Economist warns crop prices more likely to drop than input prices

By JOHN O'CONNELL

Capital Press

The strong prices growers received for agricultural commodities in 2011 were tempered by sharp increases in their production costs, according to a recent economic study by University of Idaho extension economist Paul Patterson.

Increases in fertilizer and fuel prices were the main drivers in the cost increases, according to Patterson's Idaho Crop Input Price Summary for 2011.

In southern Idaho, for example, the price of dry phosphate increased by 68 percent, or 23 cents per pound, and in Northern Idaho liquid nitrogen was up 45 percent. Off-road diesel prices were up 80 to 85 cents from last year throughout the state.

Patterson cited USDA numbers showing the aggregate increase in fertilizer cost nationally for 2011 was 29.8 percent, and fuels rose by 27.2 percent.

"If you look at these numbers historically, there is a higher probability that we will see declines in crop and livestock prices than we will see declines in input or farm expenses," Patterson said. "These higher inputs are probably going to be sustained at these higher levels longer than these commodity prices are going to be sustained at these record levels."

Though most input prices increased, Patterson said interest rates were the notable exception.

"In spite of all these huge increases in input costs, the cost of borrowing the money to buy them is lower than it has been historically," Patterson said. "There is still a challenge for growers who don't have as good of a financial standing as the banks want. The banks have certainly tightened up their credit requirements."

Since 2004, Patterson said input costs have fluctuated widely. As evidence, he listed the percentage change in operating cost on a per acre basis for Idaho potatoes. Costs rose 1.2 percent in 2004, rose 8.6 percent in 2005, rose 10.6 percent in 2006, rose 8.2 percent in 2007, rose 26.5 percent in 2008, dropped 1.8 percent in 2009, dropped 10.2 percent in 2010 and rose 21.9 percent in 2011.

"The take-home message is this shows the continued extreme volatility that has come into the input costs over the last seven years," Patterson said. "Even if you might not like a high price, it's easier to plan if you're putting together budgets than prices that are jumping all over."