Agricultural Outlook for 2012
By Ed Farris on Thursday, December 8th, 2011 |
Chris Hurt, Purdue Agricultural Economist, has been traveling to locations across the state discussing agricultural outlook for 2012. He opened his talk at a recent farmer’s breakfast in southern Indiana by showing budgeted costs for crop inputs (fertilizer, seed, pesticides, fuel etc.).
Hurt explained that the crop input expenditures to produce corn and soybeans are expected to increase in 2012. The most recent budget estimates are that the variable costs will be $461 per acre of corn and $230 per acre of soybeans. As compared to the 2011 budget, costs will be 16% higher for corn and 19% higher for soybeans. Note that these costs do not include cash rent.
Hurt also compared budgets from 2005 to 2010 for crop input expenditures. The outlook for 2012 is that costs are expected to be higher than any of these previous years.
Prices for corn and soybeans are expected to be lower in 2012, as well. A United States Department of Agriculture (USDA) projected average price for the crop produced in 2011 was $6.70 for corn and $12.60 for soybeans. The prices in 2012 are projected at $5.65 for corn and $11.50 for soybeans.
Margins produced in 2012 from growing corn and soybeans are therefore expected to tighten due to higher costs and lower prices per bushel of production.
Another Purdue Agricultural Economist, Mike Boehlje, says that there are two distinct types of risk farmers need to be concerned with - operating risk and financial risk. Operating risk is what's associated with grain prices, input costs and yields. Financial risk refers to the way producers finance their business - whether through debt or their own equity.
Both types of risk have intensified in the last few years as the volatility in commodity markets and input prices has caused grain producer's profit margins to become unstable.
Even with all of the uncertainty, Boehlje said there are strategies to help farmers manage their risk. The first is by locking in margins when both commodity and input prices are favorable.
Second, farmers need to buy crop insurance. Determining the level at which to insure the crop can be a challenge, but Boehlje said he recommends higher levels of coverage right now because of the volatility.
Third, producers need to pay special attention to managing financial risk, especially when it comes to debt.
"Be careful with borrowing money," Boehlje said. "Now may be the time to pay down a little debt and position yourself to be able to handle this increased volatility by not having as much debt."
For more information on risk management, check out the November 2011 edition of "Purdue Agricultural Economics Report" at http://www.agecon.purdue.edu/extension/pubs/paer/. Additional information on crop budgets can be found at http://www.agecon.purdue.edu/extension/pubs/index.asp .
If you have questions, contact Ed Farris, Agriculture and Natural Resource Educator, Purdue Extension – Huntington County Office, 354 N Jefferson – Suite 202, Huntington by calling 260-358-4826.
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