Unfortunately, if commodity prices decline significantly, we could see another significant problem develop as most American farmers would incur huge losses if commodity prices returned to historical averages. According to a University of Illinois study, farmers are facing significantly higher production costs in 2009. As a result of the increase in input cost, higher breakeven prices are required for corn, wheat and soybeans.
- According to the study, for corn, non-land production costs for 2009 are projected at $529 per acre, a $141 per acre increase from 2008 levels of $388 per acre and an 85% increase from the average $286 per acre cost incurred in the 2003 to 2007 time period. For soybeans, non-land production costs for 2009 are projected at $321 per acre, up by $82 over 2008 costs of $239 per acre and up 78% from the average 2003-07 level.
- Looking at input costs, farmers are seeing the largest cost increase in fertilizer. For corn, fertilizer costs in 2009 are projected at $215 per acre, an increase of $97 per acre over the 2008 projected level of $118 per acre. For soybeans, fertilizer costs in 2009 are projected at $98 per acre, a $53 increase over the 2008 level of $45 per acre. In addition, seed costs are projected to increase significantly.
- The study suggested that based on yield expectations of 191 bushels per acre, the 2009 breakeven price for corn is $3.82 per bushel. The soybean breakeven price is $9.65 per bushel. Needless to say, these breakeven prices are significantly higher than historical commodity prices and appear to be going higher.
Corn futures closed down sharply, amid widespread commodity declines and pressure from outside markets, including crude oil and soybeans. According to the CME, “seasonally we’re at the time of year where we generally decline and weather forecasts continue to offer little support to the market.”
U.S. wheat futures closed lower on spillover pressure from weakness in other markets and on forecasts for increasing world production. Losses in corn, soybeans and crude oil weighed on wheat. It also was seen as bearish that the analytical report Strategy Grains raised its 2008-09 European Union soft wheat production forecast to 131.7 million metric tons, up 2.7 million tons from the June projection. From a fundamental standpoint, it would appear that a big world crop is getting bigger.
Dramatic Increases in Corn and Soybean Costs in 2009
Chart from the University of Illinois report