US agri production costs falling slower than revenues

US agricultural production costs declined in 2015, after the previous year’s record highs, according to the USDA.

In 2015, US farmers spend $362.8 billion on production costs, a nearly 9 percent decrease from the $397.6 billion spent in 2014.

Crop farms decreased their costs by nearly 11 percent, compared with 6.6 percent for the livestock sector.

It is unclear whether the decrease in expenditures was due to a shift toward lower priced inputs, or reduced on-farm use of fertilisers and chemicals.

In February, Dermot Hayes, co-director of the Food and Agricultural Policy Research Institute at Iowa State University, told Agri Investor operators are likely to reduce their use of phosphorus and potassium fertilisers and shift to lower-priced seeds in the face of continued low prices for agri goods, particularly commodity crops.

Despite the decrease in rents and input costs, a recent report from the University of Illinois found that increases in fertiliser, pesticide and seed costs have far outpaced increases in yield that could be attributed to higher-quality inputs. For example, costs for fertiliser, pesticide and seeds grew to 48 percent of crop revenues for Illinois grain operations.

Low commodity prices are slow to affect farmland valuations, experts have told Agri Investor. However, after years of low prices, one major investor has suggested a downward trend in valuations makes it a good time to consider building exposure to annual cropland.

“Farmland values for row cropland across the centre of the US peaked in late 2013 or early 2014. Since then declines of 15 to 25 percent have occurred,” Howard Halderman, board chair for agri investment group US Agriculture, wrote for Agri Investor in July.

“Considering the long-term fundamentals, investors might consider now a good time to build a farmland portfolio… The fact that the market could drop another 10 to 20 percent opens the door to make even better purchases in the next two to three years.”