The prices of the inputs in the agricultural sector are running faster than the yields. Despite the large price increases on the commodities market, it is likely that it will be difficult for (American) farmers to meet the costs in 2022, according to the American Farm Bureau Federation (AFBF).
According to the AFBF, the costs of production for agricultural companies in the US will increase by 6% in 2022. These higher costs follow a 12% increase in 2021. That is a trend that has been going on for some time. Since 2013, almost all production costs in the agricultural sector have risen sharply. For example, the costs of selling, storing and transporting agricultural goods have increased by 59% since 2013.
“Rising prices for fuel, fertilizer and other inputs are providing an unwelcome counterbalance to higher commodity prices,” said AFBF President Zippy Duvall. "The higher prices for crops are now receiving a lot of attention. That of course helps to compensate for the increased costs, but when costs rise just as fast or even faster, profits evaporate. At the moment there are serious concerns about whether farmers will have (financial) access have the means to grow a healthy crop."
Fertilizer is the largest cost item
There are several production factors that are now becoming more expensive very quickly. Fertilizer, seed and crop protection products have risen sharply in price and now represent an average of 17,5% of agricultural expenditure. That was still approximately 12% a year earlier. In addition, the costs for fuel and energy in general are also rising sharply. This trend is further reinforced by the events in Ukraine. Labor also becomes a problem. The labor market has been disrupted due to corona and wage costs are rising. This affects both primary agricultural companies and the processing and other related industries.
Although crop yields are higher according to the USDA forecast, production costs are rising at least as quickly and possibly even faster. A large group of farmers therefore doubts whether they will even break even this year. The concerns are mainly focused on the short term. Now the investments have to be made to get the crops in the ground and growing. According to the AFBF, the question is whether farmers can afford this or whether concessions are made because costs are spiraling out of control.