United States 

Department 

of Agriculture 

www.ers.usda.gov 

 A Report from the Economic Research Service

Abstract

The recent historic rise in farm input costs and wheat prices has had economic effects 

on the U.S. wheat sector. A cumulative distribution of forecasted production costs for 

wheat farms shows that current high (but falling) wheat prices will allow a greater 

share of producers to cover their production costs in 2008 (90 percent) than in 2004 

(82 percent), despite higher input costs in 2008. However, if farm-gate prices for wheat 

continue to fall into 2009, and if prices for inputs do not drop off similarly, many more 

wheat producers may fi nd themselves unable to cover production costs and the U.S. 

wheat sector may see further attrition of planted area.

Keywords: wheat, price, inputs, costs of production, profi tability, Agricultural 

Resource Management Survey.

Acknowledgments

The authors gratefully acknowledge reviews by USDA staff members William 

McBride, Linda Foreman, Greg Pompelli, and Janet Perry of the Economic Research 

Service (ERS); Tom Tice and Peter Riley of the Farm Service Agency; Teresa 

McKeivier of the Foreign Agricultural Service; and Jerry Norton of the World Agricultural Outlook Board. We also thank John Weber and Wynnice Pointer-Napper of ERS 

for editing and design assistance.

Mir Ali and Gary Vocke

Consequences of Higher Input 

Costs and Wheat Prices for U.S. 

Wheat Producers

WHS-09c-01

March 2009

Contents

Approved by USDA’s 

World Agricultural 

Outlook Board

Wheat and Input Prices 

 Are Up . . . . . . . . . . . . . . . . . . 2

Long-term Competitiveness 

 of the U.S. Wheat Sector . . . 4

Covering Production Costs 

 Essential to the Long-

 Term Sustainability of 

 U.S. Wheat Sector. . . . . . . . . 7

Analysis of the Variation 

 Around the Average Cost 

 of Production . . . . . . . . . . . . 9

Wheat Production Expected 

 To Be More Profi table in 

 2008 Than in 2004 . . . . . . . 11
2

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

Like the prices of many other agricultural commodities, the price of wheat 

rose to record highs during 2008 (fi g. 1). Low stocks and adverse weather 

conditions around the world tightened global supplies of wheat in 2007. 

This, in turn, boosted foreign demand for U.S. wheat. Supplies were high in 

2007/08 relative to levels in previous years. The resulting increase in U.S. 

wheat exports (the highest in 15 years) depleted the surplus U.S. supply, 

contributing to the lowest ending stocks since the late 1940s. These and other 

factors helped account for the sharp increase in U.S. wheat prices in 2008. 

The farm-gate season average price rose to $6.48 per bushel in 2007/08, 

besting the previous high of $4.55 per bushel in 1995/96.

Though U.S. wheat prices have fallen since spring 2008, they remain high 

by historical standards. The season-average price range forecast by USDA 

for the 2008/09 marketing year is $6.70 to $6.90 per bushel.1 In part, prices 

received by U.S wheat producers have remained high because of the large 

quantity of wheat that was forward priced during spring 2008, when prices 

were very high. Also, part of the wheat crop was marketed early in the market 

year before prices started to drop.

Rapidly rising input costs offset this unprecedented runup in wheat prices for 

producers. USDA’s National Agricultural Statistics Service reports that prices 

paid for production inputs have been rising since 2004, particularly for fuel 

and fertilizer (fi g. 2). The pace of the increase for these two inputs accelerated in 2008. U.S. energy prices rose to historical highs in 2008, a refl ection 

of rising international energy prices and the low value of the U.S. dollar. Both 

fuel and fertilizer prices have come down in recent months but remain high.

Rising energy prices have contributed to higher fertilizer prices, directly 

through high prices for the natural gas used to produce ammonia and indirectly through higher transportation costs. Fertilizer prices also have been 

affected by the rapidly rising demand for fertilizers, especially in China, 

 1USDA, World Agricultural Outlook 

Board, World Agricultural Supply and 

Demand Estimate, February 10, 2009.

Wheat and Input Prices Are Up

Figure 1

Average monthly wheat prices received by U.S. farmers, 

June 1994-January 2009 

Dollars/bushel

Source: USDA, Economic Research Service using data from USDA, National Agricultural 

Statistics Service, Agricultural Prices.

1994 95 96 97 98 99 2000 01 02 03 04 05 06 07 08

0

2

4

6

8

10

12
3

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

India, and Brazil. Finally, the fall in the value of the U.S. dollar in recent 

years has raised the price of imported energy and fertilizer for U.S. farmers. 

