October 21, 2014

Planting prices growing

By Rodney Daniels
Special to the Independent
Posted

MICHIGAN — As area farmers get ready for another planting season, we are staring down a gauntlet the likes of which very few of us have faced in our lifetimes.

We will be battling the usual suspects – weather that’s too wet, dry, hot, or cold (depending on what we need at the moment), insects, diseases, uncooperative labor, and broken equipment. Always a major concern, this year’s financial picture is so up in the air it should make even the most hardened among us take pause. Diesel fuel prices, bad last year at the $2.30 to $2.60 per gallon range, have rose to $3.50 and appear to be headed much higher. Not only does this affect the cost of tillage but also the cost of nearly everything we use.

Fertilizer prices, driven by world demand and transportation costs, have risen by unprecedented amounts. Urea, a source of nitrogen, has risen from about $425.00 per ton in 2007to $560.00 this spring. DAP, a primary source of phosphorus, stands at $1050.00 a ton, up from $400.00 in 2007, and Potash, the main source of potassium, went from $260.00 to $590.00 per ton. It’s interesting to note that U.S. fertilizer use, while substantial, lags far behind some other countries. China uses approximately 30% of the world’s fertilizer production, India at 20%, and the U.S. following at about 10%.

These emerging economy’s demands are outstripping fertilizer companies’ ability to keep up.

Seed continues its rise in price with demand the primary driver. Herbicides, led by Round-up almost tripling in price, have taken big jumps. Petroleum prices, with oil being the base of most herbicides, are the main culprit here.

All this adds up to a rise in cost of production of 70 to 80% over similar costs last spring. That’s for corn. Other crops may vary but probably not that much.

In one local farmer’s opinion, it’s going to take corn yields of 135 bushels per acre at $4.55 to just break even next fall. While every farmer’s situation and costs are different, it’s easy to see that the risk level bar has been raised substantially.

I’ve been talking about corn because recent demand for ethanol production has increased the price of corn from lows of $1.75 to $2.00 just two years ago to highs of over $5.00 today. This has caused a fundamental shift in agriculture in the U.S. Acres formally planted to wheat, soybeans, and other crops were used for corn. This in turn has caused the price of some of these crops to rise to, in effect, buy back the acres from corn to insure an adequate supply. Wheat and soybeans have taken impressive jumps in price making them a viable option to raising corn again.

Just so they won’t feel left out, this whole situation has left the livestock business in an uproar. Rising feed prices have cut most of the profits out of beef, pork, and poultry production. Slowly rising commodity prices probably won’t turn this completely around for at least another year, maybe longer.

Dairy has fared a little better, finally enjoying good profits last year after several marginal years. World demand, fueled by the cheap U.S. dollar and a sustained drought in Australia, were big factors and it looks like they may continue. However, overproduction, the bane of U.S. dairymen, is building as is the cost of production. Most agree the breakeven point is now somewhere between $15.50 and $16.50 per hundredweight for milk, up from $11.50 to $12.50 just a year ago.

All these factors combine to make farming an even more dangerous minefield. While the potential for good profits is there, the risks have risen dramatically. So if the farmers you know seem to be a little more jumpy this spring, now you know why. Try not to bother them when it’s too hot, cold, wet, or dry.

—Rodney Daniels is a part-owner of WRL Dairy Farm in Whittemore. He is a also a member of the Michigan Milk Producers Association’s Board of Directors.

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