Published on 12/25/95

Modest Increases Expected for Farm Input Costs

Unless the debates in Washington throw a shock into the system, Georgia farmers can look for normal, modest increases in their expenses during 1996.

"Farm input costs will be basically just keeping up with the general rate of inflation," said Forrest Stegelin, an economist with the University of Georgia Extension Service.

Heading into the end of December, Stegelin didn't foresee the 1995 Farm Bill or balanced-budget debates producing any cost shocks.

And nothing else seemed likely to drive costs up or down from normal increases, he said.

"Farm input prices generally reflect many factors -- demand, supply, policy, institutions, weather," Stegelin said. "Prices of fertilizer, seed, chemicals and fuel tend to be linked to commodity prices and acres planted."

Fuel costs could possibly rise if the weather in northern urban centers is unusually severe this winter, he said, but aren't likely to greatly affect the overall input costs, since fuel makes up such a minor part of farmers' expenses.

"Diesel, the prominent fuel used in agriculture, is a residual product to home heating oil," Stegelin said. "If the early-December cold were to continue through the winter up north, we could have some fuel price increases come spring.

"But it wouldn't have a tremendous effect, because agriculture isn't that big a user of diesel fuel," he said. "It's big to farmers, but there's probably more fuel wasted at truck stops than farmers use."

Stegelin sees other input costs like this:


Fertilizer prices have shown the least growth of all the major farm inputs during the past 20 years, due mainly to shrinking planted acreage. But Stegelin expects prices to rise somewhat more in '96, due to a changing balance in supply and demand.


Short-term interest rates may creep upward in '96 due to Federal Reserve policies to keep inflation under control, he said. Interest rates are likely to be one to two points higher than in 1995.


Prices have risen steadily since 1988, reflecting the industry's research and development, registration and licensing, and marketing costs. Stegelin sees no major change in the price trend.


"These prices depend on acreage planted and supplies, which are determined primarily by the growing conditions the previous year," Stegelin said. With no major crop failures last year or great increases in planted acreage predicted for next year, he doesn't expect any major changes in seed prices.

Hired Labor

"Wage rates have trended upward in recent years, reflecting a tighter supply-demand relationship for skilled labor," he said. "Wage rates will likely continue to rise.

"With more off-farm employment expected as the economy strengthens," he said, "either farm labor rates will increase or mechanization will be stepped up to keep pace with the demand for food and fiber."

Machinery and Equipment

Stegelin sees a number of factors that make increased machinery and equipment purchases likely: "relatively low interest rates, lower farm debt-to-asset ratios, healthy farm receipts and incomes and an inventory of aging machinery on farms."

But he doesn't expect to see great hikes in prices. "I think most of the companies will just be glad to see farmers making some purchases," he said.

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.