The United States imports over half of its nitrogen and over 90 percent of its 

potash used each year. 

Figure 2

Prices paid index for selected farm inputs 

Index 1990-92 = 100

2008/09 forecast.

Source: USDA, Economic Research Service using data from USDA, National Agricultural 

Statistics Service, Agricultural Prices.

1996/97 1998/99 2000/01 02/03 04/05 06/07 08/09

0

50

100

150

200

250

300

350

400

450 Fertilizer

Ag. chemicals

Fuels

Farm machinery
4

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

The U.S. wheat sector faces challenges to its long-term competitiveness. 

Domestically, wheat planted area has declined for the last few decades for 

various reasons. Internationally, Ukraine and Russia have emerged as new 

competitors with the United States in foreign markets in years when their 

production is high. Traditional global competitors include Canada, Argentina, 

Australia, and the European Union. The overall result is a slightly smaller 

expected share of expanding world wheat trade for U.S. wheat.

U.S. wheat planted area has trended down for many years. U.S. wheat 

planted area has varied widely during the past half century and peaked in 

the early 1980s (fi g. 3). Wheat area dropped off sharply in the late 1980s, 

primarily due to farmers retiring large portions of cropland under USDA’s 

Acreage Reduction Program (ARP), which was designed to reduce government-owned stocks of particular commodities, including wheat. By 1987-

88, nearly 30 percent of the national wheat base acreage had been idled by 

farmers participating in this voluntary program, enabling them to become 

eligible for such commodity program benefi ts as nonrecourse loans and 

defi ciency payments. U.S. wheat area partially recovered in the mid-1990s 

as stocks declined and prices rose, thus lessening the need for ARPs. The 

program was eliminated under the 1996 Farm Act.

Planting fl exibility provisions introduced in the 1996 Farm Act removed most 

planting constraints on producers, increased competition among fi eld crops 

for area, and continued to apply downward pressure on U.S. wheat acreage. 

Planted wheat area in the United States has dropped by about 30 percent 

from an annual average of 85 million acres in the early 1980s to an annual 

average of 59.6 million acres over the 5-year period 2004/05 to 2008/09.

Wheat land switched to other uses. Wheat area has dropped off in the United 

States as farmers have taken their land out of production or switched to alternaLong-term Competitiveness of the 

 U.S. Wheat Sector

Figure 3

U.S. wheat area and yield

Million acres

Source: USDA, Economic Research Service using data from USDA, National Agricultural 

Statistics Service, Quick Stats.

1980/81 84/85 88/89 92/93 96/97 2000/01 04/05 08/09

0

20

40

60

80

100

120

0

10

20

30

40

50

Planted Harvested Yield (right axis)

Bushels/acre

Marketing year
5

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

tive crops offering higher returns. Farmland enrolled in USDA’s Conservation

Reserve Program (CRP) is concentrated in those U.S. regions where wheat 

production predominates. About 60 percent of the land enrolled in the CRP 

is located in the Plains States, stretching from Texas to North Dakota and 

Montana. USDA estimates that about 8 million acres of CRP land have been 

planted to wheat or wheat rotations, including fallow, prior to enrollment. 

In the traditional wheat-growing areas of the Plains, there is a more-than20-year trend in some States to reduce area fallowed by planting alternative 

crops and lengthening crop rotations. For example, in western Kansas, the 

historical wheat/fallow rotation has been most commonly replaced by a rotation of wheat/grain sorghum/fallow in which wheat is planted once every 3 

years rather than once every 2 years. Though cropping intensity increases 

under this type of system, wheat is not favored.

In some of the largest wheat-growing States, producers are increasingly 

planting more profi table crops, such as corn and soybeans, on acreage traditionally planted to wheat. For example, in the early 1980s, wheat accounted 

for 80-90 percent of the total wheat, corn, and soybean acres planted in 

Kansas and North Dakota. In recent years, wheat’s share in these States has 

dropped to 57-62 percent of the total (fi g. 4).

Genetic gains for competing crops on the Plains. Loss of wheat acreage to 

row crops, such as corn and soybeans, on the Plains partly refl ects strong genetic 

improvements in those crops (fi g. 5). New varieties of corn and soybeans can 

be planted farther west and north in U.S. areas with drier conditions or shorter 

growing seasons. Plus, herbicide-resistant varieties make it easier for farmers 

to control weeds (see www.ers.usda.gov/briefi ng/biotechnology/ for more 

information).

