Best farm economy comes with fuel, fertiliser risk

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Aug 27: US agricultural income is the highest in three decades after corn and soybeans rose to records. The risk for farmers is that costs are rising even faster, increasing concern of a profit squeeze.

A US Department of Agriculture report on Thursday may show costs are accelerating as revenue growth slows, similar to a pattern that led to a 1980s farm crisis that was the worst since the Great Depression, said Gary Schnitkey, a University of Illinois farm economist. Corn, wheat and soybean prices are all at least 18% below their peaks.

Fertiliser costs doubled from a year ago, while fuel increased 62 %, USDA data show. Expenses probably will surpass the $279.2 billion that the USDA estimated in February, eroding net income the government pegged at a record $92.3 billion for 2008, farmers and economists said. “ Income peaked this year,'' said Kurt Line, who owns or manages more than 6,800 acres of farmland near Momence, Illinois. “We should see a significant drop in 2009. For the number of dollars we will be risking the next two years, profit margins are not going to be robust.''

The department's first forecast of farm income for 2009 will be made in November. While income is up from last year, the price rally that began in 2006 for the nation's biggest crops has sputtered since late June and early July, on signs that Midwest flooding may have caused less damage to corn and soybean plants than analysts had predicted. Corn, the most-valuable US crop at a record $52.1 billion last year, dropped 26 % from its June 27 peak of $7.9925 a bushel on the Chicago Board of Trade. Soybeans, after jumping 78% in 2007, plunged 18% from a high of $16.3675 a bushel on July 3. Wheat, up 77% in 2007, slumped 37%from its record $13.4925 a bushel on March 12.

Growers will probably spend one-third more to plant their fields next year, Schnitkey estimated.

Fertiliser, the second-biggest expense for corn and soybean farmers after land, is tied to spiraling energy costs, said Bob Young, chief economist for the American Farm Bureau Federation.“ It will take $5 corn next year just to break even,'' said Young, who represents the largest US farmer group. “People think they're standing at the edge of a chasm.''