Higher Energy Prices to Fuel Lower
Profits
Steve Metzger
, Carrington Area Farm Business Management Coordinator
(Sept, 2005) The higher energy prices being paid
today and perhaps into the coming years will have a serious effect upon the
bottom line of area ag. producers. Information
gathered through the Carrington Area Farm Business Management Program indicates
that average net farm incomes could be impacted by as much as a negative 44%
based on average figures for the past six years.
With fuel prices climbing from the 2004 level of $1.75 per gallon to an
average price of even $2.50 per gallon the effect would be a drop in net farm
income of approximately $26,937 for the year of higher energy prices.
With an average farm consisting of the equivalent of 2,693 crop acres the
increased cost per acre calculates out to $10.00 per acre with 65% of that
change coming in the form of higher fertilizer prices while direct fuel costs
account for the remaining 35% increase.
While the average fuel costs per acre have risen from $6.29 to $8.18 per
acre over the past three years, fertilizer prices have soared from $10.65 to
$18.53 per acre for the same time period. The
average farm in 2004 spent $22,206 for fuel and $49,903 for fertilizer.
While much of the increased cost per acre is due to rising prices,
changes in cropping patterns have caused some shift in the amounts of fertilizer
required for various crops.
The three year average net return per acre, including all
government payments, for wheat, corn and soybeans was $38.71, $15.76 and $43.33
respectively. An additional $10.00
per acre energy cost would have the effect of lowering these profit levels from
23% to 63% depending upon the specific crop.
These figures are all based on cash rented cropland with an average cash
rent charge of approximately $34.00 per acre.
In addition to the $10.00 per acre of additional costs indicated above,
area farms and ranches will also feel additional financial pressure from
increases in ag. chemicals, supplies and several other types of expenses which
have a transportation or energy component as part of their total cost.
The estimated increased energy cost for fuel and fertilizer of $26,937 per
farm would represent a decrease in excess of 44% in the average net farm income
as based on the 2004 profit number of $59,334 per farm.
In addition farm families would also expect to see higher amounts
expended for non-farm fuel purchases as well as other family living expenses
which are energy related.
For further information on this or other farm management topics you may
contact
Steve Metzger
at the Carrington Research Extension Center (CREC) at 652-2951.
The Farm Business Management
program is sponsored by the Carrington Public Schools and is located at the CREC.
You may also view other agricultural topics and reports at ndfarmmanagement.com
or at www.ag.ndsu.nodak.edu/carringt/
###
