizer manufacturers are presently operating at profitable levels due to higher N prices and relatively low natural gas prices, but this fact hasn’t led to supply outstripping demand as the entire supply chain has been more cautious in getting caught in a repeat of the 2008 upside-down fertilizer market.

With the high correlation of nitrogen price to corn price, future movements in nitrogen prices will more than likely take their cues from movements in price of corn.

 

For, Phosphorous (P2O5), Di-ammonium Phosphate (DAP) in October in Ohio was $715 to 755per ton (18% increase over year ago) while mono-ammonium phosphate (MAP) was $715 to 775 per ton (an 18% increase over year ago).

Phosphate rock, sulfur and anhydrous ammonia, all primary ingredients used in the manufacture of P fertilizers are presently high priced and have contributed to higher P fertilizer prices. These higher ingredient prices along with strong world demand continue to pressure phosphorous fertilizer prices. These pressures signal continued higher prices for the 2012 crop production year.

The retail price of potash in December in Ohio was $625-690/ton (38% increase from year ago). The potash industry essentially operates as a duopoly (two firms, in this case, two consortiums, with dominant control of the market) with Canpotex (Canadian Potash Exporters) and Bellarussian Potash Co. controlling much of the global potash supply.

Potash prices will likely trend higher into 2012 as high crop prices will translate into continued strong demand while the two major potash consortiums will meter out supply to keep prices stable.

 

Seed and crop protection chemicals

Company price data and industry sources indicate seed prices for 2012 to be 5% to 10% higher. Crop protection chemical prices will see similar increases except glyphoste, which should continue to see relatively flat prices due to excess global production capacity.

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