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Both Fertilizer Prices, Farm Earnings on Roller Coaster

Both Fertilizer Prices, Farm Earnings on Roller Coaster
Expect to pay more to put out crop in 2011.

Fertilizer prices are up dramatically from last spring, but only slightly from October when Purdue University ag economists prepared the preliminary 2011 Crop budget. Bruce Erickson, one of the authors who prepared the Guide, says it appears as if it will cost more to put out the crop next spring, primarily due to higher fertilizer prices. However, he adds that the situation is so fluid that there is no guarantee that will happen.

It's always possible that fertilizer prices could move down by spring, he notes. That's one reason why the ag economist is not quick to update the January crop budget, prepared in October, based on the best information available at the time. "If we see drastic changes, we will update it," he sys. "But we haven't seen drastic changes form when we updated it so far."

Erickson believes part of the value of the Purdue crop budgets is the historical comparisons that you can make from year to year. To make that accurate, the guides need to be prepared at the same time every year. The other problem with updating a guide is that if a price shift happens quickly, in either inputs or commodity prices, up or down, the Guide could be out of date before it is released again anyway.

Howard Doster, a retired ag economist, argues that although input prices are up, contribution margins are up as well. He defines contribution margin as total revenue, including government payments, per acre, minus variable costs. It does not include land rent or cost, machinery replacement or return to labor. The estimated contribution margins in the January Purdue Guide would be the second highest since the Guide was published, Doster believes. The highest came in 2008.

That also turned out to be the year of the big flood in June, the hurricane remnant flood in northwest Indiana in September, record high corn prices in late June, and a free-fall in prices soon after that. There are risks in making estimates, and in changing estimates based upon short-term performance.

Erickson hopes the guides are used for planning purposes. One reason to use them is to see how much you expect to invest in the crop, so you know what you need to return through sales. In other words, use them as a starting point to pin down some commodity futures or contract prices that will allow you to earn a profit, he notes.

Look for more from both Erickson and Doster in the January issue of Indiana Prairie Farmer, coming soon.

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