Farm operating costs to rise this year

Fuel expenses are expected to remain fairly stable this year and energy costs are expected to rise only slightly. Fertilizer costs are projected to increase 4 percent due to the impact of significanly higher natural gas prices.

No surprise: It's going to cost more to run your farm in 2001 — but, not that much more than in 2000. Total production expenses for agricultural commodities are projected to rise $1 billion, topping $200 billion for the first time ever, say economists for USDA's Economic Research Service.

And once again, government payments will help producers to maintain operating margins, according to economists Mitchell Morehart, James Ryan, and Robert Green, who presented their analysis of farm income and finance and the importance of federal payments to farmers.

Followed by 2000's whopping $2.3 billion-increase for fuel expenses, those costs are expected to remain fairly stable this year and energy costs are expected to rise only slightly, they say. But fertilizer costs are projected to increase by 4 percent due to the impact of significantly higher natural gas prices used for production of nitrogen fertilizer. Pesticide expenses are expected to be up less than 2 percent.

Marketing, storage, and transportation costs are pegged to increase more than 5 percent as a result of higher fuel prices.

Since 1980, government payments' contribution to farm operating margins was largest in 1987, at 8.75 percent, but 2000 was nipping on its heels with an estimated 8.05 percent.

Since 1998, the economists note, the ratio value including government payments has been about 81 percent; in 2001, it is expected to rise to 83 percent.

Government payments reached a new high of $22.1 billion in 2000, boosted by $8.9 billion in emergency assistance and $6.4 billion in loan deficiency payments. In each of the last three years, the government has reacted to low commodity prices and potential income losses with legislation to increase financial assistance to farmers.

“Payments made as part of emergency legislation, coupled with the first extensive use of the Loan Deficiency Payment program, helped to maintain farm income and temper financial hardship for many producers,” the economists point out. “Since 1996, direct government payments to farmers have totaled nearly $70 billion. Emergency assistance originating from special legislation comprised $20 billion of total government payments during 1996-2000, and is forecast to reach $3.6 billion in 2001.”

Higher crop prices in 2001 should result in a drop of nearly $2 billion in loan deficiency payments, they say, and production flexibility contract payments should decline by $800 million compared to 2000.

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