What is in this article?:
- Crop input costs expected to surge in 2012
- Fair cash rent hard to figure
• Farmland rental costs and volatile fertilizer prices are the two primary drivers of increasing costs.
• Preliminary budgets show variable costs for rotation corn increasing by 16 percent, soybeans by 15 percent and wheat by 12 percent as compared with January 2011 budgets.
Fair cash rent hard to figure
"It's hard to figure out a fair amount of cash rent, especially in an environment with so much potential for quick commodity price declines and input price surges," he said. "We don't want to see another 2009 where grain prices dropped, costs increased and profitability disappeared. It's a challenging risk management environment for farmers."
He urged farmers to be cautious and to try to hold down costs by thinking through all of their purchases.
"Commodity producers need to still be working on being low-cost producers on a cost-per-bushel-produced basis," Miller said. "Growers need to manage the expected margin between the selling price of the corn and their costs. Try to market to lock in commodity prices and to lock in prices on purchased inputs. Lock in profit margins and don't give up marketing strategies."
While many farmers may be tempted to take a wait-and-see attitude toward marketing the 2011 crop, Miller said that might not be the best idea. Instead, he said this is a good time to apply marketing skills to the management of input pricing. If crop prices recover, demand for inputs and input prices are likely to increase.
For cash rents, he said flexible lease agreements could help both growers and landowners in a volatile period.
"Try to help landowners understand the market and the volatility," Miller said. "Possibly look at flexible lease agreements instead of locking in cash rents in case inputs increase and commodity prices stay where they are at now or fall even further."
The bottom line, he said, is that producer vulnerability is a concern heading into 2012. Growers need to be proactive in managing their input pricing because input prices could rise even more if crop price prospects improve in the spring.
For more information about 2012 input costs, check out Miller and Bruce Erickson's article "Crop Input Prices Surge" in the October 2011 edition of Purdue Ag Econ Report at http://www.agecon.purdue.edu/extension/pubs/paer/. Also check the Purdue Crop Costs and Returns Estimates for 2012 at http://www.agecon.purdue.edu/extension/pubs/id166_2012_AUG29_2011_final.pdf.