Economist: Prices for fuel will continue to rise in 2012
By JOHN O'CONNELL
IDAHO FALLS, Idaho -- Costs have gone through the roof at Paul Patterson's virtual potato farm.
Each year since 1992, the University of Idaho extension economist has created a model farm based on grower surveys, using a computer simulation to calculate input costs.
The data is highlighted in an annual report he produces on behalf of the Idaho Potato Commission, which the state's growers use as a tool in calculating costs on their real farms.
According to his Dec. 8 report, Idaho potato farmers saw per acre production costs increase 15-16 percent. Patterson has never reported such sharp price increases.
"It's budget time and we're all putting our budget in with our bankers, so those changes can roll into your bottom line, and you can feel pretty good about your numbers," said American Falls grower Jim Tiede, chairman of the Idaho Potato Commission.
Patterson's calculations show the per acre cost of growing Russet Burbanks with fumigation and storage has increased by $446 in southeastern Idaho, $480 in southcentral Idaho and $561 in southwestern Idaho. Per hundredweight, it's increased by $1.09 in southeastern Idaho, 94 cents in southcentral Idaho and 85 cents in southwestern Idaho due to greater yields further west.
"These are huge increases," Patterson said.
The increases were primarily driven by rising operating costs, including fuel, seed, fertilizer and chemicals. Patterson doesn't foresee fuel prices dropping in 2012 and noted seed growers have to raise their costs as inputs rise.
His 2010 report showed significant input price declines following increases in 2008 and 2009.
"The cost of expanding potato production right now is so high even if they're doing well it probably tends to moderate any potential increases in production," Patterson said.
Such steep input increases weren't anticipated at the beginning of this year, when growers locked into contract prices with processors, Patterson said.
Dan Hargraves, executive director of the Southern Idaho Potato Cooperative, said some Magic Valley growers with field delivery contracts locked in at prices below the $7.25 per hundredweight Patterson estimated as their production cost.
"It was a great year if you were growing on the open market. If you were locked into a contract, it depends," said Hargraves, who utilizes figures from Patterson's report in his negotiations with processors. "The cost of growing potatoes has almost doubled in the past 10 years. ... It just keeps going up."
Aberdeen potato farmer Ritchey Toevs said the roughly 31 percent increase in eastern Idaho's farm diesel price caught his eye.
"It is huge increases in the items that are tied back to energy," Toevs said.
Toevs had strong net returns, nonetheless, because he had good yields and little trouble with weeds and pests this year. Toevs also had a large inventory of fertilizer, fuel and other inputs on hand, purchased when prices were lower to buffer steep increases.
"As long as you have good production, you still have a margin," he said. "You almost forget what you put into it."