Steadily to sharply rising input costs are a major concern for hay growers heading into the new crop year and are likely to remain so well into 2012, says University of Georgia ag economist Curt Lacy.
Increased domestic demand for fertilizer – particularly nitrogen and phosphorus – due to expanding grain-crop acreage in 2011, is one factor likely to continue pushing prices upward, says Lacy. "We're looking at somewhere around 93 million acres of corn in the U.S. this year. That alone is going to require quite a bit of fertilizer use." (See graph.)
It's needed internationally, as well. "We're seeing demand for fertilizers increase in other parts of the world, not just in the U.S.," says Lacy. "That means more competition for those fertilizers, and that will drive prices up."
The U.S. is a net importer of fertilizer, Lacy notes. "Right now the U.S. dollar is relatively weak. That's a positive when you're exporting products. But it's a negative when you're importing because it makes the imported products that much more expensive."
Fuel prices also bear watching in 2011 and 2012. "A lot depends on the general economy," he says. "If the recovery continues, demand for fuel will increase and that will take prices higher."
In its short-term energy outlook for March, the U.S. Energy Information Administration (EIA) forecast that on-highway diesel-fuel retail prices would average $3.81/gallon this year and $3.82/gallon in 2012. The average price in 2010 was $2.99/gallon. For regular-grade gasoline, EIA projected a national average price per gallon of $3.56 in 2011, rising to $3.57 next year. In 2010, the average price was $2.78/gallon.
There is quite a bit of uncertainty in the EIA forecast, says Lacy. "Political unrest in the Middle East is a big wild card. From a fundamentals standpoint, the oil production that's been affected by the unrest there so far has been relatively small. The impact on prices that we've seen in recent months is more psychological than anything else."
Lacy was a speaker at last month's Southeast Hay Convention held in Macon.