American Farm Bureau Economist Matt Erickson says higher energy costs along with other factors will ultimately mean higher food prices for U.S. consumers, as well as lower returns for farmers.
“Well right now we’re definitely seeing encouraging times for the U.S. farm economy,” Erickson said. “We’re seeing high commodity prices across the board, but higher energy prices are definitely impacting profit margins. We have to remember that farming is a very capital intense occupation and high input costs affect the bottom line even during the good times.”
For farmers and ranchers, higher commodity prices are often easily negated by rising production costs.
“From 2010 to 2011, it’s forecasted that we are going to see higher production costs all across the board,” he said. “For corn 18 percent, soybeans 13 percent, wheat 18 percent, rice 15 percent, and cotton 9 percent. The moral of the story here is that high commodity prices that we are seeing right now, do not mean farmers pocket that entire price because farming is such a capital intensive occupation.”
Erickson says American consumers can expect to feel the effects of rising energy costs not only at the gas pump, but also at the grocery store as well.
“I think food prices are going to be pretty interesting,” Erickson added. “We’ve seen food prices increase due to a lot of different reasons, but in terms of food prices, we really need to look at the farm share of the food dollar. The farm share of the food dollar, is the share received by farmers from the sale of raw food commodities. 16 cents goes back to the farmer 84 cents goes back to the marketing share.
“The marketing share consists of transportation to get that product from the farm to the grocery store, it also includes manufacturing, processing and so it’s very highly sensitive to energy prices,” Erickson added. “We’re feeling the burden with filling our gas tank up with four dollars a gallon gasoline, but it also affects you at the grocery store as well because it’s very highly sensitive to energy cost, from farm to fork.”