Estimating Cost-of-Production Figures for Panhandle Farmers

Estimating Cost-of-Production Figures for Panhandle Farmers

April 18, 2008 

While high commodity prices are giving farmers a reason to smile this year, the rosy income picture is tempered by the increasing cost of production.

To develop more current information on costs, UNL experts at the Panhandle Research and Extension Center in Scottsbluff are calculating 2008 cost-of-production figures for crops grown in the Panhandle, said Extension Educator Tom Holman.

Higher input costs are not good news for farmers, but if there is a silver lining to this economic cloud, Holman said it could be that there is more money circulating through local economies as agribusinesses sell fuel, chemicals, fertilizer and other inputs.

Costs have increased in almost every input category - fuel, land, electricity, and chemicals with fuel and fertilizer leading the way. The cost of diesel fuel has increased 55% since 2006. Diesel prices are averaging slightly over $3.50 a gallon in the Panhandle this spring, compared with closer to $2.00 a gallon two years ago.

Fertilizer prices have increased comparably. Nitrogen fertilizer prices are up a bit over 60-70% since 2006. Phosphorous fertilizer has increased 180-200%. Paul Burgener, PHREC agricultural economist, said fertilizer prices are driven by a number of factors. Half of the nitrogen fertilizer is imported and global demand is up. The weak dollar abroad is another factor. For phosphorous, which is also imported, the cost has increased due to world demand.

Burgener said price increases for the various crop protection chemicals has varied widely, ranging from 5% to more than 200%. In addition, electrical costs have increased 12% in the past two years and land prices have increased 20% since 2006. This affects not only renters, who typically share the costs, but also landowners, since they could be investing the capital at a 5% rate of return or better. The figures used by the University are conservative, Holman and Burgener stressed.

Holman also calculated input costs for major crops in the Panhandle, including fertilizer, chemicals and seed. The cost increases vary from crop to crop with different inputs. For example, some crops use less or different fertilizer than other crops. By crop, the two-year change in input costs were:

 

  • Alfalfa: Up 78% from 2006. This is largely due to higher phosphorous costs. Seed prices have been relatively stable.
  • Corn: Up 47%. The biggest change was fertilizer prices. Corn uses a lot of nitrogen fertilizer. Seed prices also are up.
  • Dry edible beans: Up 40%. The increase was attributed to chemicals, seed and fertilizer.
  • Dryland wheat: Up 3%. Wheat's increase wasn't as large as some other crops because it has fewer inputs than the other crops. For example, dryland wheat uses less fertilizer than corn. The chemicals commonly used on wheat did not increase much, and seed prices had not increased when the 2008 crop was planted last fall.

Holman said it is difficult to calculate direct cost comparisons to 2006 numbers - the last time production costs were calculated - because many farmers have changed cultural practices. For example, Roundup-ready sugar beets are relatively new but expected to account for almost all beet acres this season. Dryland crop-fallow rotations are changing as well.

Holman and Burgener plan to publish the crop budgets soon for wheat (irrigated and dryland), sugar beets, dry edible beans, alfalfa, and corn for both gravity and pivot-irrigated systems.

David Ostdiek
Communications Specialist
Panhandle Research and Extension Center