Profits Wilt As Planting Costs Grow Significantly

By Anne Cook, The News-Gazette, Champaign-Urbana, Ill.

May 26–TOLONO — Racing approaching storms, John Reifsteck finished planting his soybeans Wednesday and took time to think about the business of raising and selling crops.

He said he made some decisions this year to reduce rapidly rising costs.

“I made a decision in one field to plant beans after corn rather than corn after corn,” said Reifsteck, who farms between Champaign and Tolono.

“Corn’s more energy-intensive,” he said. “It takes a lot of nitrogen fertilizer, and that’s increased from less than $200 a ton to more than $500 a ton in just a few years. Everyone’s kind of evaluating how we spend money. You have to plant the crop; you have no choice. But maybe you defer some chemical purchases, personal items, equipment purchases. You juggle.”

One sign of the times: Reifsteck said last fall, University of Illinois Extension representatives dropped the recommended application rate for anhydrous made from natural gas, a rate based on anticipated profits.

Illinois Farm Business Farm Management representatives say rapidly increasing costs are quickly eroding farmers’ profits, something FBFM measures as operators’ labor and management income.

Average net farm income for the 2,940 farms represented in the FBFM numbers was about $60,000, down about $40,000 from the previous year. And operators’ average labor and management returns their “salary” also dropped to about $38,787, down about $20,000 from 2004, which was by far the best income year for farmers in the last decade.

Dale Lattz, UI Extension specialist in farm management, said the biggest variables in farm income from year to year are commodity prices and costs, although government payments help level out the impact of commodity prices.

Farmers get direct payments for participating in farm programs that help control grain supplies. If prices drop, two other payments kick in, counter-cyclical payments and loan deficiency payments.

“The biggest cost increases the last two years are the costs of planting a crop,” Lattz said. “Fertilizer and fuel costs are both up significantly.”

That put grain farmers at a disadvantage compared to livestock producers, who got two market benefits, cheap food for their animals and good prices. Grain farmers in 2005 made returns to labor and management that averaged $36,472, but hog producers made salaries that averaged $89,912. Dairy producers also did well, with salaries that averaged $72,012, but beef farmers’ returns only averaged $15,830.

“Milk and hog prices have been good,” Lattz said. “But hog prices have dropped this year, so that’s going to change.”

About 88 percent of the records included in the study were from grain farms and 4 percent were from hog farms.

Lattz said fertilizer costs increased 16 percent, seed costs increased 11 percent and fuel costs increased 29 percent in 2005 compared with the previous year.

Total per-acre costs to grow corn and soybeans averaged $458 in 2005 compared with $353 in 2004. Breaking that down, total costs per bushel of corn last year were $3.05 with a 150-bushel average and total costs per bushel of soybeans were $6.84 with 52-bushel average yields.

Average corn yields on the 2,940 farms in 2005 were 148 bushels per acre, 36 bushels lower than 2004′s record yields. Average soybean yields were 36 bushels per acre, 2 bushels lower than the previous year.

“Another thing that’s come into play is increased interest rate costs,” said Lin Warfel, who’s also finishing soybean planting this week on his Tolono area farm. “Rates have gone up steadily.”

Warfel’s reducing fuel costs by reducing tillage, so he doesn’t have to make as many trips through them with gas-guzzling farm equipment.

“We’re hoping fuel prices are down by fall because we use a lot of fuel then,” Warfel said. “Otherwise, there’s only one option left and that is to switch to zero till when I plant corn next year. I’m looking at it. Pretty much everything we put in the ground these days is more expensive.”

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