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Extension > Agricultural Business Management News > October 2015

Thursday, October 29, 2015

Where Can Farmers Lower Cost?

By David Bau, Extension Educator

Average 2016 corn and soybean budgets for cash rented farmland look unprofitable at projected input costs and current market prices available.  In 2007 prices were similar to what is available in 2016 for corn and soybeans. The table below compares actual figures for 2007 and 2014 from the FINBIN database for southern Minnesota and compares them to trends for 2016.

Corn and Soybean Input costs comparison between 2007, 2014 and 2016 



The figures for 2014 and 2016 indicate losses on both corn and soybeans even with crop insurance and government payments.  As you examine the fourth line from the bottom: Total direct expense per bushel you will see that in 2007 Southern Minnesota needed $2.37 per bushel of corn to cover the direct costs and $5.12 per bushel for soybeans.  Comparing these to the trend figures for 2016 of $3.91 for corn and $9.23 for soybeans, this represent a 65% increase for corn costs and 80% increase for soybean costs while prices are the same or flat.  Farmers setting up marketing plans are interested in the last row where corn is projected at $4.20 per bushel after government and insurance payments and $10.30 for soybeans.

With current 2016 prices well below these levels, farmers are forced to look for ways to make $3.50 corn and $8.50 soybean prices work.   Also listed on the table are the major input costs.  Rents are the top input cost accounting for over 41% soybeans and 26% for corn in the trend 2016 columns at $210 per acre.  There should be pressure on rental rates to decrease in 2016, but there will need to be some tough negotiations.  Landlords with increasing property taxes have been behind the curve increasing rental rates during the record prices and now are trying to play catch up at a time when budgets do not support current rental rates and other input costs.

For corn the next major input cost is fertilizer and there is a very direct relationship between potential yield and fertilizer, so not a good area for farmers to cut.  Seed cost is the next highest and there is a small decrease in seed costs for 2016 from dealers, but again it will be hard to lower these costs further without affecting yields.  The 2014 are the most recent actual numbers available but farmers should use their 2015 costs when looking for areas to cut costs.

Depreciation is one item that can be trimmed, but does quickly change as a farmer’s equipment size usually matches their farm size. I am sure farmers will be looking at all costs and trying to lower them somehow.

Farmers will need crunch the numbers to see where the costs will be and then what prices are needed to cover these costs and start a marketing plan.  It would be nice if farmers could generate the positive incomes of 2007 compared to projected losses in 2016. 

Friday, October 9, 2015

Disappearing Profits in 2015 and 2016

By David Bau, Extension Educator

Average 2016 corn and soybean budgets for cash rented farmland look unprofitable at projected input costs and current market prices available.  National net farm income was estimated at $124 billion in 2013, $91.1 billion in 2014 and current forecast is $58.3 billion in 2015 down 36 percent from 2014.  In Southern Minnesota, corn and soybean are the main crops and the average cash prices in Worthington for 2013 were $6.04 for corn and $13.99 for soybeans. For 2014 the average cash corn price was $3.85 and $12.25 for soybeans.  In 2015 through September, the average cash corn price is $3.52 for corn and $9.32 for soybeans.

This declining trend in corn and bean prices and increasing input cost have put the farmers in a tight situation. Using an average rent of $210 per acre in the 2015 budgets, input costs would total $849 for corn and $516 for soybeans.  Even with good yields averaging 200 bushels per acre for corn at current cash price of $3.50, including a farm bill payment of $60 per acre, farmers would have an $89 loss per acre. Using an average yield of 55 bushels per acre for soybeans at price of $8.50, and a $35 farm bill payment, farmers would have a loss of $13.50 per acre.

These figures do not include a crop insurance payment due to the good yields predicted in Minnesota, or any labor charge for the farmer. Current 2016 forward contract cash prices are $3.63 for corn and $8.30 for soybeans in Worthington. If input costs and commodity prices remain the same in 2016, similar losses will occur.  So you can see it is not poor yield or high input cost that is causing the disappearance of profits, but the decline that has occurred in prices.

Selling 180 bushels of corn, receiving the average price each year, would have generated $1,087.20 in revenue in 2013, $693 in 2014 and $633.60 in 2015, a decline of over $453 in revenue per corn acre in two years.  Selling 50 bushels of soybeans per acre at the average prices would have generated $699.50 in revenue in 2013, $612.50 in 2014 and $466 in 2015, a decline of over $233 in revenue per soybean acre in two years.

Rents are the major input cost for soybeans and corn accounting for 44½ percent and 28½ percent respectively. There should be pressure on rental rates to decrease in 2016, but there will need to be some tough negotiations.  Landlords with increasing property taxes have been behind the curve increasing rental rates during the record prices and now are trying to play catch up at a time when budgets do not support current rental rates and other input costs.

A Flexible rental agreement may be the best option for 2016 where both landlord and farmer share the price risk, if prices improve so does the rental payment, choose a base payment at current prices and then share 50-50, 40-60, or 1/3-2/3, whatever is the extra revenue gained at prices above the starting point prices.  You can also have a yield component if yields are better than average in 2016.

Farmers need to determine their 2016 crop budgets and crunch the numbers to see where the costs will be and then what prices are needed to cover these costs and start a marketing plan.  Farmers must be prepared to market their crops if the opportunity becomes available to sell the crops when target prices are achieved in the coming year.

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