PLOWING NEW GROUND

Mike Rankin
Crops and Soils Agent
University of Wisconsin - Extension

Originally published in the Fond du Lac Reporter, February 3,2008

      Every year has its oddities, its changes in policies, its new order, its economic realities, and its new products. But what is about to occur in 2008 for those who produce crops to help feed, fuel, and clothe the nation is beyond anything that has been matched in our agricultural history. The stars have aligned to bring a bevy of interrelated factors together that will make the 2008 crop different than any other. This difference won’t be apparent from the car window, but be assured it’s not the same, and may never be again. What’s different? Just about everything, but here’s a closer look at four of the major factors.

Crop prices: On January 11th, December corn futures broke the $5.00 per bushel mark. On the same day in 2006, the December contract closed at $2.49. Want “beans in the teens?” The March 2008 soybean contract closed at $13.01 on January 15th. These current prices are not following poor crop years, as has been the case in the past. No, these prices are being driven by demand for U.S. grains from fuel producers, livestock producers, and food processors. Further, the weak U.S. dollar is making domestic farm commodities a very attractive buy to nations around the world. If you’re a grain producer, it’s nice to be wanted. If you’re a grain user...well, production costs just went up.

Input costs: In the past five years, fertilizer costs to produce an acre of corn have nearly doubled, and 2008 prices will account for a big portion of that increase. Once again, supply and demand factors come into play. Seed costs are also approaching the 100 percent increase mark during the same five years (more on this later). Fuel is taking a bigger chunk of take home pay; but on the farm, hybrids are only available as corn. The bottom line: it will cost more to produce an acre of corn in 2008 than it has at any other point in history.

Land costs: For those who own land, the value is only increasing but the of cost ownership remains stable. However, for those who are renting or buying land, we’re in unchartered waters in terms of prices. Land values have been increasing above the historical trend line since about 1993. That is, regardless of low commodity prices land values (prices paid) have continued to increase each year beyond expectations. Land rent values stayed relatively stable through much of this time period. However, during about the past four ears, rent values have also increased at a faster rate than expected and, in some cases, to levels that we’ve never experienced.

Biotechnology: Transgenic crop varieties and hybrids continue to have a huge impact on how crops are produced. Nearly 90 percent of all soybeans and over 50 percent of the corn planted this past year had at least one transgenic trait (herbicide and/or insect resistance). The percentage of corn planted to transgenics will no doubt match that of soybeans within the next several years. The ramifications are mind-boggling. First, there is the obvious added cost of seed, which is hopefully offset somewhat by reduced chemical pesticide costs. Next is the fact that whatever seed is planted now dictates the pest management strategy used. This impacts both the farm supply retailer and the crop producer. Finally, the widespread use of transgenic crops, and more specifically the widespread use of the same pest management strategies, opens the door for potential pest (weed and insect) resistance problems.

Make no mistake...this is a new era for crop production. Everyone, including consumers, will be impacted in one way or another.