Cost of Production Outlook
Southern Outlook Conference
Atlanta, GA
September 23, 2008
Lori Wilcox
wilcoxl@missouri.edu
www.fapri-mu.org
Overview
•
•
•
•
•
Macroeconomic impacts
Prices paid by farmers index
Costs of production
Net return implications
FAPRI Baseline process
US Monthly Retail Diesel Prices
Jan. 2004 to Aug. 2008
500
$1 per gallon increase over the
past 10 months with some
recent decline
450
400
Cents per Gallon
350
300
250
200
150
$2.50+ per gallon increase over the
past 4 years
100
50
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul
'04 '04 '04 '04 '05 '05 '05 '05 '06 '06 '06 '06 '07 '07 '07 '07 '08 '08 '08
Source: http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp
Monthly US Natural Gas Wellhead Price
Jan. 2004 - Jun. 2008
$12.00
$/Thousand Cubic Feet
$10.00
June 2008 = $10.82 a
historical high followed by
$10.33 in Oct. 2005
$8.00
$6.00
$4.00
$2.00
$0.00
Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm
Monthly US Natural Gas Production
Jan. 2004 - Jun. 2008
1,800,000
1,700,000
2008 avg production = 1,700,000(MMcf)
• within 3% of 1970’s avg.
•18% above 1980’s avg.
• 11% above 1990’s avg.
MMcf
1,600,000
1,500,000
1,400,000
1,300,000
1,200,000
Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm
PPI Macro Data
Index 1990-92=100
400
350
PPIFULW
300
PPINGAW
PPICLUMW
250
200
PPIRUBW
PPIMETW
PPIW
150
PPIELPW
PPICHMW
100
50
0
Source: Global Insight, August 2008
PPIAUTOW
PPIRPPW
August FAPRI-MU Baseline
• WTI crude range $130 to $105/barrel ($120
avg.)
– September 22, 2008 futures - $120.92/barrel
• Natural gas range $9 to $10 per Mbtu
– September 22, 2008 futures - $7.94
Putting the Pieces Together
Macro
Net
Returns
Prices Cost of
Paid
Prod.
US Fertilizer Price Growth
Prices Paid by Farmers 1998-2008
600
2nd Qtr 2008 fertilizer
prices are 300-400% higher
than average prices for
2002
Index 1990-1992=100
500
400
300
200
100
0
Mixed Fertilizer
Source: USDA/NASS Agricultural Prices
Nitrogen Fertilizer
Potash & Phosphate
Weekly Fertilizer Prices - fob
1000
900
800
US Dollars/Ton
700
600
500
Ammonia
400
Urea
300
CAN
200
100
0
Source: Yara
Fertilizer Prices
US $/ton
US April Survey Price
Data (USDA)
2006
2007
2008
2008 (Qtr2) est.
DAP
$337
$442
$850
$867
Anhydrous Ammonia
$521
$523
$755
$862
Superphosphate
$324
$418
$800
$1,036
Source: USDA/NASS Agricultural Prices
Prices Paid Index, Fertilizer and Fuel
700
Index 1990-92=100
600
500
All Fert.
400
Nitrogen Fert.
Fuel
300
Phos&Potash
200
100
0
1998
2000
2002
Source: FAPRI-MU August 2008 Update
2004
2006
2008
2010
2012
Prices Paid Index, Farm Machinery, Autos,
and Building Materials
250
Index: 1990-92=100
200
Farm Mach.
150
Autos/Trucks
Building
Materials
100
50
0
1998
2000
2002
Source: FAPRI-MU August 2008 Update
2004
2006
2008
2010
2012
Prices Paid Index, Agricultural Chemicals
250
Index: 1990-92=100
200
Herbicide
150
Insecticide
Fungicide
100
50
0
1998
2000
2002
Source: FAPRI-MU August 2008 Update
2004
2006
2008
2010
2012
Prices Paid Index, Seed
350
Index: 1990-92=100
300
250
200
150
100
50
0
1998
2000
2002
Source: FAPRI-MU August 2008 Update
2004
2006
2008
2010
2012
Prices Paid by Farmers - % Changes
Seeds
Fertilizer
Mixed Fertilizer
Nitrogen Fertilizer
Potash and Phosphate
Agricultural Chemicals
Herbicides
Insecticides
Fungicides/Other
Fuels
Supplies & Repairs
Autos & Trucks
Farm Machinery
Building Material
Farm Services
Rent
Interest
Taxes
Wage Rates
Source: FAPRI-MU August 2008 Update
2007
2008
2009
2010
13.8%
25.7%
38.8%
15.8%
31.6%
2.0%
0.0%
4.4%
6.2%
10.9%
3.2%
-1.0%
5.2%
1.8%
4.4%
7.1%
11.6%
8.0%
3.4%
23.4%
80.0%
92.7%
59.5%
115.1%
14.3%
13.5%
11.7%
19.2%
58.2%
5.7%
13.7%
11.1%
12.9%
10.6%
20.1%
17.9%
20.1%
4.3%
6.7%
25.1%
29.4%
21.7%
27.3%
5.4%
4.9%
4.4%
8.1%
2.2%
3.1%
5.5%
2.2%
4.0%
1.9%
6.2%
5.2%
3.3%
2.9%
1.1%
6.8%
7.8%
5.8%
7.0%
1.3%
0.9%
1.1%
2.7%
-3.7%
1.2%
1.5%
0.4%
0.8%
-0.8%
0.0%
9.7%
0.8%
2.4%
Putting the Pieces Together
Macro
Net
Returns
Prices Cost of
Paid
Prod.
