Source: Stu Ellis, University of Illinois

Cornbelt farmers will have a responsibility this spring when they plant corn. They will have to write some big checks to pay for the crop inputs. Big checks for fertilizer, seed, chemicals, fuel. Big checks. Bigger than last year even.

You may already be paying for your inputs, some of which have been delivered and applied like fertilizer, and others which you are financing the supplier until delivery. Nevertheless, higher costs will be the norm for non-land expenses for the 2011 crop. The latest newsletter of University of Illinois farm management specialist Gary Schnitkey indicates that good farmland will require a $500 per acre investment for corn. That includes fertilizer, seed, pesticides, drying storage, crop insurance, power, and overhead costs. Cash rent is not included. Cash rent is not included. Let me repeat, cash rent is not included. Add the cash rent on top of the nearly $500 cost for inputs and you have your revenue target for marketing. But don't forget the return to labor and management, also known as profit that pays for family living.

Schnitkey's analysis shows that in the last 8 years, non-land costs rose from $245 in 2002 to $533 in 2009. They eased off a bit in 2010 and the 2011 non land cost should be between the $439 in 2010 and the $533 in 2009. The reduction last year resulted from lower fertilizer costs and a lower drying cost because of the mature crop that came out of the field. But the higher cost of fertilizer will push total costs up for 2011.

The cost of anhydrous ammonia has risen from $550 per ton in mid August to $777 per ton in mid January. The cost of DAP has increased $163 per ton in the same time period and Potash has gone up $74 per ton. Why? Schnitkey says fertilizer prices have paralleled corn prices in general terms in the last several years. If higher corn prices mean more corn acres, then there is more demand for fertilizer and the price goes up. But he says whatever the cause; don't count on fertilizer prices dropping into the spring.

In a broader sense, energy prices have risen along with corn prices. That means oil is higher priced, along with the energy products that are used to produce fertilizers and farm chemicals. Schnitkey says the expansion in the economy puts upward pressure on commodity prices, and because of the lower value of the dollar, prices of imported products, such as nitrogen and potash are higher priced. He says with the potential for oil to rise above $100 per barrel in 2011 and 2012, it is reasonable to expect corn production costs to continue to rise into the next crop year. Look for opportunities to lock in prices and manage your future production expenses.
So how do you ensure a profit if costs continue to rise? One of the keys is to continue to calculate your breakeven cost with a normal corn yield. Many farmers refuse to calculate it, contending they do not know their yield and cannot create a marketing plan until after harvest. By working with a normal yield, calculate a breakeven cost of production to initiate your marketing plan. As prospects for the crop size change throughout the year, adjust your breakeven price up or down as you manage your marketing plan.

Summary
Higher costs of fertilizer will push up production costs for 2011 and likely into 2012, due to increased acres that will raise the demand for fertilizer. However global economic factors, such as higher energy prices will also push up fertilizer costs, as well as the cost of fuel and farm chemicals. Production costs will be higher, particularly for land that has high yield potential.