Inflated Costs Deflate Profit

April 9, 2008

WASHINGTON (Apr. 9, 2008)—“It has become painfully obvious that, even though the 2007 sugarcane crop was a good one in most areas, most growers showed little or no profit,” a well-respected agricultural consultant in southern Louisiana told local ag leaders in a letter last month.

According to Dr. Calvin Viator, the letter’s author, input prices for Louisiana’s sugarcane growers have increased exponentially over the past six years, with nitrogen prices rising 235 percent, potash (fertilizer) prices up 219 percent, and diesel prices climbing 178 percent. And Dr. Viator says that the bulk of those increases have hit the farmers in the past two years alone.

The situation has become severe enough that Dr. Viator has advised growers to ask their landlords to explore lease agreements to look for ways to help them survive this difficult period.

“I understand that many of the landlords depend on the rental income for their livelihoods and each will have to look at their individual situation,” he said. “But rent reductions, revisions to calculate rents based on yield and/or price increases, and greater rent adjustments on heavy clay soils can help the farmers weather the current crisis.”

Scenes like this are playing out across the country as skyrocketing input costs are eating away at profits that some growers could normally expect to see with higher commodity prices.

“In 2003, I paid $246 a ton for fertilizer; in ’06, I paid $399 a ton; in ’08, I’m paying $754 a ton, and it keeps going up,” explains Gene Sandager, a farmer from Hills, Minnesota who grows corn and soybeans. “I’ve seen fertilizer as high as a grand a ton this past winter; it’s astounding.”

Sandager is not alone. According to the U.S. Department of Agriculture’s Economic Research Service, fertilizer has spiked 89.38 percent for the country’s farmers over the last five years. The diesel used to fuel farm equipment is also costlier, rising 121 percent over the same period.

“These higher input costs are hurting all growers, but they’re especially painful for farmers who are experiencing commodity price declines at the same time,” said Jessie Breaux, a cane farmer from Franklin, LA, who explained that sugar prices are near 20-year lows. “And farmers lucky enough to have higher prices right now realize that crop prices fluctuate wildly and low prices could be just around the corner.”

That’s why farmers say the pending farm bill is so important.

“It adds a level of certainty to uncertain times,” Breaux explained. “If Congress doesn’t pass an adequate safety net, farmers could start dropping like flies.”