Cost of production is a crucial part of agriculture, from the beginning stages of farmers penciling out their budgets to the end stage of consumers in grocery stores, wondering how much it cost to produce that pound of beef or pork, that gallon of milk, the corn and soybeans in so many products on the shelves.
Ray Massey, University of Missouri ag economist, said producers are looking at lost revenues no matter what they grow or raise this year, so there are concerns, but also determination to get through until better times.
“Farmers are recognizing they’re going to lose money no matter what happens, so there’s some discouragement,” he said. “I also see quite a bit of, I wouldn’t call it optimism, but ‘Yes, we can get it done.’”
Row crops: When it comes to corn and soybeans, Massey said input costs usually see gradual, consistent increases.
“As a general rule, prices (of inputs) tend to creep up with inflation,” he said.
As one example, Massey said land costs have either held steady or even lowered a little
Seed prices have gone down 3-4% over the last few years, although chemical prices have gone up as farmers continue to try to combat resistant weeds with herbicides, Massey said. He adds seed prices have “moderated” rather than significantly come down.
“Commodity prices do play a role, but they’re a lagged role,” he said. “Farmers had already bought their seed for 2020 and paid for it based on price expectations at the time.”
Land prices can be even slower to react, since many people hold onto it as a long-term capital gain. The USDA’s 2018 corn production cost estimates show per acre operating costs of $330.27 and overhead costs of $346.75, for a total cost of $677.02.
For soybeans, the USDA numbers from 2018 show per acre operating costs of $158.50 and total overhead costs of $291.70, for a total cost of $450.20.
Livestock: Derrell Peel, Oklahoma State University Extension ag economist, said the cattle industry has seen some lower costs relating to the coronavirus outbreak, although it has also affected markets.
Peel said feedlots have gradually gotten more efficient, boosted in part by improving genetics.
Glynn Tonsor, Kansas State University ag economist, focuses on tracking cost of gain information for the university’s “Focus on Feedlot” project.
While feed costs have come down, other costs like labor and maintenance are up.
Cost of gain in feedlots, in cost per hundredweight, has been running in the high $70s to high $80s. Kansas State’s latest Focus on Feedlots report, dated February 2020 for cattle sold then, placed the average cost of gain for steers at $83.90/cwt. and the cost for heifers at $89.15/cwt. The projected cost of gain for cattle placed that month was $78 for steers and $80.75 for heifers, reflecting some seasonal trends but also the declining feed costs.
On the hog side, feed cost remains crucial.
“If you’re talking hog production, feed costs is a major factor,” said Lee Schulz, Iowa State University Extension livestock marketing economist.
While corn costs for the first three months of the year were up 4%, Schulz said much of the COVID-19 impact on corn prices is being felt after those first three months. However, declining fuel demand has impacted the distillers grains supply.
Schulz said finding labor has been a challenge for the hog industry, which leads to higher labor costs.
For farrow-to-finish pigs marketed in March 2020, looking at the cost to produce a 270 lb. finished pig, ISU estimates total feed costs of $76.72, and nonfood costs of $48.65, for total costs of $125.37.
Dairy producers have also seen lower feed costs, but overall have been especially hard hit by the sharp decline in restaurant demand for dairy products.
The University of Minnesota estimates total direct expenses of $13.35/cwt. of milk, and a total cost of $17.84 when labor, management and other overhead costs are factored in.