New York, New York
July 24, 2008
Much attention has focused lately
on the run up in the production of agricultural commodities and
its effect on food prices. Additionally, key crop input prices
are also rising and show no sign of slowing, according to a new
Rabobank report, "U.S.
Crop Inputs."
"Farmers' use of key crop inputs is reaching record highs, while
prices are also at record highs, which is putting the pinch on
pocketbooks," said Associate Erin FitzPatrick with Rabobank's
Food & Agribusiness Research and Advisory (FAR) department.
One reason for the increase in crop input usage is the economic
growth in emerging markets where demand for food is driving the
need for production. Additionally, the cost of inputs has
increased because of higher price tags on transportation, labor,
energy and raw materials as well as the weakened U.S. dollar and
regulatory constraints.
During this planting season, farmers have seen a huge increase
in the cost of fertilizer -- in some case as much as double.
Demand has depleted reserves and strained supplies as 2007
global fertilizer consumption climbed more than 4 percent over
2006. That may seem small, but individual countries, such as
China and India, have increased their fertilizer use 38 percent
and 54 percent respectively, putting pressure on prices around
the world.
"With demand for fertilizers expected to grow and no significant
increase in short-term supplies, farmers are likely to continue
paying high fertilizer prices," said FitzPatrick.
Further increases will depend on the types and amounts of crops
planted. In the United States, corn is by far the largest
consumer of fertilizer -- per acre and in total. Therefore, when
fewer acres of corn are planted the amount of nitrogen
fertilizer applied decreases.
"How the picture plays out for individual farmers will vary
depending on purchase times and location," said FitzPatrick.
"Additionally, while 2008 price increases are painful, there
would have to be an extreme change in the current marketplace
for the price tag on fertilizers to lower in 2009."
Seeds, chemicals and farming equipment have also experienced
changes that are driving costs up. Globally, crops grown using
genetically modified seeds have seen a 67 percent increase since
commercialization in 1996, which in some cases has lead to seed
shortages. Additionally, the recent run-up of prices in
pesticides can be attributed to a limited supply in the hands of
producers.
In regards to input equipment, most key machines are sold out
for the season, leaving many farmers with higher maintenance and
operation costs. "While at first glance it may seem that this
equipment shortage is due to what many are calling the 'Ag
Boom,' that is only part of the story," said FitzPatrick. "There
has been a structural shift to fewer farms with larger acreages,
which need different types of machinery."
However, larger farms do not automatically equate to economic
efficiencies as all farmers and suppliers are poised to continue
operating along a rising price curve well into 2009. Because of
this steady increase in price, FitzPatrick advised that "while
average crop farm incomes are at record highs, so too are total
debt/equity levels. Farmers are identifying their costs and take
profits as the market allows."
The premier bank to the global food and agriculture industry,
Rabobank is a global financial services leader providing
institutional and retail banking and agricultural finance
solutions in key markets around the world. From its century-old
roots in the Netherlands, Rabobank has grown into one of the 25
largest banks worldwide, with over $800 billion in total assets
and operations in over 35 countries. Rabobank is the only
private bank in the world with a triple A credit rating from
both Standard & Poor's and Moody's, and is ranked among the
world's safest banks. In the Americas, Rabobank
(www.RabobankAmerica.com) is a leading financial partner to the
entire American food and agribusiness industry and is a
specialist in sophisticated, customer-driven solutions in the
Global Financial Markets and Corporate Finance arenas. Rabobank
also provides retail and commercial banking services in
California; leasing; and real estate lending, operating loans,
input financing and crop insurance to American agricultural
producers, input suppliers and agricultural manufacturers. |
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