The pace of genetic improvement has been slower for wheat than for some 

other fi eld crops, resulting in little growth in wheat yields. This makes wheat 

a less attractive option for farmers. Genetic improvement for wheat has been 

slower because of genetic complexity and because of lower potential returns 

Figure 4

Wheat planted area as a share of planted area of wheat, corn, 

and soybeans in Kansas and North Dakota

Percent

Source: USDA, Economic Research Service using data from USDA, National Agricultural 

Statistics Service, Quick Stats.

Calendar year

1980 82 84 86 88 90 92 94 96 98 2000 02 04 06 08

50

60

70

80

90

100

Kansas

North Dakota
6

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

to commercial seed companies, which discourages investment in research. 

For example, farmers are accustomed to buying seed corn each year because 

seed saved from a hybrid cannot be used for a subsequent crop. This creates 

a large annual market for seed companies. In contrast, many wheat farmers, 

particularly in the Plains States, use saved seed from the previous year’s 

crop rather than buy new seed from dealers every year. This practice sharply 

reduces the potential market for branded commercial seed wheat.

Wheat disease also a factor. Concerns about wheat disease outbreaks in the 

Northern Plains, particularly scab (head blight) in North Dakota and Minnesota (caused by the fungus Fusarium graminearum), infl uenced planting 

decisions in the 1990s and will likely do so in the future. The increased 

incidence of scab may stem in part from larger corn plantings and minimum 

tillage practices in the region’s traditional wheat-growing areas. Both activities can introduce hosts for disease-causing organisms.

Ethanol expansion in the United States. The large expansion in ethanol 

production in the United States is affecting virtually every aspect of the 

fi eld crops sector, ranging from domestic crop use and exports to prices and 

the allocation of acreage among crops. Many aspects of the livestock sector 

are affected, too. For example, ethanol byproducts are substituting for 

corn and other feeds in livestock rations. Cellulosic sources of feedstocks 

for ethanol production hold some promise for the future, but the primary 

feedstock in the United States is currently corn. Market adjustments to 

this increased demand extend well beyond the corn industry to supply and 

demand for other crops, such as wheat. Adjustments in the agricultural 

sector are already underway and will continue for many years as interest 

grows in alternative sources of energy.

Figure 5

Indices of North Dakota crop yields (3-year averages)

Index 1976 = 1

Source: USDA, Economic Research Service using data from USDA, National Agricultural 

Statistics Service, Quick Stats.

Calendar year

1976 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06

0.5

1.0

1.5

2.0

2.5

Corn

Wheat

Soybeans
7

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

In any year, adverse weather, disease, or insects may lead to a crop loss and 

revenue returns that do not cover production expenses. This type of revenue 

loss occurs from time to time in agriculture. However, if revenues do not 

cover production costs repeatedly, farmers may be forced to switch to alternative crops with higher returns in order to stay in business. 

This study’s cost and returns analysis of the U.S. wheat sector provides a 

snapshot of the range of production expenses across the United States and 

compares this range with the national season average price that farmers 

received for wheat. This comparison allows for a sectoral overview of the 

proportion of U.S. wheat producers covering their production costs. If a 

signifi cant share of U.S. wheat producers are not covering production costs, 

U.S. planted area will likely continue its long-term decline. 

USDA’s 2004 Agricultural Resource Management Survey (ARMS) provides 

the most recent data on U.S. wheat production costs (see box, “USDA’s 

Agricultural Resource Management Survey”).2 The wide variation of wheat 

production costs across the country captured by the survey refl ects the differences in cropping practices, yields, and costs of land, labor, and capital 

assets. Production costs used in this analysis are the sum of operating costs 

of inputs and ownership costs related to capital assets that are used during the 

production process. Ownership costs include the annualized costs of maintaining the capital investment in farm machines (depreciation and interest). 

Operating and ownership costs do not include the opportunity costs for other 

resources, such as the farmer’s labor and land (see box, “Enterprise Costs of 

Production”). Opportunity costs for these resources are not likely to infl uence 

planting decisions in the short term but may ultimately affect farmers’ decisions to switch to other crops or pursue off-farm income. 

The yields used in this analysis are normal yields per planted area. The 

normal yield is the ARMS-reported yield that farmers expected at the time 

of planting. Most farmers budget for the crop season based on the expected 

yield for each crop they grow. This analysis uses normal yields rather than 

actual yields to neutralize the effects of unexpected high yields due to favorable weather conditions or yield loss or even crop abandonment due to 

adverse weather conditions for a particular producer in the year of the survey. 

