Total production expenses in 2010 are forecast to rise to $286.6 billion, $5.6 billion (2.0 percent) higher than the $281.0 billion estimated for 2009. This change is modest relative to increases of $36.5 billion (15.7 percent) in 2007 and $23.7 billion (8.8 percent) in 2008, prior to the $12.0-billion (4.1-percent) drop in 2009. The 2010 forecast puts nominal expenses at the second highest level ever.

 

On the price side, the prices-paid index for Production Items, Interest, Taxes, and Wage Rates (PITW) is projected to rise 2.3 percent in 2010. On the quantity side, total output is forecast to be almost exactly the same as last year, as crop output is down 0.6 percent and livestock output rises nearly 1 percent. At the current forecast level, total expenses would be 78 percent of gross farm income, 3 percent less than in 2009. Livestock/poultry purchases and fuel/oil purchases are both slated to rise more than $2.7 billion while miscellaneous expenses are expected to go up $1.9 billion. The only large-scale drop in expenses will be a fall of $2.0 billion in fertilizer and lime expenses.

After rising $18.9 billion (67 percent) from 2006 to 2008, feed expenses are expected to drop for the second straight year in 2010, but by only $300 million (0.6 percent) compared with a decline of $1.9 billion (4 percent) in 2009. The projected drop is the result of an expected 1.6-percent decline in prices paid for feed and the small increase in livestock output. Because corn accounts for around 90 percent of feed grains used for feed and soymeal is the principal oil crop product used as feed, prices paid for grain feeds depend mainly on the prices for these two commodities. The annual average price for corn in 2010 should be around 5 percent higher than in 2009 but most of that rise has occurred in the last half of the year. Soymeal prices are forecast to fall about 10 percent. The price of another important feedstock, hay, is expected to be down 6 percent, but, again, prices have risen during the last half of the year. The timing of price changes matters because changes in the prices paid for complete feeds, the most heavily weighted component of the feed prices-paid index, usually lag price changes in grains and oilseeds. On the quantity side, calendar-year Grain Consuming Animal Units (GCAU) are projected down around 1 percent. Feed and residual use of corn in 2010 is projected to be slightly above the previous year. Domestic disappearance of soymeal should be down slightly.

After falling $2.4 billion in 2008 and 2009, livestock expenses are expected to increase $2.7 billion (16.5 percent) in 2010. Since cattle and calf purchases account for more than 75 percent of this expense, the situation in this market has the biggest effect on these purchases. During the first half of the year, relatively high retail prices for beef were keeping feedlot returns profitable. Retail prices are being buoyed by a number of factors. First, improving economies are reviving demand for beef. Beef exports are expected to be 18 percent higher in 2010. Second, supplies of beef will be limited as commercial beef production is slated to remain low, and will remain so into 2011. Finally, prices for competing meats, pork and poultry, are relatively high. Feedlot margins have tightened during the second half of the year. However, as fed cattle prices have leveled off, the cost of feed has begun to rise above what it was at the beginning of the year, and feeder steer prices have remained stable. Farm prices for cattle are predicted to be higher in each quarter of 2010 and up 13 percent annually. This increase is occurring, in part, because tightened supplies of feeder cattle are finally having an effect on prices.

Following a $2.2-billion (4.4-percent) decrease in 2009, principal crop-related expenses are projected to be $44.0 billion in 2010, $3.2 billion (6.8 percent) lower than in 2009. A large decline in fertilizer expenses and smaller decreases in seed and pesticide expenses comprise the lower forecast. At this time, acres planted to principal crops in 2010 are estimated to be down 3.0 million acres (1.0 percent), the second straight decline. A 5.6-million acre decline in wheat planted was partly offset by increases in corn, soybean, and cotton acreage, all of which are heavier users of fertilizer and pesticides. Total crop production is calculated to be down 0.5 percent, with grain and oilseed production down 1.2 percent. Fruit and vegetable production will each be down more than 5 percent.

Seed prices have been rising rapidly because farmers have been making greater use of GMO seeds with their bio-technology advancements and improved yield potential. Since 1999, prices paid for seeds have risen 146 percent, with 64 percent of that rise occurring during 2007-09. Between 1999 and 2009, seed expenses increased $7.9 billion (110 percent). During the last 3 years, seed expenses rose $4.5 billion (41 percent). The price increases are forecast to end, at least temporarily, in 2010, with prices paid for seeds going down 3.9 percent. Combined with the decrease in planted acreage, seed expenses are forecast to be down around $750 million (5 percent) this year.

Fertilizer expenses are slated to fall significantly for a second straight year, declining $2.0 billion (10.1 percent) in 2010. Fertilizer prices rose steadily between 2002 and 2008, with the annual average prices paid for fertilizers climbing 264 percent. During this period, fertilizer expenses rose $12.9 billion (134 percent). In 2009, the annual average prices paid for fertilizer plunged 26 percent and is forecast to decline another 11.5 percent in 2010. However, fertilizer prices have risen from their beginning-of-year levels. One factor in that rise has been an increase in the price of natural gas, the primary source of nitrogen fertilizers. Higher crop prices, especially for corn, have generated increased demand. In response, prices for widely-used fertilizers began to rise more rapidly in July. However, most of the fertilizer used in 2010 was purchased before these late-year price increases. Projected use of fertilizer on planted acreage during 2010, measured as acres planted times usual per-acre application rates, was likely up slightly. (For the source of application rates, see Agricultural Chemical Usage.)

Pesticide expenses rose steadily from 2002 to 2008. In 2007-08 alone, they rose $2.7 billion (30.0 percent). Since prices paid for pesticides rose only 8.4 percent during those 2 years, it is likely that increased use was a factor in the increases in the expense. Even though prices paid for pesticides continued to increase in 2009, pesticide expenditures fell slightly. Another decrease of around $400 million (3.6 percent) is predicted in 2010 as prices paid for pesticides fall 2.7 percent and planted acreage declines. Projected use on planted acreage, measured as acres planted times usual per-acre application rates, was around 2 percent higher.

As with fertilizer, prices paid for fuel rose dramatically between 2002 and 2008. During this period, annual average prices paid for fuel jumped 207 percent and fuel prices registered 6 straight double-digit percentage increases. After falling 34 percent in 2009, annual average prices paid for fuels are forecast to be back up 23 percent in 2010. The decrease in acres planted should translate into less use of fuel during 2010. Combined, the price rise and drop in acres yield a forecast that is up $2.8 billion (22 percent).