cost of production outlook

Cost of Production Outlook

Southern Outlook ConferenceAtlanta, GA

September 23, 2008

Lori [email protected] www.fapri-mu.org

mailto:[email protected]

Overview

• Macroeconomic impacts• Prices paid by farmers index• Costs of production• Net return implications• FAPRI Baseline process

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50

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Jan '04

Apr '04

Jul '04

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Jan '05

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Apr '06

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Jan '07

Apr '07

Jul '07

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Apr '08

Jul '08

Cent

s per

Gal

lon

US Monthly Retail Diesel PricesJan. 2004 to Aug. 2008

$1 per gallon increase over the past 10 months with some

recent decline

$2.50+ per gallon increase over the past 4 years

Source: http://tonto.eia.doe.gov/oog/info/wohdp/diesel.asp

$0.00

$2.00

$4.00

$6.00

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$10.00

$12.00

$/Th

ousa

nd C

ubic

Feet

Monthly US Natural Gas Wellhead PriceJan. 2004 - Jun. 2008

Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm

June 2008 = $10.82 a historical high followed by $10.33 in Oct. 2005

Source: http://tonto.eia.doe.gov/dnav/ng/ng_sum_lsum_dcu_nus_m.htm

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

1,800,000

MM

cfMonthly US Natural Gas Production

Jan. 2004 - Jun. 2008

2008 avg production = 1,700,000(MMcf)• within 3% of 1970’s avg.•18% above 1980’s avg.• 11% above 1990’s avg.

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PPI Macro DataIndex 1990-92=100

PPIFULW

PPINGAW

PPICLUMW

PPIRUBW

PPIMETW

PPIW

PPIELPW

PPICHMW

PPIAUTOW

PPIRPPW

Source: Global Insight, August 2008

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

Prices Paid

Cost ofProd.

NetReturns

Source: USDA/NASS Agricultural Prices

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Inde

x 199

0-1

992=

100

US Fertilizer Price GrowthPrices Paid by Farmers 1998-2008

Mixed Fertilizer Nitrogen Fertilizer Potash & Phosphate

2nd Qtr 2008 fertilizer prices are 300-400% higher than

average prices for 2002

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1000U

S Dol

lars

/Ton

Weekly Fertilizer Prices - fob

Ammonia

Urea

CAN

Source: Yara

Fertilizer PricesUS $/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

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200

300

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700

1998 2000 2002 2004 2006 2008 2010 2012

Inde

x 19

90-9

2=10

0

Prices Paid Index, Fertilizer and Fuel

All Fert.

Nitrogen Fert.

Fuel

Phos&Potash

Source: FAPRI-MU August 2008 Update

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50

100

150

200

250

1998 2000 2002 2004 2006 2008 2010 2012

Inde

x: 1

990-

92=1

00Prices Paid Index, Farm Machinery, Autos,

and Building Materials

Farm Mach.

Autos/Trucks

Building Materials


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100

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1998 2000 2002 2004 2006 2008 2010 2012

Inde

x: 1

990-

92=1

00

Prices Paid Index, Agricultural Chemicals

Herbicide

Insecticide

Fungicide


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350

1998 2000 2002 2004 2006 2008 2010 2012

Inde

x: 1

990-

92=1

00

Prices Paid Index, Seed


Prices Paid by Farmers - % Changes2007 2008 2009 2010

Seeds 13.8% 23.4% 6.7% 1.1% Fertilizer 25.7% 80.0% 25.1% 6.8%

Mixed Fertilizer 38.8% 92.7% 29.4% 7.8%Nitrogen Fertilizer 15.8% 59.5% 21.7% 5.8%Potash and Phosphate 31.6% 115.1% 27.3% 7.0%

Agricultural Chemicals 2.0% 14.3% 5.4% 1.3%Herbicides 0.0% 13.5% 4.9% 0.9%Insecticides 4.4% 11.7% 4.4% 1.1%Fungicides/Other 6.2% 19.2% 8.1% 2.7%

Fuels 10.9% 58.2% 2.2% -3.7%Supplies & Repairs 3.2% 5.7% 3.1% 1.2%Autos & Trucks -1.0% 13.7% 5.5% 1.5%Farm Machinery 5.2% 11.1% 2.2% 0.4%Building Material 1.8% 12.9% 4.0% 0.8%Farm Services 4.4% 10.6% 1.9% -0.8%Rent 7.1% 20.1% 6.2% 0.0%Interest 11.6% 17.9% 5.2% 9.7%Taxes 8.0% 20.1% 3.3% 0.8%Wage Rates 3.4% 4.3% 2.9% 2.4%



Macro

Prices Paid

Cost ofProd.

