Extension Specialist – Crops Economics / University of Idaho

Associate Professor and Idaho Wheat Commission Endowed Chair in Commodity Risk Management / University of Idaho

Before beginning, it is important to note that most Idaho crop producers have rotations spanning four to six years, meaning crops aren’t planted consecutively in the same field each year. Thus, the mix of inputs purchased for planting each year varies along with their rotation.

Differences in operating costs across crops

To investigate which types of input costs are most important for crops grown in Idaho, operating cost estimates for south-central Idaho were obtained from the University of Idaho AgBiz Crop Budgets from 2001 to 2019. The crops selected for analysis were alfalfa hay, barley (malt), potatoes, sugarbeets and wheat (SWW). Seven operating cost categories were considered for each crop, including seed, fertilizer, pesticides, custom operations and consultants, irrigation, machinery and labor.

For each year in which there were cost estimates, the cost for each category was divided by the total operating costs. Multiplying the value of an individual component cost (e.g., fertilizer) divided by the total operating cost by 100 provides an estimate, in a percentage, of the share of total operating costs that are accounted for by each category. Lastly, these percentage values for each category and year were averaged to obtain an average percentage of total operating costs for each category over the observation period.

The estimates from this cost decomposition analysis are shown in Table 1, with the top cost categories highlighted. The highest operating cost category for alfalfa hay is custom operations and consultants (45%), which includes activities such as mowing, raking, baling and stacking. For barley, the category that accounted for the highest total operating costs was irrigation, which accounted for 28%, and the top category for wheat was fertilizer (26%). For potatoes, which also have the highest total operating costs, the top operating cost category was fertilizer (26%), with seed ranking second at 23%. The operating cost categories for sugarbeets were relatively more evenly distributed, with labor comprising the slightly highest cost category at 19%.

The main message from this analysis is that price increases (or decreases) for some cost categories, such as fertilizer prices for potatoes, are relatively more important for producer profitability than changes in other categories.

Crop input price projections for 2024

Given this context of differences regarding the relative importance of price changes for the profitability of producing a given crop, we next provide projections regarding the changes in several categories of production costs for barley for the U.S. from 2023 to 2024 from the USDA ERS. While the USDA ERS also produces cost of production estimates for wheat (but not the other crops previously assessed), the projected changes are similar for barley and wheat, so we will only discuss barley here. Also, although no estimates are provided for the other assessed crops, for the other cost categories, except seed, the overall direction of cost change (up or down) will likely be similar to barley, though the magnitudes would vary across crops.

The projections in Table 2 show that seed, custom and consultants, machinery, and labor costs are expected to increase between 1% and 5% in 2024 relative to 2023, while those for pesticides and fertilizer are expected to decline by 8% and 14%, respectively. Overall, total operating costs for barley in 2024 relative to 2023 are projected at 6% lower.

Since fertilizer prices were determined as particularly important for the total operating costs when producing potatoes and wheat (Table 1), the projected lower fertilizer costs will provide some welcome relief for producers of those crops. Lower pesticide costs will also benefit potato producers. However, with many other production cost categories projected to increase slightly, the cost reduction opportunities for fertilizer and pesticides may likely be offset by increases in other categories.

So far, we presented historical average estimates and projections for 2024. As crop producers know, many things change over time, and there can be substantial variability in individual input prices over the year. Thus, we close by providing strategies that producers can consider implementing to reduce their risk of incurring substantially higher-than expected input costs.

1. For the relatively higher cost categories, such as fertilizer, it is worth considering whether making purchases multiple times during the year could be accommodated while considering cash flow capacity.
2. Negotiating crop prices as fertilizers, as well as other inputs such as chemicals, are purchased, may also help ensure that profitability is maintained in historically high-input price periods.

The post Analyzing Idaho crop input costs and 2024 projections – Ag Proud appeared first on Idaho Grain Producers Association.

