2005 farm production expenses projected 4 percent higher

Just how much are rising fuel and fertilizer costs impacting the bottom line on your farm? Plenty, according to the latest projections from USDA.

Total U.S. agricultural production expenses in 2005 are projected to be $218.7 billion, up $8.9 billion or 4 percent from this past year. Since a decline in 2002, expenses have increased by about $7 billion or more in each of the last three years.

Rising costs of energy-based inputs such as fuel and fertilizer and increasing interest expenses will account for more than 60 percent of the increase in costs this year. Much of the increase will come from rising prices paid for those inputs. Prices paid for fuel, for example, were up by more than 24 percent (from 2004) during the first half of 2005.

Increases of more than $1 billion are expected to occur in fuels/oils, interest, fertilizer, and repair/maintenance costs. The only decreases forecast for 2005 are in feed and livestock costs and poultry purchases — both estimated at 2 percent or less. Price levels for inputs will again play a significant role in the increase for all items other than feed and purchased livestock. Rising input prices combined with a small reduction in farm output are forecast to result in a higher level of total expenditures for production inputs.

Feed expenses are forecast to be $29.4 billion, down 2 percent from 2004. The principal factor in this drop is a 5-percent reduction in feed prices. Feed grains are down 17 percent, and complete feeds and concentrates are about 5 and 3 percent lower, respectively. The only feedstuff price that is expected to rise is hay.

Grain-consuming animal units are forecast to be up 1 percent in 2005, with dairy, hogs, and broilers contributing to the increase. At $17.3 billion, livestock and poultry purchases will be 2 percent lower. Cattle and calves account for about three-fourths of this expense. Even though the farm price for cattle will be up, an expected drop in cattle on feed will lower expenditures. One reason for the reduction in cattle on feed is greater retention of cattle and calves on farms.

Principal crop-related expenses, including seed, fertilizer, and pesticides, are forecast to be 6 percent above 2004, continuing a pattern of increasing costs during the past three years. Seed expenses are expected to rise by 6 percent while fertilizer expenses are expected to increase by about 12 percent. Pesticide expenses are forecast to be about the same as in 2004. The increase in these expenses is forecast to be almost entirely due to higher prices. For example, during the last three years, fertilizer prices have risen nearly 47 percent.

Fuel expenses are expected to rise about $2 billion to $10.2 billion, an increase of 24 percent. The price of diesel had risen by 35 percent through July 2005.

In 2005, net farm income is forecast to be $71.8 billion, down $10.7 billion from the record $82.5 billion estimated for 2004. Income is forecast down in 2005 only because income rose $23 billion to an unprecedented level in 2004. In 2004, both crop and conditions.

Two consecutive years of record-high corn production and large harvests for other major crops and unusually high prices for livestock and milk created record earnings for the farm sector, and participants who assume the risks of production (farmers, partners, and contractors) received the benefits in higher incomes.

The years 2003 and 2004 were exceptional ones for U.S agriculture, according to the USDA report. In 2004, net farm income, value of production, value-added, and net cash income all registered historic highs, substantially topping their previous highs established in 2003 (net farm income was up 39 percent, value of production up 15 percent, net value-added up 24 percent, and net cash income up 19 percent).

In 2004, the farming sector contributed a record $126 billion in value-added to the U.S. economy. Record cash receipts for both livestock and crops generated a record $241 billion in total receipts.

Higher prices for cattle, hogs, poultry, and milk were the key reasons for the $17.9-billion rise in livestock receipts from 2003 to 2004. Prices for program commodities trended higher in the first half of 2004, allowing producers to sell the remainder of the large harvests from the fall of 2003 at unusually favorable prices. A record corn crop in the fall of 2004, along with large harvests of other program crops, contributed to a record value of crop production.

Most financial indicators for 2005 are forecast to fall between the record years of 2003 and 2004. The value of production in the U.S. farm sector is forecast to be $269.1 billion in 2005, following successive record years of $242.6 billion in 2003 and $279 billion in 2004.

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