It is a great time to be involved in agriculture. Grain prices are high and many farmers are replacing badly needed infrastructure and equipment. With the record grain prices, record amount of fertilizer are being applied to fields in an attempt to maximize yield. In addition to the agricultures boom, the US dollar continues to devalue, sending oil to record highs. Since the majority of fertilizer manufacturing requires significant amounts of oil, it has (bad pun warning) added fuel to the fire.
A few stats from the USDA
Total Production Expenses increased 10.5% in 2007 and are expected to increase 8.6% in 2008. The sixth strait year of increases since 2002. Expenses are expected to eat 75% of all farm income in 2008.
Fertilizer up 20.2% in 2007 will increase 18.4% in 2008. Mainly due to 57% rise in potash and phosphates.
Fuel and oil are expected to increase 12.6% in 2008 following an 11.5% rise in 2007. The annual average fuel price has increased by double-digit percentages, six straight years since 2002, and is projected to have risen 159% from 2002 to 2008. Electricity rates should rise almost 2 percent, which, combined with the increase in total output, should push electricity expenses up 4.0 percent.
The good news is that net farm income is expected to increase 10.3%. Net cash income (cash income earned after out-of-pocket expenses) is money available to pay debt obligations, taxes, and family living expenses. It is an indicator of the farm sector's cash flow and liquidity.
With many farmers feeling relatively good about the economic forecast, making good money, even with record input prices, why change what your doing. Now is the time to try new things, adjust production practices and push yields. Many of the NCGA’s corn growing champions are hitting the 300 bu mark. On many of their acres they have increased the farm average 20-40 bushels in a couple of years. Yes, there expenses did increase, but those expenses generated more income, not more bills. So if you spend $20 per acre to gain 20 bushels, then at $3 per bushel you have a 3x return on each dollar. At $5 corn it is a 5x return.
What are you doing differently? Are you actively seeking products and services to increase the productivity of the biggest income generator on you farm (soil)? Are you doing the same things you were 3 or 4 years ago, spending 40-50% more and not increasing yields. What will you do when the commodity prices drop and inputs stay high?