Farmers in Boone County, knowing that rising input costs aren’t going to stop anytime soon, are looking for ways to reduce costs where they can.
COLUMBIA — John Sam Williamson, a full-time farmer in Boone County since 1975, farms 300 acres of corn and 900 acres of soybeans, along with other acreage devoted to hay. He knows exactly what it’s like to face rising costs.
“It’s a good thing grain prices are so high right now because inputs are up to 50 percent higher than they were a few years ago,” Williamson said. “I sold soybeans at $15.05 a bushel, and that’s the highest it’s ever been.”
Many grain prices are at or near record levels thanks to worldwide demand, lack of grain surpluses and expansion of demand for biofuels. But costs, especially of petroleum-based products, are rising rapidly.
“Many of their input costs have gone up,” said Terry Spickert, manager of the Seed Division at MFA Inc. “Everything: fuel costs, machinery, maintenance, seed costs.
“Currently we have no grain surpluses in the world, and so grain is maintaining high prices.”
Other factors are causing grain prices to rise as well.
“There’s a tremendous demand for grains, not only fuel ethanol and biodiesel, but also as exports and livestock feed,” Williamson said.
In the cash market, soybeans are up to $12.50 per bushel, and corn is up to about $5.25 per bushel. A year ago, soybeans were at about $7.50 to $8, and corn was at about $3.25 per bushel, a $2 increase for corn, Spickert said. Cash market means the dollar amount per bushel is what farmers are being paid for their crop.
But grain prices won’t stay up forever, and farmers know it.
“There’s a danger with rising inputs because grain prices can’t stay high forever,” Williamson said. “When they go back to the normal prices, I don’t know if you can still make a profit on $7 beans. We won’t be seeing any reduction in fuel prices any time soon.”
Rising diesel costs are one of the biggest threats farmers face because it affects them in numerous ways. Diesel prices drive up the prices of almost all goods farmers buy.
Diesel is about $4.01 per gallon in the Midwest, up $1.15 a year ago, according to the Energy Information Administration. And prices continue to rise.
“Fuel has gone up, most importantly diesel, because crude oil prices have risen,” said Kevin Moore, MU associate professor of agricultural economics. “Fuel is kind of the wildcard in input costs. It kind of ripples through farmers’ costs, not only as an input cost, but also as a cost of getting other inputs to the farm,” he said.
When paying for fuel, 72 percent of the cost is for the crude oil, according to the Energy and Information Administration.
Some fertilizers and pesticides are petroleum based, which means those costs are rising, Williamson said. “Fertilizer is much higher, maybe even double what it was a year ago,” he said.
Seed costs are also rising.
Seeds are being genetically altered to produce a better crop, like being Roundup ready, Williamson said. “Some seeds are stacked, having two, three and four modifications, so they’re higher because of these modifications.”
Bean seed with traits cost about $35 per 50-pound unit before program discounts, Spickert said. In the past two years, bean seed has gone up about $7 or $8, he added.
“Seed with traits” means the seed has been genetically altered to have specific admirable traits, like being Roundup ready.
“Seed corn costs about $130 for seed with no traits to $220 for seed with one or more traits," Spickert said. That’s $10 to $15 more than last year for a 80,000-kernel bag.
Because grain prices are so high, farmers are looking for more acres to farm, said Moore, the agricultural economist. And in a county that is becoming urbanized, farm land is scarce. Those factors contribute to higher land prices.
There are two ways to rent cropland. In share rent, the landowner and farmer share the income from the crops. In cash rent, the landowner is paid cash for the ground, and the farmer gets the entire crop income.
When a landowner sees that grain prices are high and that the farmer is getting more money for the crop, the landowner will want more money for his land, Moore said.
For farmers, high steel prices mean higher machinery and equipment costs. This is a fixed cost that farmers must find a way to spread out in order to continue making profits.
“You have to make a profit per acre, so, for example, if you only had one acre of beans, you couldn’t make any profit because of the cost of machinery,” Williamson said.
“Farmers know getting bigger helps spread out fixed costs, so they try to find additional land to farm,” Moore said. “If they can spread those fixed costs over more acres, it makes the whole operation more profitable.”
Besides farming on a large scale to minimize fixed costs, there are other strategies farmers use to maximize profits.
Farmers react to higher prices just like anyone else. When costs of raw materials are high, they pay attention to details, Moore said. “They may take the opportunity to lock in prices by contract so that they know what they’re working with, or make sure to look for discounts,” he said. “They want to manage their input costs, and sometimes it’s just risk management, especially now with the uncertainty of fuel prices. More and more farmers are looking at locking in prices to deal with risk management.”
They are also trying to farm smarter.
“You’ve got to be more efficient, make fewer passes in the field, reduce the amount of fuel you use, try to use the proper herbicides at the proper time to reduce weeds, don’t over- or under-fertilize, get soils tests and plant on time,” Williamson said. “To make fewer passes in a field, you want to use minimum tillage, get a good seed bed by possibly doing no-till, and don’t disk the ground two or three times. Just do it once. If you work the ground too much, it loses moisture anyway.”
Technology is also a big factor in lowering input costs in the agriculture business. Precision agriculture is an area that focuses on using technology to better fertilize and plant ground. This means farmers lose less money on overlap, which occurs when seed, fertilizer or pesticides are accidentally planted, spread or sprayed in the same area twice. Less overlap also means less fuel is wasted.
“Precision ag is an attempt to match input costs more precisely with expected output capability of the land,” Moore said. “For example, if putting more fertilizer on a section of land isn’t going to make it produce any better, then you wouldn’t want to waste the money in that area. Precision ag helps with a more precise application of inputs.”
“Some people use GPS or auto steer to up their accuracy, but that kind of thing is expensive,” Williamson said. “It’s expensive, but if you’ve got a lot of ground, it can pay off. Sometimes you’ve just got to decide if it will work for you or not.”
Expensive or not, some farmers are using precision technology to minimize costs and maximize profits.
“I have a neighbor who has a yield monitor, which makes maps of fields and shows where the higher and lower yield areas are,” Williamson said. “Another neighbor just got an auto steer, which keeps from creating laps or skips. Laps are where you get double amounts of fertilizer, and skips are where you don’t get any, where you miss a spot. It’s operated by GPS.”
Marvin Sapp, the neighbor who owns a yield monitor, also owns a light bar, which helps a farmer stay in line and lowers overlaps. “It has lights on it that tell you if you’re going too far right or left,” Sapp said. “I mostly use it on my sprayer, so that I don’t overlap. I spray herbicides over corn, soybeans and wheat, and so hopefully it keeps those costs down.”
This technology takes some of the guesswork out of farming.
“The way we used to do it is by taking a tape measure and marking out areas and by putting marks on the mirror to see where you need to stay in line,” Williamson said. “But that’s not as accurate, and a tall man is going to need the mark in a different place than a short man. We also watch our tracks to see where we’ve been in the field. But when you get into wheat, you can’t see where you’ve been.”
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