How Will Farmers
Respond to High Fuel and
Fertilizer Prices?
Damona Doye
Regents Professor and Extension Economist
Oklahoma State University
Value of production by commodity
Cattle and calves
Poultry & eggs
Hogs & pigs
Winter wheat
Hay
Milk
Corn
Cotton & cottonseed
Soybeans
Pecans
Floriculture
Grain sorghum
Peanuts
Other
Source: Oklahoma Ag Statistics 2004 Bulletin
Average per farm for selected
expenses
Livestock/poultry
purchased
Feed
Fertilizer, lime, soil
conditioners
Gasoline, fuel, oils
Hired farm labor
Interest expense
Chemicals
Other
Source: 2002 Census of Agriculture for Oklahoma
Oklahoma farmland use
Wheat
Grain Sorghum
Rye
Soybeans
Corn
Cotton
Oats
Peanuts
Hay
Other
Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)
Oklahoma cropland use
Wheat
Grain Sorghum
Rye
Soybeans
Corn
Cotton
Oats
Peanuts
Hay
Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)
Average operating costs for wheat
in Prairie Gateway
Seed
Fertilizer
Chemicals
Custom operations
Fuel, lube, electricity
Repairs
Interest
Other
USDA Economic Research Service, 2002
Impact of Higher Petroleum Costs
on an Example OK Wheat Farm
$1.80/gal
Anhydrous @ $368/ton
Conv.
Lo-till
No-till
$2.80/gal
Anhydrous @ $442/ton
Conv.
Lo-till
No-till
Fuel ($/a)
16.43
11.53
7.79
25.55
17.94
12.12
Fertilizer ($/a)
20.37
20.88
27.55
24.46
25.07
33.08
Subtotal ($/a)
36.80
32.41
35.34
50.01
43.01
45.20
13.21
10.60
9.86
16.4%
16.3%
10.7%
Increase ($/a)
% change in total
operating costs
Source: OSU enterprise budget software
Impact of Higher Petroleum Costs on
OK Wheat Farms
 Approximately $5/a increase in fuel costs per $0.50
increase in diesel fuel
 Approximately $2/a increase in fertilizer costs per
10% increase in costs
 Who is hurt most?
 Producers in low yield areas
 With high fuel prices, conventional tillage operations more
than low- and no-till operations
 Tenants with cash leases
Impact of Increases in Petroleum Costs on OK Crops
($ increase per acre compared to last year)
Fuel
Fertilizer
$2.30/gal
110%
$2.80/gal
120%
$3/gal
135%
Wheat, dual
purpose
8
17
21
Canola
7
14
21
Grain sorghum
7
13
17
Cotton
8
17
21
Corn silage
10
20
28
Soybean
2
4
5
Peanuts
8
15
19
Bermuda
pasture
4.5
10
17
Bermuda hay
18
25
33
Number of farms by value of sales
Less than $2,500
$2,500-$4,999
$5,000-$9,999
$10,000-$24,999
$25,000-$49,999
$50,000-$99,999
$100,000-$499,999
$500,000 or more
Source: 2002 Census of Agriculture for Oklahoma
What have farmers done?
Anecdotal evidence
 Put on less fertilizer this fall
 Maybe more soil testing
 More selective use
 More productive land
 Higher response pastures
 May put on more fertilizer in spring
 Eastern OK: more interest in poultry litter
 Bit the bullet and fertilized as usual
 More shopping around for fertilizer? On-line
buying? Contracting?
 No rain, no need for fertilizer
What have farmers done?
Anecdotal evidence
 Less wheat
 Soybeans
 Canola
 Cowpeas
 Questions about winter peas
 Other alternative crops
 Alternative tillage systems
 Minimum till
 No-till
 Legume rotation
What have farmers done?
Anecdotal evidence
 Shop for custom operators
 Complain about trucking costs
 Higher cash rents for small grain pasture
 Still running cattle regardless of fuel prices
 Will have fewer cattle in spring?
 Shift from farming to grass
 Pecan producers raising prices
What happens if farmers don’t
topdress wheat in spring?
Positive effects
Negative effects
Decreased costs
Increased costs
Fertilizer: 30 # UAN @
$300/ton
Application: $3
Increased returns
$4.50
$3.00
Reduced returns
5 bu x $3.25/bu
Total
$7.50 Total
Difference
$16.25
$16.25
$(8.75)
Break even price of N?
 PN x 2 lb N/bu = PW/bu
 PN =
PW/bu
=
2 lb N/bu
 PN = $1.625/lb
= $3,250/ton
$3.25
2
Bermuda grass pasture
No fertilizer
50# N
100# N
Fertilizer
0
17.65
35.3
Pesticide
3.36
3.36
3.36
Custom hire
3.70
6.70
6.70
Repairs
1.87
1.87
1.87
Other
1.20
1.70
2.13
Fixed costs
49.61
49.61
49.61
Total costs
($/a)
47.75
68.90
86.98
Expected yield
1 ton/a
2 ton/a
3 ton/a
Cost per ton
$47.75
$34.45
$28.99
Tools and assistance available to
producers
 AgMach$, ag field machinery cost estimation software
 http://www.dasnr.okstate.edu/agmach/index.html
 Or Tennessee machinery cost calculator at
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http://economics.ag.utk.edu/mcc.html
OSU enterprise budget software
 agecon.okstate.edu/budgets
OSU IFMAPS program to assist farmers/ranchers with business planning
 agecon.okstate.edu/ifmaps
Oklahoma Ag Linked Deposit Program (OALDP) to help lower interest rates
for producers
 http://www.state.ok.us/~sto/rblink.html
Custom rate survey currently being conducted (OSU CR-205)
Noble Foundation custom rate operator searchable database
 www.noble.org/WebApps/WebListings/CustomHire/Index.aspx
agecon.okstate.edu/budgets
Free and confidential assistance in business planning
for Oklahoma producers
 Producer initiates contact with IFMAPS
 Case is assigned to local IFMAPS specialist
 IFMAPS specialist calls producer
 Producer gathers and summarizes farm records
 Specialist and producer arrange a mutually convenient
time to meet
 Specialist prepares budgets and financial statements
 Specialist and producer meet to review business plan
1-800-522-3755
www.noble.org/WebApps/WebListings/CustomHire/Index.aspx
Drought monitor
What will farmers do in spring?
 Depends on
What they did this fall
Weather
Fuel, fertilizer prices
Grain market outlook
Cattle market outlook