Volitility Continues in Energy Prices and Production Costs
Department of Agricultural and Consumer Economics
University of Illinois
Production costs for corn and soybeans are highly correlated with energy
prices. In recent months, energy prices have exhibited variability. This
variability likely will continue into the near future. As a result,
2010 production costs are difficult to predict accurately.
Cash prices for crude oil reached a high in August 2008 of $118 per barrel. Due to financial instability and economic concerns, crude oil prices declined, reaching a low of $49 per barrel in April 2009, a 58 percent decline from its August 2008 high. Since April, crude oil prices have increased, influenced by continuing growth of oil use in Asia. In the middle of June, crude oil prices were slightly above $70 per barrel.
Similar to crude oil, natural gas prices declined since mid-year 2008. In July 2008, U.S. commercial customers paid $15.45 per thousand cubic feet for natural gas. Natural gas prices then declined by 34 percent to a price of $10.10 per thousand cubic feet in March 2009. Natural gas is an input into the manufacture of nitrogen fertilizers. Hence, declines in natural gas price should lead to lower nitrogen fertilizer prices.
Partially as a result of declining energy prices, crop production costs in 2010 likely will decline from 2009 levels. Current energy prices, along with initial budgeting, suggest that non-land costs in 2010 will be near 2008 levels. This would represent roughly a $50 per acre decline in costs for corn grown in central Illinois. While this decline would be substantial, corn production costs would be still at high levels compared to historical averages.