Higher costs reduce farming profits

By Richard C. Snell

Barton County Extension Agent, agriculture

Just what does the X stand for? Last week I talked about farming today resembling the Winter X Games. Disappointingly, not one person called to ask what the X stood for. Either nobody cared or you are all much smarter than you are given credit for.

The X stands for extreme, but I didn't think about putting that in until my column was done and sent. Besides, I work hard to fit everything on three pages, double spaced, and I was at the limit.

My main point last week was that you have to be just as daring in farming as those "flying through the air sports." The risks are just as great. There are a couple of other factors weighing in opposition to those wonderful grain prices.

The first one is higher input costs. If you have priced fertilizer lately, you know that it's about 60 cents per pound of actual nutrient whether it is nitrogen, phosphorus or potassium. Even if you use anhydrous ammonia, it is about 43 cents per pound. Just how expensive is that?

From the time I started working in Extension in 1981 until maybe five years ago, we figured a dime per pound for anhydrous and 20 cents per unit on everything else. So essentially, fertilizer prices have risen four times as high on anhydrous and three times on dry and liquid. Most of this increase has just been in the last year.

Diesel fuel is about $3 per gallon and all of you know how much higher gasoline is these days and diesel has gone up about as much. Herbicide costs have also gone up. Glyphosate (Roundup) is back up to about $26 per gallon for the generic stuff. In the old days, the full price of Roundup was probably $80 per gallon and is higher than that if you buy it in small packages for homeowner use. When the patent expired for Monsanto, you could buy generic glyphosate for $10 per gallon. So it's up 2.5 times higher than a couple of years ago but not like it used to be.

The other thing that goes up is the share that goes to the landowner. Most farmers rent their land. If it is a crop share, when the price per bushel is higher, you are giving more dollars to the landowner. That may only be fair. If it is a cash lease, the landowner will expect it to go up $10 or so per acre. That may be OK, also. But will they go back down when commodity prices get low again. They had better or we'll all be out of business. Land values have really spiked up lately with the grain prices, urban sprawl, oil production and demand for hunting or other recreational use. We usually say that long term rent per acre should be about 5 percent of the value per acre. So even if you own your own land, you have to put a larger opportunity cost than in the past because you could sell and put the money on interest.

One final negative has to be on the livestock side. The high price of corn has really hurt margins for swine producers and cattle feeders. Feeding ethanol by-products has helped reduce costs but not enough. Cattle finishers and back-grounders are passing the costs down to the cow-calf producer by paying less for his calves. So the good profits cattlemen have enjoyed may be short lived.

I want to finish this story with a joke and a story I promised last week, when I was talking about the difficulty of marketing commodities. Eric Allen, retired farm management economist for Kansas State University, had a saying--commodity prices are like airplanes and rockets; we've never sent one up yet that didn't come down one way or another.

Eric also had a story he liked to tell. There was a guy whose car had mechanical trouble one night and he was stranded. This was before the days of cell phones. So he started walking down the road to find help. As he was walking, a car was coming toward him. So he went to the side of the road but, when he did, the car followed him over there. So he ran to the other side and the car followed him there. By this time, the car was getting closer and the headlights shined into his eyes. He just froze in the middle of the road, with a terrified look on his face. The car stopped just short of him, with a screeching halt.

Out of the car stepped a banded eye raccoon, who had been driving. The raccoon said to the man--"It just ain't that darned easy, is it fella?" So it goes with marketing and with farming in general; it's just not as easy as it looks.

3/10/08
1 Star WK\6-B

Date: 3/6/08

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