Managing input costs key to farmers' success in '08
by Jennifer Whittaker

Middle Georgia farmers and agribusiness leaders attend the 2008 Ag Forecast Breakfast in Macon, Feb. 1.

To be successful in the coming year, rising production costs will require farmers to think as much about input risk management as market risk management, University of Georgia Agriculture Economist John McKissick told farmers and agribusiness leaders attending a 2008 Ag Forecast breakfast in Macon, Feb. 1.

The meeting, held at the Georgia Farm Bureau building, was the last in a series of meetings the College of Agricultural & Environmental Sciences held across the state Jan. 28- Feb. 1.

“Natural gas prices have quadrupled since 2002, and this has driven fuel prices up 152% for this period. There's hardly an input cost the fuel increase doesn't impact,” McKissick explained. “All segments of Georgia agriculture are hurt by higher input costs.”

The increase in fuel costs has hit agriculture especially hard because farmers are not only paying more for the fuel they use to run their farm equipment but also for fertilizer and chemicals. Since 2002, McKissick says farmers have seen the cost of nitrogen rise 91% and phosphorus rise 106%. He estimates the cost of producing hay has increased $20 a ton, adding an extra $18 a hundred weight to the cost of producing a calf. In the last year, McKissick estimates the cost of producing irrigated corn increased 30%, irrigated peanuts 17.6% and irrigated cotton 9.8%. Poultry feed costs have increased 35%.

“We're probably going to continue to see higher input costs for the next two years,” McKissick warned.

The good news for farmers is that crop prices remain high. The demand for alternative fuel has driven corn and soybean prices to record levels. Prices for cotton and peanuts remain high because there are marginal carryover levels for these crops. McKissick predicts Georgia farmers will maintain their peanut acreage this year and increase their soybean acreage.

“We don't have a buffer in case a weather disaster hampers the 2008 crop,” McKissick said. “Efficient producers who take advantage of higher price opportunity and manage their input costs will be in an extremely favorable position for 2008.”

McKissick pointed out that state crop yields were surprisingly good considering the drought conditions Georgia row crop farmers contended with last year. “The yields farmers produced last year are really a tribute to the stability irrigation provides us.”

Other segments of Georgia agriculture haven't fared as well. Georgia's green industry has been severely damaged by the ongoing drought and the resulting water restrictions imposed in North Georgia. According to the Urban Agriculture Council, the industry has lost 35,000 jobs and $3 billion in sales. And a shortage of hay forced many cattle producers to reduce their herds.

The general state of the U.S. economy will also impact agriculture, McKissick said. The recent drop in short-term interest rates is good news for agriculture because farmers are heavy debt users. Besides reducing demand for forest and landscaping products, the decline in the housing sector may also indirectly impact farmland values because farmland value has been driven up in recent years by the demand and growth of the housing sector. However, McKissick said he doesn't think farmland value will decline as drastically as the housing sector has.