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Extension > Agricultural Business Management News > Disappearing Profits in 2015 and 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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