WEST LAFAYETTE, Ind. — Farmers should see some relief on input costs next year, but profit margins are still likely to be squeezed.

While fertilizer prices have already come down, Erickson said overall costs remain relatively high and have not come down as much as commodity prices. Today's grain prices are placing downward pressure on the seed and crop protection companies.

Bruce Erickson, a Purdue University agricultural economist, said growers would likely see the most savings on fertilizer costs in the 2010 planting season.

“Some farmers were spending as much as $200 per acre to fertilize the 2009 corn crop, more than rent in some cases, when you consider nitrogen, P and K replacement, and any liming requirements,” Erickson said. “Next year it will be about one-third less — in our projections about $100 to $130 per acre — depending on soils and crop rotation.”

Erickson and his colleagues’ estimates are available in the “2010 Purdue Crop Cost & Return Guide,” now available online. The guide gives estimates of input costs and expected returns for the coming planting season.

At the time these estimates were prepared, Chicago Mercantile Exchange Group futures indicated that fall 2010 cash prices were near $3.30 per bushel for corn and $8.40 for soybeans. These prices are lower than what was used in the 2009 budget estimates by 70 cents for corn and 30 cents for soybeans.

It’s fairly certain that these costs and returns will change before anything is planted, but the estimates provide a starting point for thinking about 2010, Erickson said.

“The guide provides a general barometer for people who do their own budgets,” he said.

While fertilizer prices have already come down, Erickson said overall costs remain relatively high and have not come down as much as commodity prices. Today’s grain prices are placing downward pressure on the seed and crop protection companies.

“Some technology fees have increased, and we know list prices of some of the newest hybrids have gone up, but we’re also hearing of significant discounting as well,” Erickson said.

Also, some input suppliers have already announced substantially lower glyphosate prices.

“For the second year in a row, farmers’ margins will be less than they were in 2007 and 2008,” Erickson said.

One cost-saving area could be machinery. Erickson said industry reports show sales of new large farm machinery to be down, which could keep a lid on the cost of those purchases. On the other hand, interest in buying used equipment is on the rise.

“There could be some bargains on new equipment out there,” he said.

To download a copy of the 2010 Purdue Crop Cost & Return Guide, go to http://www.agecon.purdue.edu/extension/pubs/index.asp

WEST LAFAYETTE, Ind. — A trio of economic factors that sent commodity prices soaring in mid-2008 has since reversed course and is pushing prices lower, according to an updated report by three Purdue University agricultural economists.

“The three major drivers that we identified last year were trends in global production and consumption, the value of the dollar, and biofuels,” said Wally Tyner, who, along with Philip Abbott and Chris Hurt, released “What’s Driving Food Prices?” this past July. “One of the key questions we asked in doing this new study was, ‘Are these same three that drove prices up the ladder now driving prices down the ladder?’ The answer is yes.”

Tyner and Hurt, who on Wednesday (March 11) present the update in a Farm Foundation Forum at the National Press Club in Washington, D.C., found that a stronger American dollar, falling ethanol demand and rising grain stocks combined to send corn, soybean, wheat and rice prices cascading in late 2008. Behind those dramatic changes is the global financial crisis, the economists said.

“The dollar had lost about 67 percent of its value through July 2008, and since July it has gained 22 percent of that value back,” Tyner said. “Since July, the expectations on supply and demand are that our stocks are going to be better than we thought since 2008 was a good production year and world demand has dropped. So supplies are not nearly as short now in terms of stocks-to-use ratios as they were before.

“And then the demand for biofuels is not near what we thought it was going to be. The price of oil comes down, the price of gas comes down and demand for ethanol goes down. That means there’s not as much corn needed to make ethanol, and, therefore, not near as much pressure on the price.”

Given time, consumers are likely to see lower prices for some food items, Tyner said.

“Demand is down for everything,” he said. “In particular, demand is down more for meat products, which means less demand for the corn and soybean meal to produce meat. It filters through the system.

“It takes a long time for some animal livestock products before those lower commodity prices get filtered into the meat, dairy and eggs. Poultry products are the quickest. For beef it’s the longest time period – up to several years – and for pork it’s somewhere in between. For some meat products, we may be seeing prices now that reflect more what corn and soybean prices were last year than what they are this year.”

Hurt said, “Some products like eggs, milk and dairy will have lower prices this year. Others like meats may be close to unchanged, and fruits and vegetables will likely still be somewhat higher.”

The news for crop farmers is not as rosy, however. Production costs have not fallen as quickly as commodity prices. As a result, input prices remain relatively high, Tyner said.

“Had commodity prices stayed high, farmers could have supported those input prices,” he said. “It’s going to be a tight margin year for farmers. They came off of two really good years, but this year is going to be much different.”

Hurt said, “The future for agriculture is also closely tied to the depth and duration of the current recession, as well as to the magnitude of the recovery in coming years. Other important factors will be how governments and consumers respond to the downturn and how biofuels policy evolves in coming years.”

To read the July 2008 “What’s Driving Food Prices?” report and update, go to the Farm Foundation Web site at http://www.farmfoundation.org.

Farm Foundation is a non-profit organization promoting non-advocacy agricultural policy analysis. The Oak Brook, Ill.-based organization provides objective information on issues shaping the future of agriculture, food systems and rural regions.