ERS Regions beginning in 1995
CR,WH,SB,SK
CR,SG,WH,SB,CT
CR,WH,SB,SK
WH
CR,SG,SB
WH,RC,CT,SK
CR,WH,SB,CT,PN
CR,SG,WH,SB,CT,PN
SG,WH,SB,RC,CT
ERS Regions Prior to 1995 – Followed State Boundaries
Pacific
Lake States
Northeast
N. Plains
Corn Belt
Southeast I
Delta
S. Plains
Southeast II
Regional Mapping
• FAPRI-MU
– US cost of production model based on current ERS
regional designations
– US crop model based on state production mapped
to COP model regions
– Continued expansion of state-level model
components (including those for ACRE)
• Incentive to maintain current mapping
Corn and Soybean Variable COP
US $/Acre
2007
2008
2009
2010
2011
CORN:
U.S.
Heartland
Northern Crescent
Eastern Uplands
Southern Seaboard
Praire Gateway
Northern Plains
$
$
$
$
$
$
$
239.88
234.57
251.45
245.53
240.40
272.88
198.23
$
$
$
$
$
$
$
349.40
342.52
368.60
365.95
349.26
392.31
281.15
$
$
$
$
$
$
$
400.23
394.59
424.06
426.54
401.50
435.82
316.63
$
$
$
$
$
$
$
414.85
410.16
440.21
445.16
417.08
445.03
326.03
$
$
$
$
$
$
$
420.73
416.19
446.27
451.49
423.02
450.40
330.56
SOYBEANS:
U.S.
Heartland
Northern Crescent
Eastern Uplands
Southern Seaboard
Mississippi Portal
Prairie Gateway
Northern Plains
$
$
$
$
$
$
$
$
109.88
102.56
125.64
119.74
132.82
142.78
126.44
99.71
$
$
$
$
$
$
$
$
148.54
138.41
175.60
169.59
180.87
187.75
170.64
134.52
$
$
$
$
$
$
$
$
162.87
152.18
195.67
190.84
201.57
203.18
181.56
147.45
$
$
$
$
$
$
$
$
166.27
155.61
200.87
196.69
207.46
206.51
182.21
150.52
$
$
$
$
$
$
$
$
168.98
158.26
204.00
199.87
211.19
209.86
184.54
152.98
Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor
Cotton and Rice Variable COP
US $/Acre
2007
2008
2009
2010
2011
COTTON:
U.S.
Heartland
Southern Seaboard
Mississippi Portal
Prairie Gateway
Fruitful Rim
$
$
$
$
$
$
428.69
476.94
463.80
582.17
283.27
756.58
$
$
$
$
$
$
559.25
623.50
618.27
754.42
367.48
970.79
$
617.51
$
694.44
$
697.12
$
836.92
$
397.54
$ 1,057.61
$
635.89
$
718.50
$
724.19
$
864.15
$
405.25
$ 1,084.12
$
647.51
$
732.44
$
737.84
$
880.45
$
412.15
$ 1,103.56
RICE:
U.S.
Mississippi Portal
Fruitful Rim
$
$
$
493.49
430.09
604.13
$
$
$
697.90
614.85
811.38
$
$
$
$
$
$
$
$
$
769.94
675.71
893.00
784.79
686.49
913.79
Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor
795.28
694.66
929.35
Wheat and Sorghum Variable COP
US $/Acre
2007
2008
2009
2010
2011
WHEAT:
U.S.
Heartland
Northern Crescent
Southern Seaboard
Mississippi Portal
Prairie Gateway
Fruitful Rim
Basin & Range
Northern Plains
$
$
$
$
$
$
$
$
$
100.36
128.66
147.71
170.93
135.01
92.50
164.52
123.09
89.51
$
$
$
$
$
$
$
$
$
151.03
208.55
233.72
269.91
200.38
139.85
244.31
186.13
130.87
$
$
$
$
$
$
$
$
$
174.90
252.87
280.45
323.62
233.43
160.45
272.73
218.75
151.97
$
$
$
$
$
$
$
$
$
181.97
267.44
295.58
341.05
243.70
166.01
278.65
229.28
158.84
$
$
$
$
$
$
$
$
$
184.74
271.50
300.05
346.11
247.37
168.20
281.99
233.16
161.78
SORGHUM:
U.S.
