Nov 14, 2008Producers Pay More as Growing Gets More Expensive
Despite the skyrocketing cost of inputs and a national economy that seems to get gloomier and gloomier with each passing day, Tim Boals has never seen more opportunity in agriculture.
Sure, the emerging credit crisis is worrisome, but as long as growers prepare properly, they should be able to get the money they need to maintain or expand their farms. As far as Boals, an area manager for Wilbur-Ellis Great Lakes, could tell, the credit crunch has yet to wreak havoc on the agricultural sector, which is still seen as an attractive investment for banks and other financiers.
Boals, based in Sparta, Mich., works closely with finance agents to maximize growers’ return on investments. He encourages all growers to talk to their lenders as soon as possible and figure out a new line of credit for next year, because whatever they might have needed in the past, they’re sure to need a lot more. Fuel and fertilizer costs will see to that.
On the other hand, the focus on quality food and local markets has never been higher, and growers are getting higher prices for their crops – all the more reason to update their finances, Boals said.
Growers with solid plans have the best chance of getting good lines of credit in place for next year. But make sure things are lined up well in advance, he said.
“I’d hate to see a farmer not get the money he needs to finish his crop.”
It’s not cheap to be a farmer these days. Global demands for fuel and fertilizer have driven up the price of both. Other costs of doing business, such as labor and land rents, are rising. Inputs like nitrogen, potash, phosphorus – even tires – cost more than ever. If you ask people in the industry, everything seems to be more expensive.
There are statistics to back them up:
According to the Farm Production Expenditures summary of 2007, released in August by USDA’s National Agricultural Statistics Service (NASS), the rising cost of fuel and other products drove U.S. farm production expenditures to a record $260 billion last year, up 9.3 percent from 2006 and up nearly 30 percent from five years ago.
Average production expenditures per farm increased 10 percent nationwide, from $114,186 in 2006 to $125,648 last year. Average expenditures for fertilizer and lime jumped 26 percent; for fuel jumped 15 percent; and for agricultural chemicals jumped 12 percent, according to the NASS summary.
According to another report – Production Expenses of Specialized Vegetable and Melon Farms – released by USDA’s Economic Research Service in September, total cash expenses per acre for specialized U.S. vegetable and melon farms increased 32 percent between 1998-2000 and 2004-2006. Labor accounted for 30 percent of the expenses, followed by fertilizer and chemicals at 18 percent.
Fuel and Fertilizer
All input prices are going up, but fertilizer prices are “ridiculous,” said Tim Waters, an Extension vegetable educator in Washington state.
Hal Robertson, who grows 1,200 acres of processing tomatoes in Tracy, Calif., said his fertilizer costs have jumped 300 percent in the last six months.
Sharp increases like that leave growers like Robertson in a bind. They have to borrow more from the bank just to finish the season and have to produce a larger crop just to make a profit.
“You can’t just quit growing tomatoes halfway through the season,” he said. “You have to figure out how to make it to the end of the year.”
Robertson has taken measures – minimum tillage, tissue and soil sampling – to avoid wasting fertilizer and other chemicals, but he knows if he cuts too many corners he could have a total crop failure. He has to walk a tightrope.
Trying to forecast a budget has become extremely unpredictable, but Robertson doesn’t expect such massive price jumps next year. If there are, he doesn’t see how anybody will be able to afford to grow a crop.
Frank DeVries, a raspberry grower and processor in Lynden, Wash., was lucky he planned ahead. He paid for his 2008 fertilizer supply late last year, at last year’s prices. Pre-paying saved him about $500 a ton when fertilizer prices shot as high as $1,100 per ton this spring (the average price in 2005 was $350 per ton).
“Most people got hit with that,” he said. “I was fortunate.”
He plans to pay for his 2009 fertilizer this year, at 2008 prices.
Fuel costs aren’t hitting DeVries as hard as fertilizer costs, but they still hurt. Two years ago, he spent about $15,000 for a year’s worth of fuel. This year, he spent almost $40,000. And there’s not much he can do to conserve. He has to haul workers and equipment to the fields. His tractors have to make a certain amount of passes. He can’t justify the cost of replacing his old trucks.
Equipment prices are rising, too. DeVries is looking at buying another tractor, but a model that cost $36,000 in 2006 now costs almost $45,000, he said.
Such costs require more efficient practices. Increased soil sampling, for example, helps pinpoint areas that need fertilization and those that don’t. To reduce fuel use, growers are starting to watch the number of passes they make across their fields and are trying to perform multiple tasks in the same pass, said Waters, the Extension educator.
According to the Farm Labor report released by NASS in August, farm operators paid hired workers an average wage of $10.34 per hour during a week in July, up 35 cents from July 2007. Field workers received an average of $9.66 per hour, up 42 cents from the previous year.
For DeVries, the Washington raspberry grower, labor is the No. 1 cost. It eats up almost a third of his budget. He has 25 employees normally, but 135 during harvest.
Washington’s minimum wage, adjusted for inflation every year, is the highest in the nation. The annual increases have forced growers to utilize more technology, cut back on acres or switch to more profitable crops in order to contain their labor costs, DeVries said.
Employment costs vary considerably based on the labor-intensity of a crop. Corn production, for example, takes fewer human inputs than berry production, said Howard Rosenberg, a University of California Cooperative Extension specialist.
Fortunately for Robertson, the tomato grower and processor in California, processing tomatoes are not a labor-intensive crop. Paying for workers gets more expensive every year, but not as expensive as it does for other growers. Robertson has 20 full-time employees, and hires an extra half dozen or so during harvest, he said.
When the prices of corn, wheat and other commodity crops are high, like they were earlier this year, growers tend to plant more commodities and the price of renting farm land tends to go up. That means less land available and higher rents for fruit and vegetables, said Roger Betz, a Michigan State University Extension farm management educator based in southwest Michigan.
On the other hand, when commodity prices go down, specialty crops start looking better and better, especially when they’re selling for high prices, said Dennis Stein, another MSUE farm management educator.
Over the last three years, land rental rates in Michigan increased between 15 percent and 25 percent. Land rates went up again this summer, until the economic emergency that started in late September altered the financial landscape, Stein said.
The financial meltdown sent investors running away from commodity crops, which lost a lot of their value. Growers and landlords renewing their contracts will have to readjust based on the new, lower commodity prices. A gloomier outlook has replaced the “hunky dory” days of summer.
“Everybody was happy,” Stein said. “Now, it’s pretty dismal out there.”
Specialty crop prices have remained stable, however, thanks to consumer demand for fresh fruit and vegetables, he said.
Most of the ground Robertson – the California tomato grower – farms is rented. He said rental costs have been going up after holding steady for a number of years.
According to Waters, the Extension educator, land rents in Washington also have been rising, probably driven by competition for good ground. Washington farmers grow more than 300 crops, and there isn’t enough land to satisfy everyone’s needs. A couple years ago, for example, carrot growers were paying $400 to $500 an acre to rent ground; now it costs $700 to $800 an acre, he said.