Farm production expenses in 2000 are expected to be up 3.5 percent from 1999 with fuel and wages expected to increase the most.

Fuel prices are also expected to drive up the cost of marketing, storage and transportation, said Gregg Ibendahl, University of Kentucky Extension agricultural economist. Fertilizer prices exhibit the most price variability and part of this is also related to fuel costs.

Natural gas is a key element of nitrogen production and nitrogen is a major fertilizer expense for many farms, Ibendahl said.

In addition, natural gas production is not keeping up with demand. The result has been a doubling of prices during 2000. Therefore, expect to see much greater prices for nitrogen fertilizer next year.

Ibendahl recommended that farmers try to lock in nitrogen prices if they can find a supplier willing to do so.

"I don't see much chance of the price going down," Ibendahl said. "I see a potential on the up side."

If farmers are willing to prepay for their nitrogen now for use in the spring, suppliers may be willing to do so, he said. That offers farmers two potential advantages. First, they will have locked in a price and won't be subject to potentially higher costs.

Ibendahl said he did not look for nitrogen prices to come down in the next six to 12 months.

Secondly, many farmers may find they find themselves with a larger than expected income in 2000 due to good cattle prices, large grain crops and government payments. Prepaying will move those expenses into this year and can be used to help offset taxable income.

Fuel prices have also increased substantially in 2000 and may not decline anytime soon. Oil prices can easily hit $40 a barrel before the end of the year, he noted. Fuel costs in 2000 are expected to finish the year at 40 percent above 1999 costs.