Total Input Costs to Level Off

The good news for 2013 is that total input costs per acre will stay about the same as last year for both corn and soybeans. However, some individual inputs will rise, some fall, and others stay the same. The biggest increases are expected in seed prices. Nitrogen fertilizer prices are also expected to increase. Fuel prices are forecast by the U.S. Energy Information Administration to decrease.

The drivers of higher seed prices in 2013 are higher commodity prices, short seed supplies due to the 2012 drought, and prospects for strong crop returns in 2013. The transition to more biotech seed continues to be a driver of higher seed prices as well. The use of herbicide- tolerant-only varieties decreased in 2012, but the use of the higher priced stacked trait varieties is still increasing.

Seed corn prices are expected to be up 5-7% on average. Soybean prices are expected to increase more than seed corn prices on average because the cost of the commodity is a larger component of the seed price. Seed costs per acre on average yield farmland are forecast to increase $8 for corn and $7 for soybeans. Seed supplies are expected to be tight.

Nitrogen fertilizer supply during the spring planting period of 2012 was very tight and as a result nitrogen prices at New Orleans spiked upward as much as $300 per ton for urea fertilizer in late April and early May 2012. A significant percentage of the total nitrogen fertilizers used in the US are imported and nitrogen importers struggled to move product into the U.S. last summer with nitrogen fertilizer production cutbacks in Trinidad and difficulty moving product up the Mississippi River. This may set up another tight supply situation for nitrogen fertilizers next spring. Currently the price for urea fertilizer used in Purdue’s budget for 2013 is about 5% higher than in January of 2012. The price for anhydrous ammonia fertilizer is up 2%.

A lengthy period of profitable margins for ammonia production has the U.S. fertilizer industry considering new investments in nitrogen fertilizer production capacity, which may help in the longer term to bring down the high price of nitrogen fertilizers. The use of urea and nitrogen solutions has been increasing over the past several years relative to anhydrous ammonia which is less expensive per pound of nutrient.

The price of phosphate is down 6% from what was used in Purdue’s January 2012 budgets and the potash price is currently down 7%. US phosphate fertilizer inventories were below the 5-year average going into the fall 2012 application season. Ammonium phosphate products (DAP and MAP) account for a large part of the phosphate fertilizer market in the U.S. Phosphate prices are expected to increase 3-5% into the spring of 2013 as suppliers rebuild inventories and due to the influence of the nitrogen in many phosphate products. North American potash supplies are in an oversupply situation, so potash prices are expected to remain stable into the spring of 2013 as the two main North American potash producers make production adjustments to maintain current price levels.

Prices paid for chemicals are not expected to increase much in 2013. For the 12-month period ending in November 2012 prices paid for chemicals increased a little over 3%. Fungicide prices led the increases followed by herbicides. Prices paid for insecticides were basically unchanged. As a group, all chemical prices actually fell at an average annual rate of 2% from 2009 through 2011.

Propane fuel prices during the fall of 2012 were down significantly from the previous fall. Propane prices are forecast at $1.60 per gallon in Purdue’s 2013 crop budgets. This would be higher than local prices in the fall of 2012, but well under the prices a year ago. Diesel fuel prices are expected to decrease almost 4% in 2013 relative to 2012 according to the U.S. Energy Information Administration’s most recent short term outlook. The state of the global economy and higher domestic oil production are factors driving the forecast for lower fuel prices.

Markets for both new and used farm machinery have been very strong. The average annual rate of increase in machinery prices has averaged nearly 7% over the last ten years.