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How Will Farmers Respond to High Fuel and Fertilizer Prices?
Damona DoyeRegents Professor and Extension EconomistOklahoma State University
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Value of production by commodity
Cattle and calves
Poultry & eggs
Hogs & pigs
Winter wheat
Hay
Milk
Corn
Cotton & cottonseed
Soybeans
Pecans
Floriculture
Grain sorghum
Peanuts
Other
Source: Oklahoma Ag Statistics 2004 Bulletin
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Average per farm for selected expenses
Livestock/poultrypurchased
Feed
Fertilizer, lime, soilconditioners
Gasoline, fuel, oils
Hired farm labor
Interest expense
Chemicals
Other
Source: 2002 Census of Agriculture for Oklahoma
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Oklahoma farmland use
Wheat
Grain Sorghum
Rye
Soybeans
Corn
Cotton
Oats
Peanuts
Hay
Other
Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)
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Oklahoma cropland use
Wheat
Grain Sorghum
Rye
Soybeans
Corn
Cotton
Oats
Peanuts
Hay
Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)
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Average operating costs for wheat in Prairie Gateway
Seed
Fertilizer
Chemicals
Custom operations
Fuel, lube, electricity
Repairs
I nterest
Other
USDA Economic Research Service, 2002
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Impact of Higher Petroleum Costs on an Example OK Wheat Farm$1.80/gal
Anhydrous @ $368/ton
$2.80/gal
Anhydrous @ $442/ton
Conv. Lo-till No-till Conv. Lo-till No-till
Fuel ($/a) 16.43 11.53 7.79 25.55 17.94 12.12
Fertilizer ($/a) 20.37 20.88 27.55 24.46 25.07 33.08
Subtotal ($/a) 36.80 32.41 35.34 50.01 43.01 45.20
Increase ($/a) 13.21 10.60 9.86
% change in total operating costs
16.4% 16.3% 10.7%
Source: OSU enterprise budget software
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Impact of Higher Petroleum Costs on OK Wheat Farms Approximately $5/a increase in fuel costs per $0.50
increase in diesel fuel Approximately $2/a increase in fertilizer costs per
10% increase in costs Who is hurt most?
Producers in low yield areas With high fuel prices, conventional tillage operations more
than low- and no-till operations Tenants with cash leases
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Impact of Increases in Petroleum Costs on OK Crops ($ increase per acre compared to last year)
Fuel
Fertilizer
$2.30/gal
110%
$2.80/gal
120%
$3/gal
135%
Wheat, dual purpose
8 17 21
Canola 7 14 21
Grain sorghum 7 13 17
Cotton 8 17 21
Corn silage 10 20 28
Soybean 2 4 5
Peanuts 8 15 19
Bermuda pasture
4.5 10 17
Bermuda hay 18 25 33
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Number of farms by value of sales
Less than $2,500
$2,500- $4,999
$5,000- $9,999
$10,000- $24,999
$25,000- $49,999
$50,000- $99,999
$100,000- $499,999
$500,000 or more
Source: 2002 Census of Agriculture for Oklahoma
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What have farmers done? Anecdotal evidence Put on less fertilizer this fall
Maybe more soil testing More selective use
More productive land Higher response pastures
May put on more fertilizer in spring Eastern OK: more interest in poultry litter Bit the bullet and fertilized as usual More shopping around for fertilizer? On-line
buying? Contracting? No rain, no need for fertilizer
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What have farmers done? Anecdotal evidence Less wheat
Soybeans Canola Cowpeas Questions about winter peas Other alternative crops
Alternative tillage systems Minimum till No-till
Legume rotation
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What have farmers done? Anecdotal evidence Shop for custom operators Complain about trucking costs Higher cash rents for small grain pasture Still running cattle regardless of fuel prices Will have fewer cattle in spring? Shift from farming to grass Pecan producers raising prices
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What happens if farmers don’t topdress wheat in spring?Positive effects Negative effects
Decreased costs Increased costs
Fertilizer: 30 # UAN @ $300/tonApplication: $3
$4.50
$3.00
Increased returns Reduced returns
5 bu x $3.25/bu $16.25
Total $7.50 Total $16.25
Difference $(8.75)
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Break even price of N?
PN x 2 lb N/bu = PW/bu
PN = PW/bu = $3.25
2 lb N/bu 2
PN = $1.625/lb
= $3,250/ton
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Bermuda grass pastureNo fertilizer 50# N 100# N
Fertilizer 0 17.65 35.3
Pesticide 3.36 3.36 3.36
Custom hire 3.70 6.70 6.70
Repairs 1.87 1.87 1.87
Other 1.20 1.70 2.13
Fixed costs 49.61 49.61 49.61
Total costs ($/a)
47.75 68.90 86.98
Expected yield 1 ton/a 2 ton/a 3 ton/a
Cost per ton $47.75 $34.45 $28.99
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Tools and assistance available to producers AgMach$, ag field machinery cost estimation software
http://www.dasnr.okstate.edu/agmach/index.html Or Tennessee machinery cost calculator at
http://economics.ag.utk.edu/mcc.html OSU enterprise budget software
agecon.okstate.edu/budgets OSU IFMAPS program to assist farmers/ranchers with business planning
agecon.okstate.edu/ifmaps Oklahoma Ag Linked Deposit Program (OALDP) to help lower interest rates
for producers http://www.state.ok.us/~sto/rblink.html
Custom rate survey currently being conducted (OSU CR-205) Noble Foundation custom rate operator searchable database
www.noble.org/WebApps/WebListings/CustomHire/Index.aspx
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agecon.okstate.edu/budgets
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Free and confidential assistance in business planning for Oklahoma producers
Producer initiates contact with IFMAPS Case is assigned to local IFMAPS specialist IFMAPS specialist calls producer Producer gathers and summarizes farm records Specialist and producer arrange a mutually convenient
time to meet Specialist prepares budgets and financial statements Specialist and producer meet to review business plan
1-800-522-3755
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www.noble.org/WebApps/WebListings/CustomHire/Index.aspx
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Drought monitor
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What will farmers do in spring? Depends on
What they did this fall Weather Fuel, fertilizer prices Grain market outlook Cattle market outlook
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