Normal yields are also used later in this report in ERS’s comparison of actual 

2004 costs and 2008 forecasted costs.

 2Seventeen wheat-producing States 

were included in the survey. Respondents to the 2004 ARMS wheat survey 

used in this analysis represented 

168,392 farms, or 44.8 million acres of 

the 59.6 million acres planted to wheat 

in 2004.

Covering Production Costs Essential 

 to the Long-Term Sustainability of 

 U.S. Wheat Sector
8

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

The farm-level data used in this study were derived from USDA’s 2004 Agricultural Resource Management Survey (ARMS) of wheat farms. ARMS is the 

only national survey that provides information on a broad range of issues about 

agricultural resource use, production practices, farm costs and fi nancial conditions, and the economic well-being of U.S. farm households—all collected in a 

representative sample. 

ARMS is an annual survey designed and conducted jointly by USDA’s 

Economic Research Service and USDA’s National Agricultural Statistics 

Service. Annual production cost estimates are based on data collected in 

ARMS every 4-8 years for each commodity. More information about ARMS 

can be found at www.ers.usda.gov/briefi ng/arms/ 

USDA’s Agricultural Resource Management Survey

The costs of all inputs in the production process reported by all wheat operators, partners, landlords, and contractors are included in either operating or asset 

ownership costs.

Operating costs include the costs for inputs that are consumed in one production period, such as seed fertilizer, chemicals, custom operations, fuel, electricity, 

repairs, purchased irrigation water, baling straw, and hired labor.

Operating and ownership costs include the sum of operating costs and asset 

ownership costs. Ownership costs are the annualized cost of maintaining the 

capital investment (depreciation and interest) in farm machinery, equipment, and 

facilities and cost for property taxes and insurance.

Total costs include operating and ownership costs plus opportunity costs of other 

resources, such as charges for unpaid labor, including the time spent by a farmer 

in the production of a commodity, the opportunity cost of land, and the enterprise 

share of general farm overhead.

Enterprise Costs of Production
9

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

ERS derived forecasts of U.S. wheat production costs for 2008 by separately indexing input production costs from 2004 as reported in ARMS. 

Among all operating cost items, fertilizer accounted for the largest share 

(45 percent) of total operating costs forecast for 2008 (table 1). Fuel, lube, 

and electricity accounted for the next largest share (18 percent). Ownership 

costs are forecast to average $68.08 per acre in 2008, while the addition 

of opportunity costs for land, unpaid labor, and general overhead raise the 

average total to $287.33 per acre.

Analysis of the Variation Around the 

 Average Cost of Production 

Table 1

U.S. wheat production costs, 2008F, by cost group

 Low-cost Mid-cost High-cost Average, all

Item producers1 producers2 producers3 producers

 Dollars per planted acre

Operating costs

 Seed 11.86 13.30 14.61 13.20

 Fertilizer 38.43 63.83 85.62 61.81

 Chemicals 7.36 11.21 13.53 10.72

 Custom operations 9.91 7.60 10.37 8.69

 Fuel, lube, and electricity 10.75 16.22 71.43 25.41

 Repairs 8.17 11.72 22.33 12.88

 Other variable costs 0.38 0.43 0.73 0.48

 Interest on operating capital 1.82 2.61 4.59 2.80

 Hired labor 1.10 2.07 6.16 2.61

Total operating costs 89.78 128.99 229.37 138.60

Ownership costs

 Capital recovery (machinery) 41.40 56.55 91.94 59.61

 Taxes and insurance 6.09 8.54 11.28 8.47

Total ownership costs 47.49 65.09 103.22 68.08

Total operating and ownership costs 137.27 194.08 332.59 206.68

Other costs

 Opportunity cost of land 15.91 19.74 38.40 22.36

 Opportunity costs of unpaid labor 50.17 47.89 53.34 49.49

 General farm overhead 7.69 8.71 10.47 8.80

Total other costs 73.77 76.34 102.21 80.65

Total costs 211.04 270.42 434.80 287.33

 Bushels per acre

Expected yield 52.80 48.00 46.20 48.80

 Dollars per bushel

Total operating costs 1.70 2.69 4.96 2.84

Total operating and ownership costs 2.60 4.04 7.20 4.24

Total costs 4.00 5.63 9.41 5.89

F = Forecasts (obtained by indexing 2004 actual values).

