How Low Can You Go: Trends in Input Prices
With farmers facing some of the most drastic swings in profitability in recent history and no changes to crop prices in sight, one of the key questions of 2016 is: how long will it take for production costs to correct? Historically, it takes about 5 years for input prices to adjust to changes in crop prices, with seed and fertilizer prices typically moving sooner than other expenses. Recent data indicates that 2015 experienced the second largest decline in farm input prices on record (including seed, chemical, fertilizer, fuel, machinery, labor and rent). Most signs this year continue to suggest that 2016 will be unprofitable for many farmers, barring any huge, unexpected decreases in input prices. Still, not all is lost.
To estimate input costs changes for 2016, the FarmDoc Daily team analyzed recent fertilizer prices using the “Illinois Production Costs Report” and concluded that total fertilizer costs for corn would likely drop in 2016 by about 8.3 percent compared to 2015, using December prices. Granular decided to run its own trend analysis using data from current customers from across more than 35 states, and compared individual product prices paid for seed, chemical and fertilizer in 2015 to prices paid in 2016. For example, Granular found the price of Roundup PowerMAX dropped by 12 percent on average over this time period.
Across all farm inputs, chemical and fertilizer costs decreased the most from 2015. The average chemical price saw a decrease of 9 percent, and the average fertilizer price has dropped by 8 percent – in line with the FarmDoc data. Seed costs on individual varieties have not changed significantly. Granular compared the same products from year to year, so this analysis would not account for the effects of growers switching to more economical seed varieties.
What does this data mean to the farmer? Given current University of Illinois crop budgets for seed, chemical and fertilizer costs, the net effect of the price changes we see for the average Granular customer is more than $17 per acre. With crop budgets anticipated to be largely negative for the year, $17 per acre can make a significant difference on a farm’s profitability. The farmers that can effectively negotiate with their suppliers will clearly have a valuable advantage in 2016.