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Commodity Prices Up but so is the Cost of Farming

Prices for corn, soybeans and wheat took a major leap in the last week. May corn futures went up 60 cents and May soybean futures bounced 90 cents in just four days before a minor selloff Friday.

But on the cost side it is more expensive to farm this year. Input costs are up in a number of areas. Michael Langemeier, Associate Director of the Purdue Center for Commercial Agriculture, says the primary short-term rise is in fertilizer.

“Nitrogen, phosphorous and potassium have all increased in price relative to last year and if you combine those 3 fertilizer types and you look at corn breakeven, it’s increased the corn break even about 25 to 30 cents right now compared to what it would have been before the price increases. So, it’s a rather substantial increase in breakeven price short term. There’s also pressure on fuel costs and so we’re seeing some increases in fuel costs and that’s also adding a little bit but upward pressure on the breakeven price.”

So, why has fertilizer gotten so expensive?

“I’m not saying this is the sole cause but one thing that does drive fertilizer is fuel costs,” he explained. “If fuel costs go up, you’re going to see an increase in fertilizer, particularly nitrogen. We’re seeing quite a bit of acreage go into corn, so certainly there’s pretty good demand for the fertilizer.”

This change in input prices is a deviation from recent history according to USDA.

“For 5 straight years approximately, if you look at the prices paid index for all production items as recorded by USDA NASS, there was no increase. In ‘21 here we’re starting to see that change.”

Consumer prices going much higher this year, lumber and fuel for example, affect farmers too. But Langemeier says the positive movement in commodity prices has legs so he is really focused on land values and cash rents.

“Cash rents represent about a third of production costs for corn and 40 percent for soybeans and so obviously they have a huge impact on the breakeven prices for those 2 crops and I really think we’re going to have some upward pressure because of the high prices of cash rent and it’s going to have a big impact on negotiations for 2022 cash rents which occur starting late summer into the fall.”

Langemeier is also a professor in the Department of Agricultural Economics at Purdue.