2016 Wisconsin farm input cost outlook
Bruce Jones, Agricultural Economist
Department of Agricultural and Applied Economics
UW-Madison College of Agricultural and Life Sciences
3:06 – Total Time
0:16 – 2016 Wisconsin farm input costs lower
0:53 – Lower energy costs affect farm operation
1:25 – Corn breakeven about $3.25
1:58 – Farmland rents likely to fall
2:35 – Hold off on big ticket purchases
Sevie Kenyon: Looking ahead to the agricultural year 2016. We’re visiting today with Bruce Jones, Department of Agricultural and Applied Economics, University of Wisconsin-Madison in the College of Agricultural and Life Sciences and I’m Sevie Kenyon. Bruce, what do you see for the year ahead?
Bruce Jones: Some of the good news for 2016 is that the inputs that are going to be used to produce some of the crops, they’re getting a little cheaper; specifically energy has gotten cheaper and stayed cheap through most of 2015 and the expectation and forecast is they’re going to continue to remain at these lower levels through most of 2016. So gasoline, diesel and LP continue to be affordable, which is good news. The cost of producing that less expensive corn is going to be a little lower too.
Sevie Kenyon: Bruce, break this out a little bit for us; when the price of energy goes down how does that ripple through the entire farm operation?
Bruce Jones: One, we’re going to have less fuel costs to run the machinery. Secondly it’s going to probably translate into lower fertilizer costs as well, all other factors held constant, primarily because natural gas is the key input into the production of anhydrous ammonia – a nitrogen source; potash the same thing – it doesn’t cost as much to transport it here. That cheaper energy is helping make other inputs more affordable as well.
Sevie Kenyon: Bruce can you give us an example of some break even prices that producers should be concerned with?
Bruce Jones: If we’re going to raise corn, we’re going to need to receive about $3.25 to cover all the inputs that are directly used to produce that bushel of corn. Now that doesn’t cover the rent or the ownership costs of the land nor does it cover return to the operator. So three and a quarter is just break even on covering your ongoing operating costs, then you’re going to need something above and beyond that to start covering the rent on the land and a return to the operator.
Sevie Kenyon: What do you expect will happen to rents in this environment?
Bruce Jones: The expectation would be there would be further declines in rents. I think they’re going to be a little sticky going down, but there has to be some adjustment because current prices of corn do not support paying the rents that we’re paying over the last couple of years. The data the USDA has been publishing bear that out, it’s sizable. Hopefully we can meet middle ground; that we start seeing some recovery in grain prices, some downward adjustment in rents and maybe we can meet in the middle and get this thing back into more profitable situation.
Sevie Kenyon: What kind of advice do you have for people looking into the new year?
Bruce Jones: The one bit of advice, in terms of big ticket items like purchase of equipment, machinery, replacement of that truck and such, those big ticket items probably need to wait. The remedy to that is I’m going to try to bear some repair costs and get this piece of equipment through one more cropping year and we’ll re-evaluate once we see where we’re at.
Sevie Kenyon: We’ve been visiting with Bruce Jones, Department of Agricultural and Applied Economics, University of Wisconsin-Madison in the College of Agricultural and Life Sciences and I’m Sevie Kenyon.