Expenses for U.S. farmers rose 0.6 percent last year, rebounding from their first decline since 1986, as fuel and feed costs increased and growers bought more Deere & Co. tractors and CNH Global NV combines.
Farm spending rose to $289 billion from $287.4 billion in 2009, the U.S. Department of Agriculture said today in an annual report. Fuel costs increased 4 percent to $12.9 billion, and feed, the largest single component of farm expenses tracked by the USDA, rose 0.1 percent to $45.4 billion. Agricultural chemicals made by companies including Monsanto Co. and DuPont Co. declined 7.8 percent to $10.6 billion.
Increased spending has been fueled by an agriculture rally that the government expects will boost farm profit to a record $94.7 billion in 2011. Corn futures in Chicago surged 77 percent in the past year, soybeans jumped 37 percent and wheat rose 9.4 percent.
"There are farmers who wouldn't have made an expenditure a few years ago who do now," said Allen Featherstone, an agricultural economist at Kansas State University in Manhattan, Kansas. "You're also seeing input prices going up along with higher commodities."
Spending on farm machinery and tractors increased 17 percent to $10.9 billion. Moline, Illinois-based Deere, the world's largest farm-equipment maker, said in May that its U.S. and Canadian sales may increase 10 percent in the year through October.
Don Villwock, who grows soybeans, wheat and white corn used to make tortillas on 4,000 acres near Vincennes, Indiana, said he traded in for a new Deere tractor this year and just ordered new planters. With higher profits, Villwock said he's now replacing equipment every three years instead of every five as in the past. Increased fertilizer, fuel and seed costs have been offset so far by the jump in crop prices, he said.
"There's been a pent-up demand for farm machinery," Villwock said. "You'll see waiting lists." Meanwhile, seed- sellers including St. Louis-based Monsanto Co. and Wilmington, Delaware-based DuPont Co. are "going to push prices to what the market can bear, and they're pretty good at it," he said.
Fertilizer costs increased 4.5 percent to $21 billion, the USDA said. Farmers spent $35.7 billion on services such as marketing and insurance, 1.9 percent less than the previous year, the USDA said. Other than feed, expenses for livestock and poultry, including the cost of purchases, totaled $24.4 billion; a 5.8 percent decline, according to the report.
Spending on rent increased 15 percent to $25.9 billion. The amount spent on plants and seeds rose 5.2 percent to $16.3 billion. Labor costs totaled $27.4 billion, down 4.9 percent, the USDA said.
In 2009, farm expenses fell 6.4 percent as the global recession reduced feed and fuel costs from what had been all- time highs. It was "the first major decline" since 1986, the USDA said.
Farmers will be able to support greater spending as long as there are no steep crop-price declines, said Harwood Schaffer, an agricultural policy professor at the University of Tennessee in Knoxville.
Prosperity may disappear quickly if farmers who committed to higher expenditures face unexpected declines in revenue, Schaffer said.
"If prices don't stay high, then it's 'Katy bar the door,'" he said. "You could go below the cost of production, and then there will be problems."
Source — The San Francisco Chronicle/Bloomberg, August 3, 2011