AFBF: Production costs outpacing commodity prices
Posted on Mar 22, 2022 at 20:00 PM
The cost of growing crops could outpace revenue for many farmers in 2022, making it more difficult to break even despite rising commodity prices and increased demand both domestically and globally. The American Farm Bureau Federation is launching a series of Market Intel articles examining rising farm production expenses.
The first report concludes that farm production costs are likely to increase 6% in 2022, which follows a 12% increase in 2021. This continues a trend stretching back several years. Since 2013, farmers have seen almost all production expenses increase. For example, livestock and poultry expenses have gone up 46% and marketing, storage and transportation costs have increased 59%.
Farmers are seeing a number of production cost increases including:
• Rising fertilizer, seed and chemical prices, which now make up to 17.5% of on-farm expenditures;
• Rising fuel and energy prices, exacerbated by uncertainty due to the Russia-Ukraine conflict;
• Increased costs of labor, both on-farm and for agribusinesses serving farms;
• COVID-19 disruption of labor markets and production.
“The rising prices for fuel, fertilizer and other supplies create an unwelcome counterforce to higher commodity prices,” said AFBF President Zippy Duvall. “Higher prices for crops are getting a lot of attention right now and of course help farmers balance the books, but when expenses are rising just as quickly or even outpacing revenue, the financial gains evaporate. Right now, there are serious concerns about whether farmers will be able to access the supplies they need to put a crop in the ground.”
AFBF is working to ensure the Biden Administration and Congress understand the severity and potential implications of increased production costs and the limited availability of some supplies.
Future Market Intel articles will explore the rising cost of production expenses like seed, pesticides, energy, machinery, land, labor, credit and water. A Market Intel analyzing fertilizer prices was published in December 2021.
Read the entire Market Intel here.
On March 11, the USDA announced it will support additional fertilizer production for American farmers to address rising costs and spur competition.
USDA will make available $250 million through a new grant program this summer to support independent, innovative and sustainable American fertilizer production to supply American farmers. Additionally, to address growing competition concerns in the agricultural supply chain, USDA will launch a public inquiry seeking information regarding seeds and agricultural inputs, fertilizer, and retail markets.
The United States is a major importer and dependent on foreign fertilizer and is the second or third top importer for each of the three major components of fertilizer. The top producers of the major components of fertilizer include China, Russia, Canada and Morocco, with Belarus also providing a significant share of potash.
USDA will use funds that the Commodity Credit Corporation (CCC) set aside in September for market disruptions to develop a grant program that provides ‘gap’ financing to bring new, independent domestic production capacity on line—similar to the recently announced meat and poultry grants that are designed to promote competition and resilience in that sector.
The new program will support fertilizer production that is independent, made in America, innovative, sustainable and farmer-focused, according to a USDA press release.
Details on the application process will be announced in the summer of 2022, with the first awards expected before the end of 2022.