July 23, 2008
Energy Prices Drive Up Crop Planting Costs

Rising energy costs drive up food prices in two ways. First off, higher fossil fuels prices raise fertilizer costs, chemical costs, and tractor operation costs. Plus, higher gasoline costs raise the prices people will pay for ethanol from corn. The rising production costs of corn and soybeans put a high and rising floor on food prices even before biomass energy is considered.

CHAMPAIGN, Ill. — Soaring energy prices will yield sharp increases for corn and soybean production next year, cutting into farmers’ profits and stretching already high food costs, according to a new University of Illinois study.

Costs to get crops in the ground will jump by about a third in 2009, fueled by fertilizer prices expected to surge 82 percent for corn and 117 percent for soybeans, said Gary Schnitkey, an agricultural economist who conducts the annual survey of input costs.

Fertilizer – the biggest non-land expense for corn and soybean farmers – is tethered to the same cost spiral that has driven steep gasoline and heating price increases over the last few years, said Schnitkey, a professor of agriculture and consumer economics.

“Roughly 80 percent of the cost of producing nitrogen fertilizer is natural gas, so as natural gas costs have gone up so have the costs of those inputs,” he said. “Phosphorus and potassium are mined, and as energy costs increase, mining costs increase.”

What I want to know: At what price of natural gas will wind electricity become a cheaper source of energy to make nitrogen fertilizer? That price will put a ceiling on fertilizer costs. When solar photovoltaics and solar concentrators for electric generation fall below the costs of wind turbines (and that seems inevitable) the ceiling for fertilizer prices will go even lower. But how expensive will food get before natural gas-based fertilizer reaches a price where electrically driven nitrogen reduction becomes competitive? Seems an important question for those who plan on eating in the future.

The break-even price for corn will rise to almost $4 per bushel.

The study projects non-land production costs for corn will total $529 an acre next year, up 36 percent from 2008 and nearly 85 percent higher than the average of $286 per acre from 2003 to 2007. At $321 an acre, soybean input costs are projected to rise 34 percent from 2008 and more than 78 percent from the 2003-2007 average of $180 an acre.

Schnitkey says the per-acre costs are based on high-producing farmland in Central Illinois, but corn and soybean farmers across the country will see similar increases.

Assuming cash-rent fees of $200 an acre, the study projects a break-even price of $3.82 a bushel for corn in Central Illinois, based on an average yield of 191 bushels an acre. Soybeans would break even at $9.65 a bushel, based on yields of 54 bushels per acre.

As recently as 2004 farmer production cost for corn was $2.46 per bushel and the production cost for soybeans was $6.49 per bushel. That soy break-even price of almost $10 contrasts with November 2001 when soy sold for just $4.33 per bushel. Production costs are now more than double that price. Back in 2003 corn was around $2.10 to $2.35 per bushel. Corn production costs are almost double that price.

Share |      Randall Parker, 2008 July 23 10:36 PM  Energy Biomass


Comments
Paul F. Dietz said at July 24, 2008 11:34 AM:

Hydrogen from gasified coal (or gasified biomass) will substitute for hydrogen from natural gas long before the cost of hydrogen rises to the point that electrolysis could be competitive.

Randall Parker said at July 24, 2008 6:30 PM:

Paul,

I'm expecting the coal gas to be priced at the same level as natural gas. So the question becomes: Will the availability of coal gas put a lid on the price of natural gas below the point at which electricity becomes competitive for making N fertilizer?

Given that coal itself is the cheapest way to make electricity the answer depends heavily on the future price of coal. I expect demand for US coal for export to soar in coming years. So I wonder whether that demand combined with declining costs for solar and wind electric will make coal no longer the cheapest source of electricity. If that happened then electricity might become more competitive for creating N fertilizer.

Paul F. Dietz said at July 25, 2008 7:55 AM:

Hydrogen can be produced from coal that is impossible to mine conventionally (too deep or on continental shelves). So even if coal for conventional powerplants becomes expensive (which I do not expect to see happen soon; it is still almost literally dirt cheap), in situ gasification will be a very tough target for electrolysis to beat. Simply being competitive with coal for electricity production won't make wind/solar electrolytic hydrogen economical.

Reality Czech said at July 25, 2008 12:06 PM:

There is an effort to make ammonia from stranded wind.

There was an aborted plan to run a greenhouse with waste heat (not enough locals to fill the jobs).

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