Report: Input costs on the rise for crop farmers
WILLMAR -- Prices paid to grain farmers for their crops have increased in recent years, but so have seed, fertilizer, chemical and other costs.
The average cost of producing a bushel of corn has about doubled during the past 10 years, according to the 2012 annual report of 505 central and west central crop and livestock farms participating in the Farm Business Management program.
"I think the real story in crop farming is input costs are on the rise,'' according to Jim Molenaar, regional Farm Business Management director at Ridgewater College.
"We're looking at direct expense of production of corn nearing $600 an acre on rented ground, and close to $450 on owned land,'' Molenaar said.
"If we have any kind of return to prices that are more in the $4 range for corn, it's probably a break-even year with a normal crop,'' he said.
The report lists current financial status and net returns from various enterprises. In addition to the average of all farms, averages for high and low net income groups are also presented.
Producers use the report to compare regional averages to identify and study areas that may need management improvement. Also, instructors, extension agents, bankers and agricultural consultants use the report.
The cost of producing a bushel of corn depends on yield. If a producer invests $600 per acre of corn and harvests 100 bushels per acre, which Molenaar says "in my day growing up was considered a bumper crop,'' the cost will be $6 a bushel.
"If you have 200-bushel corn, now the cost comes down,'' he says. "So we're really dependent on the weather. The moisture situation has improved a great deal throughout the region, but there's no excess.''
Farmers spent an average of just over $1 million each on crop expense, fuel, repairs, labor, utilities, lending costs, equipment, and household and personal expenses, among other things.
"The fact that farmers have been doing that in recent years has really bolstered the economy of the west central region,'' says Molenaar. "We have avoided a lot of the recessionary-type of things because of the farm economy.''
During the past 10 years, farmers reduced their debt from about 47 percent in 2003 to 40 percent in 2012. Farmers had an average debt of a little over $1 million in 2012, due to the cost of business and reinvesting in their operations.
Molenaar says a 7 percent reduction is still good.
"Earnings for farms have increased, have improved. But there's a huge risk, a huge investment and it's a very complex business. The people running farm operations are well trained and they're spending a lot of time managing the business,'' he says.
"But with crop prices where they are, the public's perception is they might think why do (farmers) have any debt at all, and part of that is reinvestment in the business,'' he says.
Molenaar marvels at the willingness of over 500 farms to share their data.
"The Harvard School of Business talks about having four businesses as a case study they use with their students. The businesses open their books and say study us and they think that's a big deal,'' he says. "Five hundred farms to me in west central Minnesota is a very big deal.''
Molenaar has been in ag education for 35 years. He previously taught high school and is entering his 23rd year as Farm Business regional director.
He was a mediator during the farm crisis in the 1980s and lived in an area where the Federal Deposit Insurance Corporation foreclosed on three banks.
"This is certainly a more enjoyable time to be working in farming,'' says Molenaar. "But yet the risks and the pressure on farmers are as high or higher than what we were experiencing in the 1980s.''