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Production costs outpacing commodity prices

Tractor planting a field
Farm production costs likely to increase by 6% in 2022.

The cost of growing crops could outpace revenue for many farmers in 2022, making it more difficult to break even despite rising commodity prices and increased demand both domestically and globally. The American Farm Bureau Federation is launching a series of Market Intel articles examining rising farm production expenses.

“Heading into the 2022 growing season, farmers are facing supply chain challenges like never before. And that’s why it’s hitting their wallets like never before, too,” the group stated in the report, which concluded that farm production costs are likely to increase 6% in 2022. This follows a 12% increase in 2021 and continues a trend stretching back several years. Since 2013, farmers have seen almost all production expenses increase. For example, livestock and poultry expenses have gone up 46% and marketing, storage, and transportation costs have increased 59%.

AFBFAFBF 3.22 Production_Expenses.jpg

Further, AFBF said Russia’s recent military action in Ukraine “significantly increased” the uncertainty of agricultural supply and demand conditions in the region and well beyond.

“With these most recent events, there is increased pressure on all the other commodity-producing countries to deliver all of, if not more than, the expected production in 2022 to make up for any potential production lost and cut off from the market in Ukraine and Russia.”

With increased planted acres comes increased demand for crop inputs like fertilizer, seed, pesticides and machinery, to name a few, the report explained.

Farmers are seeing a number of production cost increases including:

  • Rising fertilizer, seed and chemical prices, which now make up to 17.5% of on-farm expenditures
  • Rising fuel and energy prices, exacerbated by uncertainty due to the Russia-Ukraine conflict
  • Increased costs of labor, both on-farm and for agribusinesses serving farms
  • COVID-19 disruption of labor markets and production

“The rising prices for fuel, fertilizer and other supplies create an unwelcome counterforce to higher commodity prices,” said AFBF President Zippy Duvall. “Higher prices for crops are getting a lot of attention right now and of course help farmers balance the books, but when expenses are rising just as quickly or even outpacing revenue, the financial gains evaporate. Right now, there are serious concerns about whether farmers will be able to access the supplies they need to put a crop in the ground.”

AFBF said it is working to ensure the administration and Congress understand the severity and potential implications of increased production costs and the limited availability of some supplies.

Future Market Intel articles will explore the rising cost of production expenses like seed, pesticides, energy, machinery, land, labor, credit and water. A Market Intel analyzing fertilizer prices was published in December 2021.

The full report can be accessed here

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