farmgate: Will Corn Or Soybeans Provide Greater Profitability Opportunity In 2009?
Cold winter days are more bearable if your computer and Internet connection are working, and you can make progress on 2009 crop budgets. Major changes in production costs have occurred since the first pencil calculation in September, and they may push breakeven prices lower than what you last calculated.
Early in the fall, the potential for profitability was bleak in 2009 because of production costs that exploded higher than commodity prices had climbed in early summer. Unfortunately, those production costs and commodity prices were headed in opposite directions faster than red ink could be poured onto the bottom line. Before the global economic melt down, University of Illinois farm management specialist Gary Schnitkey estimated prices at $1,000 per ton for anhydrous ammonia and DAP, $900 for a ton of Potash, $275 per unit on triple stack corn and $200 per unit for refuge corn.
During a recent series of presentations, Schnitkey estimated the non-land cost of production for corn in 2009 at $569 per acre, and for beans at $324 per acre. He says the aggregation of higher costs for fertilizer, seed, power, crop insurance, interest, and other costs hike corn production costs by $181 over 2008 and beans by $85 per acre.
But then the US and global economy began to crumble and oil prices dropped from $140+ per barrel to less than $40 per barrel, changing the costs of many farm inputs. Schnitkey says wholesale prices of anhydrous ammonia have dropped from $800+ to about $350 per ton, and wholesale DAP prices were over $1,000, but now are about $550.
Seed costs projected by Schnitkey in 2009 will be $110 per acre for corn and $53 for soybeans. However, he says it will be difficult to achieve USDA’s forecast of 90 million acres of corn in 2009 without better prospects for profitability in corn. The prospects have improved slightly following the economic collapse which saw a parallel decline in some production costs. Schnitkey recommends penciling in $600 per ton for anhydrous ammonia and potash, $800 per ton for DAP, $210 for triple stack corn, and $180 for refuge corn. That would put non-land corn production costs at $470, down from $569, and $296 for soybeans, down from $324 before the economic melt down.
If your cash rent is $200 and corn yield is 191 bushels, Schnitkey calculates a breakeven price at $3.50, more than 50¢ lower than before the meltdown. For soybeans yielding 54 bushels on land renting for $200 per acre, the breakeven price would be about $9.22, another 50¢ drop.
If your cash rent is in the $100 range on land yielding 151 bushels of corn, the breakeven price is about $3.71 per bushel. On similar land that produces 47 bushels of soybeans, the breakeven price is $8.29 per bushel.
So, will more corn or more beans be more profitable for 2009? Schnitkey says in the past four seasons, corn profitability has been greater than the average over the past eight seasons, except for lower quality soils. To calculate your prospects, and be conservative, Schnitkey says use production costs prior to the economic meltdown, and create a price chart based on Wednesday futures closes for Dec corn and Nov beans. Then deduct a 50¢ basis. Schnitkey says the results will show a declining value since mid-summer when prices reached their peak. For $100 cash rent land yielding 151 bushels of corn and 47 bushels of beans, the corn premium disappeared about Oct. 1. For $200 cash rent land producing 191 bushels of corn and 54 bushels of beans, the corn premium disappeared in late November. That indicates soybeans are a more profitable crop when using the higher production costs. If your production costs are closer to the post-meltdown prices, Schnitkey says there is still a premium for planting corn about $50 per acre on $200 cash rent land, beans have the preference by $29 dollars on $100 cash rent land.
The bottom line on any crop budget indicates a return to the operator and to the land. Using the post meltdown production costs, Schnitkey calculates that at $233 per acre on higher quality land, with $3.50 corn and $9.00 beans. On lower quality land, returns are $137 per acre. Adding $1 to crop prices adds about $100 per acre on the returns to operator and land.
Summary:
The economic meltdown has resulted in lower production costs being estimated for 2009 corn and soybean production, compared to earlier in the fall. Lower prices for fertilizer and seed have contributed to a greater potential for profitability, by reducing breakeven prices. Based on lower production costs, farmers with higher quality land may be able to pencil in a premium for corn, while lower quality land may have more profitability opportunity with soybean production.
Posted by Stu Ellis on December 23, 2008 12:15 AM to farmgate