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Rising costs affect farm decisions

Some Louisiana agricultural producers are being squeezed by rising energy costs and stagnant prices for their crops, while other producers are buoyed by rising commodity prices that offset those cost increases, according to experts with the LSU AgCenter.

The biggest results of rising energy prices for farmers are in the areas of fuel and fertilizer costs, said Mike Salassi, an economist with the LSU AgCenter’s Department of Agricultural Economics and Agribusiness.

The prices of the three major fertilizer components — nitrogen, phosphate and potassium — have all gone up, Salassi said.

“Especially with rice, which is a major user of nitrogen, that’s a big increase,” Salassi said.

The LSU AgCenter prepares projected budgets for Louisiana farmers to use to estimate their expenses each year. For nitrogen fertilizer, it’s based on a cost per pound.

The per-pound price for the 2005 budget was 30 cents, while the cost for the 2008 budget was 54 cents in December 2007 when the budgets were prepared, Salassi said.

“And that price has continued to rise,” he added. “In three years, the cost of nitrogen fertilizer has doubled.”

Salassi said the same holds true with diesel fuel, the primary fuel used for tractors and other machinery as well as for running pumps for irrigation water.

“The price of diesel fuel also has doubled in three years,” he said. “Diesel in December 2005 was $1.45 a gallon, and in 2007 it was $2.90, and it’s still going up.”

“Costs of production have risen for all commodities,” said LSU AgCenter economist Kurt Guidry. “But we’ve seen enough rise in commodity prices to offset price increases in some cases.”

In particular, corn and soybean prices have strengthened while rice and cotton have improved a little and sugarcane prices have been stagnant, the economists said.

Fuel and fertilizer comprise a high percentage of the costs of producing most crops, and fertilizer is a significant component of corn production, Guidry said. So rising energy costs affect corn more than soybeans.

“The costs of production are going to influence planting decisions in combination with the prices farmers receive for their commodities,” Guidry said. “In corn versus soybeans, current prices favor soybeans.”

The LSU AgCenter economist said three factors — market price, rising cost of producing corn and risk exposure — influence producers when they make planting decisions.

“The cost of producing an acre of soybeans is half the cost of producing an acre of corn, so producers have to borrow less money to grow soybeans and therefore have less risk exposure,” Guidry said. “The three together — production costs, commodity prices and risk — suggest a shift from corn to soybeans in Louisiana this year.”

Guidry said, however, producers may not make “a wholesale switch” to soybeans, but weather at planting time could play a role.

“April 15 is the drop-dead date for planting corn in Louisiana,” Guidry said. “If weather isn’t favorable for planting corn by then, we may see farmers switch to other commodities.”

“Pure economics suggest a substantial rise in soybean acreage, but seed availability is a big question,” Guidry said. “Will soybean producers be able to find enough seed?”

Guidry pointed to sugarcane as one major Louisiana crop with rising costs of production but stable commodity prices, which shrink producers’ margins.

Cotton is similar, he said. Cotton prices have improved, but not enough to offset increases in production costs to be a good alternative to corn and soybeans.

“Increases in prices are not enough to move from corn or soybeans to cotton,” Guidry said.

Guidry sees little increase in cotton acreage, but weather could be a factor along with soybean seed availability. If wet weather keeps farmers from planting corn and they can’t get enough soybean seed, then farmers may plant more cotton if cotton prices continue to show some price strength, he said.

“But that’s beyond economics,” the economist said. “That’s weather-related.”

Rice prices have risen enough in the past few months to maintain current levels of production, but production costs will keep farmers from expanding their acreage, Guidry said.

Salassi said rice producers aren’t likely to reduce the amount of fertilizer they use on their crops because fertilizer recommendations are based on optimizing yield.

For a crop like sugarcane where prices have remained stable over the past 10-15 years, energy costs are pushing some producers out of the sugarcane business, Salassi said.

“With sugarcane, however, the LSU AgCenter has reduced nitrogen recommendations to a lower rate, which would help growers,” he added.

LSU AgCenter experts have reduced nitrogen fertilizer recommendations by 20 pounds per acre for first-year sugarcane and by 40 pounds per acre for subsequent harvest years.

“In the past three to four years, nitrogen fertilizer has been used more efficiently,” Salassi said. “If nitrogen is 60 cents per pound, this would lower costs $12 to $24 per acre.”

“Increases in production costs are making break-even costs higher,” he added.

Guidry sees Louisiana soybean acreage approaching 1 million acres — up from 550,000 to 600,000 acres in 2007. Those acres will come from a 150,000-acre decrease in corn acreage and a 50,000-acre decrease in grain sorghum, he said.

Louisiana’s wheat crop will be harvested early enough that farmers could plant a soybean crop in the same fields this year, he added.

In addition, land that hasn’t traditionally been planted because it’s left fallow following sugarcane or rice may be planted to soybeans this year, Guidry said. But new acres planted to soybeans will depend on seed availability.

“Seed and weather, along with economics, will help dictate what farmers ultimately plant,” Guidry said.

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