New research from two economists from the University of Illinois has found that crop input costs have been higher since 2006 than they were between 1990-2006. This occurred in part because growth rates of fertilizer, pesticide and seed costs have been higher. In 2015, the sum of these totals were 48 percent of crop revenue, higher than the 36 percent average from 199o-2006. The report authors say these costs need to decrease, particularly if corn prices remain below $4.00. Otherwise, it will be difficult for revenues to be less than total costs.
Utilizing data from the Farm Farm Business Farm Management, since 2006, seed has been the category with the highest increase. Before 2006, pesticides and seed were about the same magnitude. Because the 11.3 pecent growth rate for seed costs was much higher than the 5.7 percent growth rate for pesticides, seed costs now are much larger than pesticide costs.
.
The economists found that the period of larger cost increases corresponds to an increase in the long-run average level of corn prices. From the mid-1970s to the mid-2000s, corn prices average about $2.40 per bushel. In the mid-2000s, corn use in producing ethanol increased, resulting in an overall corn price increase. While $2.40 per bushel was the average before 2006, a more reasonable estimate of the long-run price after 2006 is $4.30 per bushel. Of course, there has been and will continue to be variability around those long-run prices.
The analysis found that costs as a percent of crop revenue could increase because of a combination of two reasons:
- Farmers increased rates and kind of applications. For example, fertilizer amounts may have increased, fungicide applications applied may have increased, and seeding rates may have increased. In the current environment, all of these variables must be evaluated.
- Input prices could have increased.
In conclusion, the authors stress that farmers need to take proactive actions to reduce rates and amounts of inputs applied. Even with aggressive input usage cuts, it will be difficult for cash flow losses to be reduced without input price decreases.