With petroleum prices climbing over $70 per barrel, and thirsty tractors headed to the field, this may be the time to double check your operating budgets. No, you can’t do anything about the price of fuel, or how much you consume, but fine-tuning your production costs will help you with intelligent marketing this spring, if commodity prices seem to be attractive. And that applies to fertilizer costs as well, since those two resources may likely determine your profitability for the year.

The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri Wednesday updated its projections for production costs, with respect to fuel and fertilizer. And these are some numbers that may have a place in your crop budgets. “Fertilizer costs for 2006 are expected to be 10 to 15 percent above 2005 and fuel prices are expected to increase almost 10 percent in 2006. The outlook for 2006 would suggest fertilizer prices are 70 percent above 2002 with corresponding fuel prices up approximately 113 percent.” FAPRI’s projection through 2010 indicates that 2006 is the high water mark for fuel and fertilizer prices, with a slow decline over the next four years. Whether the decline is enough for water to run toward 2010, or just pond up, is anyone’s guess. The 2006 fuel cost estimate was based on locking in a $2.22 per gallon rate for diesel fuel.

Regarding the price increases for corn fertility, FAPRI says, “Current fertilizer prices throughout Missouri, when compared to last spring, would indicate increases in ammonium nitrate and anhydrous ammonia nitrogen prices of 6.5 to 8 cents per pound, phosphate prices of 3 to 4 cents per pound, and potassium prices of approximately 1 to 2 cents per pound.” That would be a $62.20 per acre cost for fertilizer if applied at a 110-60-60 rate, and $113.18 per acre cost for fertilizer applied at a 190-115-115 rate. In either case, the updated fuel cost for corn production was projected at $11.03 per acre.

For soybean fertility, costs have increased, but nitrogen costs are eliminated. Per acre fertility cost is $19.05 for fertilizer at a 0-30-50 rate, and $30.71 for 0-46-80 rate. Fuel costs for soybean production was $7.05 per acre.

For wheat fertility, FAPRI estimated costs at $36 per acre for a fertilizer application rate of 60-20-15, and a $59.38 per acre cost for a rate of 100-35-20. Fuel charges for wheat production were estimated at $6.02 per acre.

FAPRI says even with farm grade delivered diesel fuel at more than 40 cents under metropolitan retail, prices will fluctuate in the foreseeable future, “The potential for price volatility in the retail diesel market is strong for not only the outlook for this spring, but this summer as well.”

With the updated projected costs for fuel and fertilizer, they become significant shares in the cost of production, “According to (USDA) figures, almost 50 percent of the variable costs associated with producing corn are comprised of fuel and fertilizer, including hauling and other fuel related costs. For soybeans and wheat, these percentages are 25 and 52 respectively.” Consequently, profitability is challenged, “While many agricultural producers may have forward contracted or engaged in pre-pay arrangements for a portion of their fuel and fertilizer needs for this planting season, the impacts of the past four years of increasing costs continue to influence their profit margins, cropping practices, and farm management decisions.”

Summary:
As farmers head to the field, fuel prices continue to rapidly rise; jeopardizing crop budgets for those whose fuel needs are not locked in with a distributor. Fuel costs plus fertilizer make up half of the cost of corn and wheat production subsequent to the recent increases. With expectations for increasing fluctuation in fuel prices for the spring and summer, farmers need to keep track of total production costs in an effort to ensure that any forward commodity pricing is a profitable venture.