1Low-cost = The 25 percent of producers with the lowest operating plus ownership costs per bushel.

2Mid-cost = The 50 percent of producers in the midrange of operating plus ownership costs per 

bushel.

3High-cost = The 25 percent of producers with the highest operating plus ownership costs per bushel. 

Source: USDA, Economic Research Service using data from USDA’s 2004 Agricultural

Resource Management Survey for wheat.
10

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

Based on the 2004 normal yield of 48.8 bushels per planted acre, the forecasted 2008 operating cost per bushel is estimated to be $2.84 per bushel. 

The addition of ownership costs and other costs increase the total forecasted 

2008 costs to $5.89 per bushel. This amount is well below the season average 

price range of $6.70 to $6.90 as forecast by USDA for the 2008/09 marketing 

year, indicating that, on average, wheat farmers should be able to cover their 

costs of production in 2008.

The variation of costs around the average can be shown by arranging wheat 

farms with the lowest to highest costs per bushel to form a cumulative distribution of farms (fi g. 6). A cumulative distribution of forecasted operating and 

ownership costs for 2008 reveals that 25 percent of the producers had costs of 

$3.20 per bushel or less, and 75 percent had costs of $5.17 per bushel or less.

Analysis using the categories in fi gure 6 reveals a wide range around the 

average of $4.24 per bushel for total operating and ownership costs (see 

table 1). The average operating and ownership costs per bushel for low-cost 

producers is forecast at $2.60 per bushel in 2008, $4.60 per bushel lower 

than the average forecast for the high-cost group. Lower operating costs per 

bushel account for most of the gap in total cost between low-cost and highcost groups of producers in the survey. 

High-cost producers had both higher operating and ownership costs per acre 

than low-cost producers in 2008. Much of these higher operating costs stems 

from higher expenditures for fuel, lube, and electricity and for fertilizer on 

irrigated acres. Ownership costs are also higher for the high-cost group due to 

higher capital recovery costs, again, due to irrigation. Less than 3 percent of the 

total wheat acreage cropped by low-cost producers is irrigated. By comparison, 

more than 13 percent of the total wheat acreage cropped by high-cost producers 

is irrigated. These irrigated wheat acres are concentrated in parts of the Pacifi c 

Northwest and in California and Arizona. Yield difference is another part of 

the cost-per-bushel calculation. The normal yield for the low-cost group is 6.6 

bushels per planted acre higher than that for the high-cost group. 

Figure 6

Distribution of U.S. wheat operating plus ownership costs 

per bushel of expected yield, 2008

$ per bushel

Note: 2008 data are forecast.

Source: USDA, Economic Research Service using data from USDA's 2004 Agricultural 

Resource Management Survey for wheat. 

Percent of wheat farms

Low-cost

producers

0

2

4

6

8

10

0 20 40 60 80 100

5.17

3.20

Mid-cost

producers

High-cost

producers
11

Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers / WHS-09c-01 

Economic Research Service/USDA

Analysis of the cumulative, per bushel cost of U.S. wheat production in 2004 

compared with that forecasted for 2008 shows that the higher expected prices 

for the 2008/09 marketing year increase the percentage of farmers who will 

cover these costs. The 2004/05 season-average price for wheat was $3.40 per 

bushel. This price level covered the per bushel production cost for 82 percent 

of the farms in the survey (fi g. 7). A price of $5.67 per bushel is needed to 

get an equivalent coverage using the forecasted 2008 cumulative distribution. The analysis for the forecasted 2008 cumulative distribution using the 

midpoint of the USDA February forecasted price range for 2008/09 shows 

that 90 percent of the farmers in the survey will be able to cover their per 

bushel costs of production. 

If farm-gate prices continue to fall into 2009, and if prices for fuel and fertilizer do not drop off similarly, many more wheat producers will fi nd themselves unable to cover all of their costs and the U.S. wheat sector may see 

continued attrition of planted area. 

Wheat Production Expected To Be More 

 Profi table in 2008 Than in 2004

Figure 7

Distribution of wheat operating plus ownership costs 

per bushel, 2004 and 2008

$ per bushel

Note: Per bushel costs for 2008 are forecast.

Source: USDA, Economic Research Service using data from USDA's 2004 Agricultural 

Resource Management Survey for wheat. 

Percent of wheat farms

2004 price=$3.40/bu.

2004 costs

2008 price=$6.80/bu.

0

2

4

6

8

10

0 20 40 60 80 100

2008 costs