Cost of Production Where Are We At And Where Are We Going
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Transcript of Cost of Production Where Are We At And Where Are We Going
Cost of ProductionWhere Are We At And Where Are We Going
By Duane GriffithMontana State University Extension
April 2008
As We Discuss Cost Related Issues, Keep Volatility in Mind
Types of Costs
Operating Costs (Variable Costs) Seed, Fertilizer, Chemicals, Crop Insurance Fuel, Oil, Repairs Vary with the level of production Usually on a per acre basis but can be
lumpy Ownership Costs (Fixed Costs)
Taxes, Interest (Opportunity Costs), Insurance, and Depreciation
Feeling the Pressure
Production response to high prices = Downward pressure on prices Prices will remain relatively high
Increased acreage planted = Upward pressure on production inputs Fuel, Chemicals, Fertilizers, Insurance
etc. Upward pressure on land rents
Energy and FuelWhere is it headed
World Energy-Figure8World Energy Consumption
Quadrillion BTU
0.0100.0200.0300.0400.0500.0600.0700.0800.0
1980
1985
1990
1995
2000
2004
2010
2015
2020
2025
2030
Energy Use by Fuel TypeWorld Energy Use by Fuel Type
Quadrillion BTU
0.0
50.0
100.0
150.0
200.0
250.0
300.0
1980
1984
1988
1992
1996
2000
2004
2008
2012
2016
2020
2024
2028
Oil
Natural Gas
Coal
Renewables
Nuclear
NYMEX Light Crude OilDollars Per Barrel, April 30, 2008
$98
$100
$102
$104
$106
$108
$110
$112
$114
$116
Ju
n 0
8 S
ep 0
8 D
ec 0
8 M
ar09
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n 0
9 S
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9 D
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9 M
ar10
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n 1
0 S
ep 1
0 D
ec 1
0 M
ar11
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n 1
1 S
ep 1
1 D
ec 1
1 M
ar12
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n 1
2 S
ep 1
2 D
ec 1
2 O
ct 1
3 J
un
14
Dec
15
Refinery Acqusition Costs - ImportsDollars Per Barrel
DOE - Energy Information Agency
$50
$60
$70
$80
$90
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Dolla
rs P
er B
arre
l
Short Term Projections-DOE-Energy Information
AgencyPrice Summary
Year
2006 2007 2008 2009
WTI Crudea ($/barrel) 66.02 72.32 100.61 92.5
Gasolineb ($/gal) 2.58 2.81 3.36 3.24
Dieselc ($/gal) 2.7 2.88 3.62 3.39
Heating Oild ($/gal) 2.48 2.72 3.46 3.3
Natural Gasd ($/mcf) 13.75 13 13.83 14.15
a West Texas Intermediate. b Average regular pump price.
c On-highway retail. d Residential average.
Diesel & Gas Price ProjectionsWeighted Avg. All Grades
Diesel & Gas Price Projections- Weighted Avg.All Grades, Inlcudes Fed. & State Taxes
2.00
2.20
2.40
2.60
2.80
3.00
3.2020
05
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
Dol
lars
Per
Gal
lon
Diesel
Gas
Chemicals
Many chemicals are petroleum based Expect prices in the long run to rise
Fertilizer
Natural Gas and Urea Prices
$0
$50
$100
$150
$200
$250
$30019
7319
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7719
7919
8119
8319
8519
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07
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00
Urea $ Per Ton
Natural Gas $ Per Thousand Cubic Ft.
Prices Expected to Decrease
CBOT, KCBT, MGE Futures PricesApril 30, 2008
600650700750800850900950
10001050110011501200
5/1
/08
8/1
/08
11/1
/08
2/1
/09
5/1
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8/1
/09
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/09
2/1
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5/1
/10
8/1
/10
11/1
/10
CBOT MGE KCBT
USDA Corn and Wheat Baseline
$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
Corn Wheat
Summary for Costs
Some costs may ease in short run Long term picture is upward pressure
on production inputs Move more towards the “Cost – Price
Squeeze” we are familiar with in the long run
Managing Costs of Production
Energy Use Input Use Crop Mix Tillage Systems
http://www.montana.edu/extensionecon/software/CropMixTillageSysEnergyPrice.swf
Current Cost of Production Estimates
http://www.montana.edu/extensionecon/cropdownloads.html