Heartland
Eastern Uplands
Mississippi Portal
Prairie Gateway
$
$
$
$
$
132.28
141.99
203.66
169.56
138.76
$
$
$
$
$
188.47
214.73
304.89
240.31
197.74
$
$
$
$
$
209.33
251.78
335.84
271.49
218.50
$
$
$
$
$
213.96
263.41
339.91
280.25
222.72
$
$
$
$
$
216.61
267.36
342.63
284.20
225.42
Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor
U.S. Corn Variable Cost of Production - 2008
Repairs
4%
Custom
4%
Labor
1%
Interest
2%
Seed
17%
Fuel
15%
Fertilizer
49%
Chemicals
8%
2007
Variable Cost
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$239.88
$349.40
$337.51
$400.23
Fertilizer
$99.72
$172.06
$166.75
$214.54
Fuel
$32.42
$51.42
$47.13
$52.60
Variable Cost = Operating Cost + Hired Labor
U.S. Soybean Variable Cost of Production - 2008
Interest
2%
Labor
2%
Repairs
8%
Seed
32%
Fuel
18%
Fertilizer
21%
Custom
5%
Chemicals
12%
2007
Variable Cost
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$109.88
$148.54
$139.44
$162.87
Fertilizer
$15.26
$30.92
$24.73
$39.58
Fuel
$17.12
$26.92
$25.84
$27.43
Variable Cost = Operating Cost + Hired Labor
U.S. Cotton Cost of Production - 2008
Ginning
3%
Interest
2%
Labor
24%
Seed
15%
Fertilizer
20%
Fuel
12%
Repairs
4%
Chemicals
14%
Custom
6%
2007
Variable Cost
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$428.69
$559.25
$509.41
$617.51
Fertilizer
$58.42
$111.70
$92.66
$144.31
Fuel
$42.41
$66.66
$63.98
$67.94
Variable Cost = Operating Cost + Hired Labor
U.S. Rice Cost of Production - 2008
Interest
2%
Labor
5%
Repairs
4%
Seed
7%
Fertilizer
26%
Fuel
30%
Chemicals
10%
Custom
13%
2007
Variable Cost
Fertilizer
Fuel
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$493.49
$697.90
$638.77
$769.94
$96.61
$185.57
$153.25
$240.04
$133.83
$210.39
$201.91
$214.40
Variable Cost = Operating Cost + Hired Labor
U.S. Wheat Variable Cost of Production - 2008
Labor
2%
Repairs
9%
Interest
2%
Seed
8%
Fuel
20%
Fertilizer
47%
Custom
5% Chemicals
7%
2007
Variable Cost
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$100.36
$151.03
$136.14
$174.90
Fertilizer
$37.29
$71.31
$59.15
$92.13
Fuel
$19.36
$30.44
$29.22
$31.02
Variable Cost = Operating Cost + Hired Labor
U.S. Peanut Cost of Production - 2008
Labor
3%
Repairs
7%
Interest
2%
Seed
16%
Fuel
17%
Fertilizer
25%
Custom
2%
Chemicals
22%
2007
Variable Cost
2008(FAPRI)
2008(USDA)
2009(FAPRI)
$429.84
$580.48
$536.79
$638.26
Fertilizer
$71.52
$143.92
$115.94
$183.74
Fuel
$63.27
$99.79
$95.46
$101.93
Variable Cost = Operating Cost + Hired Labor
Putting the Pieces Together
Macro
Net
Returns
Prices Cost of
Paid
Prod.
U.S. Corn Market Returns
(Does not include Government Payments)
$1,000
$900
$800
$/Acre
$700
$600
Gross Returns
Net Returns
$500
$400
$300
$200
$100
$95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12
Source: FAPRI-MU August 2008 Update
U.S. Soybean Market Returns
(Does not include Government Payments)
$600
$500
$/Acre
$400
Gross Returns
Net Returns
$300
$200
$100
$95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12
Source: FAPRI-MU August 2008 Update
U.S. Wheat Market Returns
(Does not include Government Payments)
$350
$300
$/Acre
$250
$200
Gross Returns
Net Returns
$150
$100
$50
$95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12
Source: FAPRI-MU August 2008 Update
U.S. Cotton Market Returns
(Does not include Government Payments)
$800
$700
$600
$/Acre
$500
$400
Gross Returns
Net Returns
$300
$200
$100
$$(100)
$(200)
95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12
Source: FAPRI-MU August 2008 Update
U.S. Rice Market Returns
(Does not include Government Payments)
$1,200
$1,000
$/Acre
$800
$600
Gross Returns
Net Returns
$400
$200
$-
$(200)
95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 11/12
Source: FAPRI-MU August 2008 Update
FAPRI Baseline Process
• November 2008 – Preliminary Baseline
• December 2008 – Baseline Review
• Jan./Feb. 2009 – Final Baseline
– Deterministic and Stochastic
– Presented to Congress by early March
• University of Missouri, Iowa State University, Texas A&M
University, University of Arkansas, Texas Tech University, &
Arizona State University
Thank you and Questions?
wilcoxl@missouri.edu
www.fapri-mu.org