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Farmers feeling the effects of inflation

August 19, 2008

Most readers know that food and fuel costs have risen significantly, but we can put this in perspective.

Inflation for July 2008 was at 5.6 percent, which is certainly considerably higher than the 2007 average of 2.85 percent.

You have to go back to 1990 to see inflation at nearly this rate, where the annual average was 5.39 percent. Bad, yes, but not as bad as 1980, when inflation was 13.58 percent nor as good as my birth year of 1959, which stood at 1.01 percent.

Before we go too far, let us define inflation: "an increase in the price you pay or a decline in the purchasing power of money," according to the Web site InflationData.com. In other words, price inflation is when prices get higher or it takes more money to buy the same item.

So, are there any commonalities in the current upswing? Yes, there are a few: in 1980, a barrel of oil adjusted to 2007 dollars stood at $97.68, where to date, a barrel of oil is at an average price of $98.66.

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The price of corn in 1980 was $7.37 per bushel and the projected 2008 average is $7.35 per bushel.

Except for the very wealthy, everyone is feeling the pinch of higher prices, including those engaged in production agriculture.

Many see the higher food prices and automatically think farmers are reaping the kind of windfall profits that oil companies are reporting. This could not be further from the truth.

According to the National Agricultural Statistics Service of the United States Department of Agriculture as reported by Dairy Herd News, the rising cost of fuel and other products helped drive U.S. farm production expenditures to a record $260 billion in 2007, according to the Farm Production Expenditures 2007 summary released by USDA's National Agricultural Statistics Service. Total U.S. farm production expenditures rose 9.3 percent from 2006 and nearly 30 percent from five years ago.

Increasing petroleum costs meant farmers not only paid more for fuel, but also for fertilizer products, chemicals and transportation services. Indirectly, fuel prices and the growth in ethanol production also led to higher crop prices, resulting in increased cost for livestock feed.

The USDA report shows that the average production expenditures per farm increased 10 percent nationwide, from $114,186 in 2006 to $125,648 in 2007. On average, U.S. farm expenditures for fertilizer, lime and soil jumped 26 percent to $8,070; feed cost rose 22 percent to $18,412; fuel cost increased by 15 percent to $6,137; and agricultural chemicals climbed 12 percent to $4,832.

In total, U.S. producers spent $12.7 billion on fuel, including $7.71 billion for diesel, up 15 percent; $2.74 billion for gasoline, up 16 percent; $1.5 billion for LP gas, up 17 percent; and $750 million for other fuels, up 4.2 percent.

So whether you are a farmer or a consumer, know that everyone is feeling the strain as we try to make less purchasing power go further.

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