With agricultural input costs on a rapid rise and the volatility of current commodity markets, farmers are having to tighten their belts to stay in the black.
To navigate the complicated economic nature of operating a profitable farming operation, the LSU AgCenter Department of Agricultural Economics and Agribusiness offers several tools designed for farmers to analyze and monitor what goes into — and out of — their farm accounts.
AgCenter economist Michael Deliberto, along with research associate Brian Hilbun, constantly follow commodity markets to help them develop interactive tools with the aim of keeping producers abreast of price fluctuations and input availability.
“We try to provide a suite of tools that agricultural producers are able to use to economically analyze their production practices in the course of their day-to-day operations,” Hilbun said. “Our main goal is to help producers farm in an economically and environmentally sustainable way while attaining maximum profitability.”
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Deliberto produces a monthly crop market update report and a quarterly newsletter that are distributed through extension agents to inform stakeholders about important trends for the seven major commodities in Louisiana: corn, cotton, grain sorghum, rice, soybeans, sugarcane and wheat. These reports are available online here.
AgCenter economists are closely monitoring the prices of fuel and fertilizer, which are on the rise and not expected to decrease in the near term.
Deliberto and Hilbun released a September 2021 report outlining the rapid spike in input costs during the past year. According to that report, fertilizer prices have continued to rise while commodity prices for corn and soybeans have simultaneously decreased since their mid-June levels. The analysis highlighted year-over-year increases in the price of urea, which increased 81%; 74% for phosphate; 101% for potash; and 70% for farm diesel.
The report said the top contributing factors to the upsurge in fertilizer prices include high freight rates, which are up tenfold since early COVID-19 lows; high raw material rates and energy costs; and increased global demand. Hilbun said with fuel and chemicals making up, on average, 40% of a typical farming operation’s direct costs, it is important to pay attention to these key crop inputs.
“The rise in input prices will really affect the way farmers market their crops,” Hilbun said. “With commodity prices being up, we thought our farmers could get a little respite from years of depressed commodity prices, but the rising costs have the propensity to eat into their bottom line.”
Louisiana producers can look forward to the reports Deliberto and Hilbun produce annually and that will be released in January: the Projected Costs and Returns Enterprise Budgets for corn, cotton, grain sorghum, rice, soybeans, sugarcane and wheat.
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These reports itemize, in detail, representative farm costs for key inputs such as labor, fuel and fertilizer by crop. The projected per-acre cost of production is based on AgCenter crop production recommendations. The information is distributed to producers to serve as a tool to prepare for the following crop cycle.
“It allows the producer to have a planning guide so that they can look at the costs and ask, ‘How do these costs compare to my farming operation?’” Deliberto said.
Deliberto said ag economists then go a step further to provide farmers with sensitivity analysis, which estimates the break-even price and yield for each crop. The numbers created in this analysis represent where a farmer’s yield output should be based on expected market prices for a commodity in relation to projected input costs.
“This allows producers to gauge how sensitive their margin for returns is looking over varying prices and varying yields,” he said.
For crops such as sugarcane, rice, grains and oilseeds, cash flow farm models allow producers to enter projected acreage, yield, market price and production cost data to estimate net returns above variable production costs. Farmers can use the Microsoft Excel document to easily evaluate the impact of changing percent of base planted on net returns.
Producers can access interactive documents such as the enterprise budgets and crop-specific tools by visiting the links to the following commodities:
In addition to monitoring the price fluctuations for direct inputs such as fuel and agricultural chemicals, AgCenter economists also observe the political climate of agricultural markets from the state capital and from the halls of Congress.
Since early June, when the INVEST in America Act was introduced in the U.S. House of Representatives, political news has funneled around the bipartisan infrastructure bill. With its passage, Americans are told to expect improvements to the nation’s highways, byways, railroads and navigable water routes — including the Mississippi River.
Hilbun said any improvements made to commerce and transportation along — or across — the Mississippi River can be advantageous to the state’s agricultural sector.
“The Mississippi River is something that is very important to the state as an avenue for which we are able to market our agricultural goods across the world,” Hilbun said. “Anything that helps facilitate the flow of goods, especially those of the agricultural sector, is pretty important for the farmers here in Louisiana.”