NetReturns

ERS Regions beginning in 1995

CR,SG,WH,SB,CTCR,WH,SB,SK

CR,WH,SB,SK

CR,SG,SB

CR,WH,SB,CT,PN

SG,WH,SB,RC,CT

CR,SG,WH,SB,CT,PN

WH,RC,CT,SK

WH

Lake States

Corn Belt

Northeast

Southeast I

N. Plains

Southeast IIS. Plains

Delta

Pacific

ERS Regions Prior to 1995 – Followed State Boundaries

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


2007 2008 2009 2010 2011CORN:

U.S. 239.88$ 349.40$ 400.23$ 414.85$ 420.73$ Heartland 234.57$ 342.52$ 394.59$ 410.16$ 416.19$ Northern Crescent 251.45$ 368.60$ 424.06$ 440.21$ 446.27$ Eastern Uplands 245.53$ 365.95$ 426.54$ 445.16$ 451.49$ Southern Seaboard 240.40$ 349.26$ 401.50$ 417.08$ 423.02$ Praire Gateway 272.88$ 392.31$ 435.82$ 445.03$ 450.40$ Northern Plains 198.23$ 281.15$ 316.63$ 326.03$ 330.56$

SOYBEANS:U.S. 109.88$ 148.54$ 162.87$ 166.27$ 168.98$ Heartland 102.56$ 138.41$ 152.18$ 155.61$ 158.26$ Northern Crescent 125.64$ 175.60$ 195.67$ 200.87$ 204.00$ Eastern Uplands 119.74$ 169.59$ 190.84$ 196.69$ 199.87$ Southern Seaboard 132.82$ 180.87$ 201.57$ 207.46$ 211.19$ Mississippi Portal 142.78$ 187.75$ 203.18$ 206.51$ 209.86$ Prairie Gateway 126.44$ 170.64$ 181.56$ 182.21$ 184.54$ Northern Plains 99.71$ 134.52$ 147.45$ 150.52$ 152.98$

Variable Cost = Operating Cost + Hired Labor

US $/Acre

2007 2008 2009 2010 2011COTTON:

U.S. 428.69$ 559.25$ 617.51$ 635.89$ 647.51$ Heartland 476.94$ 623.50$ 694.44$ 718.50$ 732.44$ Southern Seaboard 463.80$ 618.27$ 697.12$ 724.19$ 737.84$ Mississippi Portal 582.17$ 754.42$ 836.92$ 864.15$ 880.45$ Prairie Gateway 283.27$ 367.48$ 397.54$ 405.25$ 412.15$ Fruitful Rim 756.58$ 970.79$ 1,057.61$ 1,084.12$ 1,103.56$

RICE:U.S. 493.49$ 697.90$ 769.94$ 784.79$ 795.28$ Mississippi Portal 430.09$ 614.85$ 675.71$ 686.49$ 694.66$ Fruitful Rim 604.13$ 811.38$ 893.00$ 913.79$ 929.35$

Cotton and Rice Variable COP

Source: FAPRI-MU August 2008 Update Variable Cost = Operating Cost + Hired Labor

US $/Acre

Wheat and Sorghum Variable COP


2007 2008 2009 2010 2011WHEAT:

U.S. 100.36$ 151.03$ 174.90$ 181.97$ 184.74$ Heartland 128.66$ 208.55$ 252.87$ 267.44$ 271.50$ Northern Crescent 147.71$ 233.72$ 280.45$ 295.58$ 300.05$ Southern Seaboard 170.93$ 269.91$ 323.62$ 341.05$ 346.11$ Mississippi Portal 135.01$ 200.38$ 233.43$ 243.70$ 247.37$ Prairie Gateway 92.50$ 139.85$ 160.45$ 166.01$ 168.20$ Fruitful Rim 164.52$ 244.31$ 272.73$ 278.65$ 281.99$ Basin & Range 123.09$ 186.13$ 218.75$ 229.28$ 233.16$ Northern Plains 89.51$ 130.87$ 151.97$ 158.84$ 161.78$

SORGHUM:U.S. 132.28$ 188.47$ 209.33$ 213.96$ 216.61$ Heartland 141.99$ 214.73$ 251.78$ 263.41$ 267.36$ Eastern Uplands 203.66$ 304.89$ 335.84$ 339.91$ 342.63$ Mississippi Portal 169.56$ 240.31$ 271.49$ 280.25$ 284.20$ Prairie Gateway 138.76$ 197.74$ 218.50$ 222.72$ 225.42$


US $/Acre

Seed17%

Fertilizer49%

Chemicals8%

Custom4% Fuel

15%

Repairs4%

Labor1%

Interest2%

U.S. Corn Variable Cost of Production - 2008

2007 2008(FAPRI) 2008(USDA) 2009(FAPRI)Variable Cost $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


Seed32%

Fertilizer21%

Chemicals12%

Custom5%

Fuel18%

Repairs8%

Labor2%

Interest2%

U.S. Soybean Variable Cost of Production - 2008


Fertilizer $15.26 $30.92 $24.73 $39.58

Fuel $17.12 $26.92 $25.84 $27.43


Seed15%

Fertilizer20%

Chemicals14%

Custom6%

Fuel12%

Repairs4%

Labor24%

Ginning3%

Interest2%

U.S. Cotton Cost of Production - 2008


Fertilizer $58.42 $111.70 $92.66 $144.31

Fuel $42.41 $66.66 $63.98 $67.94


Seed7%

Fertilizer26%

Chemicals10%

Custom13%

Fuel30%

Repairs4%

Labor5%

Interest2%

U.S. Rice Cost of Production - 2008


Fertilizer $96.61 $185.57 $153.25 $240.04

Fuel $133.83 $210.39 $201.91 $214.40


Seed8%

Fertilizer47%

Chemicals7%

Custom5%

Fuel20%

Repairs9%

Labor2% Interest

2%

U.S. Wheat Variable Cost of Production - 2008


Fertilizer $37.29 $71.31 $59.15 $92.13

Fuel $19.36 $30.44 $29.22 $31.02


Seed16%

Fertilizer25%

Chemicals22%

Custom2%

Fuel17%

Repairs7%

Labor3%

Interest2%

U.S. Peanut Cost of Production - 2008


Fertilizer $71.52 $143.92 $115.94 $183.74

Fuel $63.27 $99.79 $95.46 $101.93



Macro

Prices Paid

Cost ofProd.

NetReturns

U.S. Corn Market Returns

95/96

97/98

99/00

01/02

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07/08

09/10

11/12

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$100

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$700

$800

$900

$1,000

Gross ReturnsNet Returns$/

Acr

e


(Does not include Government Payments)

U.S. Soybean Market Returns

95/96

97/98

99/00

01/02

03/04

05/06

07/08

09/10

11/12

$-

$100

$200

$300

$400

$500

$600


Acr

e



U.S. Wheat Market Returns

95/96

97/98

99/00

01/02

03/04

05/06

07/08

09/10

11/12

$-

$50

$100

$150

$200

$250

$300

$350


Acr

e



U.S. Cotton Market Returns

95/96

97/98

99/00

01/02

03/04

05/06

07/08

09/10

11/12

$(200)

$(100)

$-

$100

$200

$300

$400

$500

$600

$700

$800


Acr

e



U.S. Rice Market Returns

95/96

97/98

99/00

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03/04

05/06

07/08

09/10

11/12

$(200)

$-

$200

$400

$600

$800

$1,000

$1,200


Acr

e



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?

[email protected]

www.fapri-mu.org

mailto:[email protected]

cost of production outlook

Documents

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updatevariable cost

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changes source

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rice variable cop source

state production