High fertilizer costs, and lower crop prices, will in 2012 end a two-year run of rising profits for US corn and soybean farmers - and presenting a significant risk of "very low returns."
U.S. corn growers will next year fork out $165 an acre for nutrients, a rise of 35% in two seasons, and returning costs near to those paid in 2009, when the market was feeling the hangover of a jump in nutrient costs to a record high.
Potash prices for trade buyers have already recovered to a two-year high just below $500 a tonne, data from PotashCorp last week showed, with those of ammonia - a major source of nitrogen - topping $500 a tonne, having fallen nearly to $100 a tonne at depths of the global economic crisis.
Phosphate prices have rebounded above $600 a tonne excluding freight, for export from the US port of Tampa, twice levels plumbed during the slump.
"The costs that are projected to increase the most between 2011 and 2012 are fertilizers," a report from farm economists at the University of Illinois said.
Nutrient prices are being buoyed by firm demand in both the US and abroad, with Brazilian growers raising purchases in June by 50%, year on year, to 2.6m tonnes.
'High levels of risk'
But with crop prices set to ease, as implied by Chicago's futures market, farmers' receipts will drop, even assuming a rise in yields, which at an underlying level tend to rise by two bushels per acre for corn every year, and 0.5 bushels an acre for soybeans.
For corn farmers, the net return will drop by 22% to $269 an acre, while soybean growers will suffer a 19% decline to a three-year low of $136 an acre.
"Current projections suggest that 2012 will be a profitable year," Professor Gary Schnitkey, who headed the research, said.
"However, cost levels are high, resulting in high levels of risk."
'Financial stress'
Indeed, analysis of options markets - where the range of spread of bets at different strike prices can provide a more detailed insight into investors' thinking than the simple futures price - suggested "significant possibilities of crop prices occurring that would cause low returns."
Options suggested a 25% chance of soybean prices falling below $10.25 a bushel, and corn dropping below $4.40 a bushel, as the crops are being harvested next autumn.
"These prices would result in much lower returns and likely cause financial stress on some farms, particularly those that have high cash rent levels," Professor Schnitkey said. "Prices resulting in very low returns are possible."
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