The Economics of Farming??

The Blackland Crops Clinic was held this past Thursday, October 30 and we had some really interesting speakers. I think everyone was surprised by how much can be packed into just a few hours but the information was really flowing! One of our speakers was Dr. Mark Welch, Extension Economist for Grain Marketing. Mark is really a down to earth economist basically because he was a farmer first, farming in the High Plains of Texas before becoming an economist. Mark gave us a situation analysis and discussed the outlook for grains in the coming months and there were some real interesting parts to his talk that I thought the general public should know about.
First his outlook for grain demand and even price is pretty good. We have seen corn prices drop continuously since the middle of summer but according to Mark we are probably at the bottom basically because we don’t have much corn in storage. Economist use the term “days of use on hand,” to look at the amount of corn available in the world and currently we have on 49 days of corn left, the lowest since 1974. This means we are in short supply and a short supply means higher prices are around the corner. Also he said that ethanol accounts for 34% of all US corn use and this is up from 23% in 2007. This trend will continue which only helps to push prices higher; I hope he is right because we can’t farm corn at $4.00 a bushel!
On another note Mark discussed the costs associated with farming corn. Currently corn accounts for the largest share of nitrogen use of all crops and fertilizer is the largest expense of the variable costs for producing corn. Fertilizer is 43%, seed 21%, fuel lube and electricity 14%, chemicals 11%, repairs 6% and custom work 5%. In 2008 farmers saw a 65% increase in fertilizer prices paid over 2007, a 43% increase in fuel, 30% increase in seed costs, 7% for machinery, 6% in wages and 4% in chemicals. 2008 was a frustrating year for farmers as farmers paid high prices to plant the crop hoping the grain price was going to stay at the record prices recorded at planting time. Unfortunately grain prices began their slow descent in August and only now are they slowing down. Farmers lost thousands of dollars over the course of just a few weeks or even a few days.
Lastly Mark had a few interesting facts for farmers to consider. One is that the bushels of corn produced per pound of nitrogen fertilizer have steadily gone up. We have improved our corn varieties and our technology such that in 1965 it took one pound of nitrogen to produce 0.9 bushels of corn. Today it takes one pound of nitrogen to produce nearly 1.2 bushels of corn. This is phenomenal efficiency gains but there is another fact that startled all the producers in attendance. In 1960 it took 141 bushels of corn to buy 1 ton of anhydrous ammonia, a nitrogen fertilizer source. Today it takes 161 bushels of corn to buy 1 ton of anhydrous ammonia. So even when we think we have it worse off today a quick study of history shows us we have seen these times before.