Farmers Face Higher Costs But Commodity Prices Up Too

Kurt Guidry  |  4/22/2005 9:21:16 PM

News Release Distributed 03/12/04

Higher prices for fuels and fertilizers may increase production costs for Louisiana farmers this year, but an LSU AgCenter economist says higher prices for commodities mean growers still can farm at a profit.

"Inputs are going to be higher, primarily for fuel and fertilizer," said Dr. Kurt Guidry. "However, the positive thing is that prices for commodities also are higher this year."

While two of the three primary fertilizer products – potassium and phosphorus – aren’t affected by energy prices, nitrogen fertilizers are manufactured from natural gas. So natural gas prices have pushed up fertilizer prices.

Fertilizer accounts for about 36 percent of the variable cost of producing corn, according to the LSU AgCenter’s production budget for 2004, Guidry said. A substantial part of that is for nitrogen.

Guidry said producers can’t do much about the price of fuel and fertilizer, and he said farmers probably need to use them despite the price. "They really don’t want to go below recommended levels," he said.

The economist said he’s not a proponent for cutting back on fertilizers because of high costs. "If you ration inputs, you’re likely to see reductions in yields," he said.

Guidry said many farmers have bought ahead or "booked" their fuel and fertilizer at prices below current levels.

Despite the increased costs of production, farmers are looking at attractive commodity prices. Guidry said he doesn’t expect increased production costs to lead farmers to shift from corn to other crops, because corn prices have increased enough to overcome the higher input costs.

"Although production is likely to cost more, prices still are at a level where there’s profit to be made," he said. "And by using forward pricing strategies, farmers can protect those profit levels and reduce market risk."

Guidry said new-crop futures prices – the prices being offered for the upcoming season’s crops delivered next fall – are significantly higher than last year’s, prices for the most part.

Cotton prices are up more than 10 percent, while corn prices are up nearly 26 percent, soybean prices are up nearly 43 percent and rice prices are up 78 percent.

"Cotton prices haven’t improved as much, and soybeans obviously look good," the LSU AgCenter economist said. "High input costs may shift some cotton on marginal acres to soybeans."

Guidry added that rice farmers don’t have very much flexibility as to what they plant – although some rice acreage in southwestern Louisiana could be planted to soybeans.

"Because prices are at profitable levels, I don’t think producers will shift crops," Guidry said. He recommends, however, that farmers take advantage of contracting this year’s crops now.

"Growers should price protect now – when there’s profit to be made," he said. "They should lock in profits."

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Contact:  Kurt Guidry at (225) 578-4567 or kmguidry@agcenter.lsu.edu
Writer:     Rick Bogren at (225) 578-5839 or rbogren@agcenter.lsu.edu

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