Comparing current and 1970 farm prosperity: Cash farm expenses
Two additional points are worth making. First, the expansion in corn acres since 2005 (15 million) has mostly come from acres planted to other crops. This realignment of acres may be causing unease among agribusiness firms and farms tied to other crops regarding their future in a world of increasing corn acres.
Second, the impact on production expenses by the differential change in acres between the two periods of farm prosperity can be assessed in a simple manner. Deflated cash farm expenses excluding interest as well as purchased feed, livestock, and poultry can be divided by the number of acres planted to principal crops. Between 1972 and 1978 this per acre measure of deflated cash farm expenses increased by 20%. Between 2005 and 2011 the increase was 30%. This comparison implies that, once the different path of acres is taken into account, it is likely that crop expenses per acre have increased more during the current period of farm prosperity than during the 1970 period of farm prosperity.
Comparison of Expenses by Input
Figure 3 presents the change in deflated expenses for purchased seed, fertilizer and lime, pesticides, fuel and oil, property taxes, and net rent. Property taxes, fertilizer and lime, and net rent had all increased more during the current period of farm prosperity. The rate of increase during the two periods of prosperity was relatively similar for purchased seed and fuel and oil. On the other hand, spending on pesticides increased more during the 1970s. Moreover, during the current period of prosperity, spending on pesticides have had a smaller percentage increase than any of the other expense categories listed in Figure 3. Thus, pesticide expenses have dampened the overall increase in total cost of crop production. Last, despite all of the talk about increasing land rents during the current period of farm prosperity, they have increased by a smaller percent than any of the other inputs included in Figure 3, except for pesticides.
The different time paths of interest expense and land planted to principal crops are major differences between the current and 1970 periods of farm prosperity. The muted increase in interest expense during the current period of prosperity has positively impacted net farm income and allowed farms to avoid debt. However, the muted increase in interest expense also means that any downturn in crop revenue will result in a cost-price squeeze between crop prices and the prices of crop production inputs. A key question could become how much flexibility do crop farms have when buying crop inputs. The sharp decline in crop prices in 2009 led farms to delay input purchases. This event could foreshadow a far more intense confrontation if, probably when not if, a longer lasting decline in crop prices occur. In short, crop input suppliers may bear far more of this adjustment process than they did during the 1980s, when declining debt and interest expenses bore more of the adjustment.
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