How Will Farmers Respond to High Fuel and Fertilizer Prices? Damona Doye Regents Professor and Extension Economist Oklahoma State University

Value of production by commodity Source: Oklahoma Ag Statistics 2004 Bulletin

Average per farm for selected expenses Source: 2002 Census of Agriculture for Oklahoma

Oklahoma farmland use Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)

Oklahoma cropland use Source: 2004 Ag Statistics (acreage planted for crops, acres harvested for hay)

Average operating costs for wheat in Prairie Gateway USDA Economic Research Service, 2002

Impact of Higher Petroleum Costs on an Example OK Wheat Farm $1.80/gal $368/ton $2.80/gal $442/ton Conv.Lo-tillNo-tillConv.Lo-tillNo-till Fuel ($/a) Fertilizer ($/a) Subtotal ($/a) Increase ($/a) % change in total operating costs 16.4%16.3%10.7% Source: OSU enterprise budget software

Impact of Higher Petroleum Costs on OK Wheat Farms Approximately $5/a increase in fuel costs per $0.50 increase in diesel fuel Approximately $2/a increase in fertilizer costs per 10% increase in costs Who is hurt most?  Producers in low yield areas  With high fuel prices, conventional tillage operations more than low- and no-till operations  Tenants with cash leases

Impact of Increases in Petroleum Costs on OK Crops ($ increase per acre compared to last year) Fuel Fertilizer $2.30/gal 110% $2.80/gal 120% $3/gal 135% Wheat, dual purpose Canola71421 Grain sorghum71317 Cotton81721 Corn silage Soybean245 Peanuts81519 Bermuda pasture Bermuda hay182533

Number of farms by value of sales Source: 2002 Census of Agriculture for Oklahoma

What have farmers done? Anecdotal evidence Put on less fertilizer this fall  Maybe more soil testing  More selective use More productive land Higher response pastures May put on more fertilizer in spring Eastern OK: more interest in poultry litter Bit the bullet and fertilized as usual More shopping around for fertilizer? On-line buying? Contracting? No rain, no need for fertilizer

What have farmers done? Anecdotal evidence Less wheat  Soybeans  Canola  Cowpeas  Questions about winter peas  Other alternative crops Alternative tillage systems  Minimum till  No-till Legume rotation

What have farmers done? Anecdotal evidence Shop for custom operators Complain about trucking costs Higher cash rents for small grain pasture Still running cattle regardless of fuel prices Will have fewer cattle in spring? Shift from farming to grass Pecan producers raising prices

What happens if farmers don’t topdress wheat in spring? Positive effectsNegative effects Decreased costsIncreased costs Fertilizer: 30 # $300/ton Application: $3 $4.50 $3.00 Increased returnsReduced returns 5 bu x $3.25/bu$16.25 Total$7.50Total$16.25 Difference$(8.75)

Break even price of N? P N x 2 lb N/bu = P W /bu P N = P W /bu =$ lb N/bu 2 P N = $1.625/lb = $3,250/ton

Bermuda grass pasture No fertilizer50# N100# N Fertilizer Pesticide3.36 Custom hire Repairs1.87 Other Fixed costs49.61 Total costs ($/a) Expected yield1 ton/a2 ton/a3 ton/a Cost per ton$47.75$34.45$28.99

Tools and assistance available to producers AgMach$, ag field machinery cost estimation software   Or Tennessee machinery cost calculator at OSU enterprise budget software  agecon.okstate.edu/budgets OSU IFMAPS program to assist farmers/ranchers with business planning  agecon.okstate.edu/ifmaps Oklahoma Ag Linked Deposit Program (OALDP) to help lower interest rates for producers  Custom rate survey currently being conducted (OSU CR-205) Noble Foundation custom rate operator searchable database 

agecon.okstate.edu/budgets

Free and confidential assistance in business planning for Oklahoma producers  Producer initiates contact with IFMAPS  Case is assigned to local IFMAPS specialist  IFMAPS specialist calls producer  Producer gathers and summarizes farm records  Specialist and producer arrange a mutually convenient time to meet  Specialist prepares budgets and financial statements  Specialist and producer meet to review business plan

Drought monitor

What will farmers do in spring? Depends on  What they did this fall  Weather  Fuel, fertilizer prices  Grain market outlook  Cattle market outlook