Extension Specialist – Crops Economics / University of Idaho

Figure 1 includes a plot of Idaho milk cow inventories (as of Jan. 1) and acres harvested of alfalfa hay and corn (total of both grain and silage) from 2002-22. It observed that milk cow inventories have increased from just under 400,000 in 2002 to over 650,000 in 2022. Additionally, alfalfa hay acreage harvested has declined from an average of about 1.15 million acres harvested annually between 2002-06 to an average of 1.03 million acres harvested per year between 2018-22. Correspondingly, corn acres harvested increased from just under 200,000 acres harvested in 2002 to consistently over 350,000 acres harvested since 2018. The main messages of Figure 1 are that, since 2002, milk cow inventories and corn acres have steadily increased, and alfalfa hay acres have steadily decreased.

There has been an associated shift in dairy cow feed rations that has occurred at the same time as the changes in crop acreage. Specifically, my University of Idaho (UI) extension specialist colleagues in dairy estimated that the amount of alfalfa hay included in dairy cow rations has declined from over 18 pounds per day between 2003-06 to about 7 pounds per day between 2017-21. Additionally, for these same periods, corn silage amounts included in dairy rations increased from about 27 pounds per day to 53 pounds per day. Thus, the increased production of corn in Idaho is being used to a large degree by including more corn silage in dairy feed rations.

What are the implications for water use?

To answer this question, I utilized data from the U.S. Geological Survey (USGS) on overall usage of water in Idaho and UI extension reports on the water requirements for growing alfalfa hay and corn. The USGS data show that, as of 2015, irrigation accounted for 86.2% of total water usage in Idaho. The other usages and their associated percentages were aquaculture (11.1%), public supply (1.6%), domestic (0.4%), livestock (0.3%), industrial (0.3%), mining (0.1%) and thermoelectric power (less than 0.1%).

The water requirements for alfalfa hay and corn silage over the course of a normal growing season, per UI extension reports, are plotted in Figure 2. The total water use over the full growing season by alfalfa hay is 36 inches per acre, while that for corn silage is 30 inches per acre. So, corn silage requires less water than alfalfa hay. However, the distribution regarding the timing of the demand is different for the two crops. Alfalfa hay uses water earlier in the growing season and more uniformly across the growing season than does corn silage. Additionally, water usage for corn silage peaks in July and August at a level of 8 inches per acre, which is higher than the peak usage by alfalfa hay.

To estimate the water usage implications from both the increasing inventory of dairy cows and the shift in acreage toward less alfalfa hay and more corn acreage, I made the following calculations. First, I estimated the annual acre feet of water used by all alfalfa hay and corn acreage for the five-year periods of 2002-06 and 2018-22. To do this, I multiplied the average number of acres harvested for alfalfa hay and corn by their water usage in acre-feet. I then subtracted the values associated with the 2002-06 period from those of the 2018-22 period to obtain an estimate of “total water use change” for each crop.

The results from these estimates showed a decline in 384,000 acre-feet of water used for alfalfa hay and a 362,500 increase in acre-feet of water used for corn. This implies that a net decline of 21,500 acre-feet of water was used for irrigation due to the shift to fewer alfalfa hay acres and more corn acres.

The next step was to account for the increased usage of water for livestock due to the increase in milk cow inventories. Based on the USGS water use data, water use annually for livestock, as of 2015, was 57,000 acre-feet. So, I multiplied this value by the percentage change in dairy cow inventories between 2015 and 2022, which was 12.6%. The result was a water use estimate for livestock as of 2022 of 64,200 acre-feet. This corresponds with an increase of about 7,200 acre-feet in water used for livestock.

The last step was to sum up the implied reduction in water use resulting from the acreage shifts toward less alfalfa hay acres and more corn acres (-21,500 acre-feet) and the increase in water use due to more livestock (+7,200 acre-feet). The result is a net water use reduction of about 14,300 acre-feet. This implies a net decrease of about 0.07% of total water usage in Idaho based on 2015 levels.

There are a couple of main takeaway messages from this article. First, the growth in the dairy industry in southern Idaho since the early 2000s has corresponded with a shift in acreage toward fewer alfalfa hay acres and more corn acres. The net effects of total water usage resulting from these changes, and accounting for the increased number of dairy cows, are less than 1% of total water usage. However, the timing of water demand is also impacted by these changes, such that less water is needed in the early part of the growing season (April and May), while more is needed in July and August. These shifts may likely cause changes in the water flow levels in the Snake River and canals and may influence year-to-year carryover volumes and variability.

References omitted but are available upon request by sending an email to the editor.

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