Second audio in a series produced in concert with the Wisconsin Agricultural Outlook Forum Wednesday, Jan. 21 on the UW-Madison campus. Registration costs $15 and covers both the lunch and the forum. For more information and to register, visit: http://agoutlook.cals.wisc.edu/
Bruce Jones, UW-Extension Agricultural Economist
Department of Agricultural and Applied Economics
UW-Madison College of Agricultural and Life Sciences
In this second in a series of podcasts produced in concert with the Wisconsin Agricultural Outlook Forum, Bruce Jones takes a look at business expenses for Wisconsin farmers.
3:04 – Total Time
0:17 – Low fuel prices news for new year
0:58 – Seed prices may stabilize
1:34 – Cash land rents may decline
2:10 – Interest rates sooner or later
2:55 – Lead out
Sevie Kenyon: Bruce what’s the news looking at farm expenses this year?
Bruce Jones: Well, going into 2015 the big news is the reduction in oil prices. That’s going to translate into obviously lower fuel costs for most farmers in the coming year. It could also translate into lower fertilizer costs as well. The lower oil prices are going to drive down energy prices across the board that should put some downward pressures on natural gas prices which is the key ingredient to the manufacture of anhydrous ammonia. So if this thing plays through the system and everything falls as you would expect, farmers could be looking at more affordable fertilizer, thanks to the lower oil prices.
Sevie Kenyon: Bruce, give us an idea how some of the other input costs may change?
Bruce Jones: Well the seed costs have been steadily rising over the last decade, I don’t think that trend is going to stop, they’re still going to continue to go up. The one thing that may factor into it with corn prices and soybean prices not being nearly as favorable as they were the last couple of years, there could be some reduced plantings. And with those reduced plantings would be a reduction in demands for seed. Reduction in demand could translate, maybe a slowing down in the uptrend on seed. So they’ll be more expensive, but perhaps not as expensive as they’ve been.
Sevie Kenyon: Bruce farmers need land, what do you see going on with rents?
Bruce Jones: Cash rents are going to be under some pressure this year. The corn and soybean prices have dropped off considerably so the returns from farming rented land are going to be on the decline. If you’re looking at 3.50 corn right now that leaves about 50 cents a bushel to pay cash rent. There are going to be some major adjustments in all likelihood in cash rents paid particularly in cash grain areas. The dairy sector is going to perhaps lend some strength to cash rents. Dairymen need access to land for nutrient management practices.
Sevie Kenyon: Bruce, look at your crystal ball and tell us what you think is going to happen on the interest rate side.
Bruce Jones: Eventually interest rates do have to start going up. They’ve been unbelievably low. The Federal Reserve has adopted an expansionary monetary policy which has kept money supply very plentiful; that’s helped keep interest rates down. We’re starting to see some more favorable economic news which says maybe there is some traction being gained by the economy and recovering. If that’s the case, the Fed will start cutting back on money supply that should start pushing interest rates higher. But they’re starting at such a low level that we could go up one or two percentage points and it would still seem like a bargain in terms of the cost of credit relative to what we saw twenty, thirty years ago. I’ll stay with my prediction, one of these years it’s got to go up.
Sevie Kenyon: We’ve been visiting with Bruce Jones, Department of Agricultural and Applied Economics, University of Wisconsin-Madison in the College of Agricultural and Life Sciences and I’m Sevie Kenyon.