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Profitable crop production issues for 2009

October 24, 2008
From WAYNE SCHOPER Brown/Nicollet Extension Educator

We have been in a two-year run of strong demand and excellent prices for corn and soybeans. Beginning around August of 2006 both corn and soybean prices took a strong upward surge and have been running strong ever since. In fact, on June 30th of 2008, we saw corn prices at an all-time record high of around $7.50 per bushel. This of course has changed rapidly over the past three months. Currently, corn is hanging around $3.56 per bushel, less than half of what it was at in early July. Of course we have to remember that we often see the yearly low for commodity prices during harvest time. Another good point, historically these are very good prices. Looking at the grain futures, we see that we can lock in $3.75 to $4.00 for 2009 production. Soybeans peaked at around $16 per bushel and are now selling for $8.32 per bushel with 2009 forward contracting available at $7.71 per bushel. But these prices are close to unprofitable levels for farmers in 2009.

Why are we making this kind of statement? Grain prices are continuing to fall, and input costs are increasing along with farm land rental rates. Farmers looking at the 2009 crop are facing input costs of $750 to $800 per acre for corn and $400 to $450 per acre for soybeans. These are both, far and away, all time record input costs. Including farm labor and subtracting government payments from those costs and a farmer's breakeven price is $4.80 to $5.30 per bushel depending on yields of 150 to 165 bushels per acre. For soybeans a breakeven price of $9.30 to $11.50 would be necessary with yields from 45 to 55 bushels per acre. Here is the dilemma setting up for 2009 with some rental rates approaching $200 per acre and higher, the breakeven prices necessary to pay those rental rates along with a profitable return to the farm operator are not possible in corn and very tight in soybeans at current 2009 prices.

Here's another thing to consider. A farmer's breakeven price using current input cost figures along with average historic yields of 160 for corn and 50 for soybeans would be $4.95 and $10.25 respectively. By committing to pay $200 per acre for land rent and allowing a $68 per acre labor charge along with today's current prices farmers would be locking in a $.45 loss per bushel on corn and $.25 loss per bushel of soybeans produced. This would translate into a total shortfall of $72 per acre for corn and $12.50 per acre for soybeans. What happens if we get another dry year and yields fall short of historic averages? Of course if yields are better, we will see some good profitability, but the whole point of this article is to be cognizant of where your costs are at and plan accordingly. One item that farmers have some control over is land rent. I have talked to a lot of tenants and landlords over the past year in an attempt to determine where we should be at for cash land rent rates for 2009 production. Right now, for good, well-drained farmland we should be somewhere around $170-$180 per acre land rent. This is a figure that is considered to be fair to both parties.

The Acceptable Price Worksheet is a document that a farmer can use to determine what prices will be needed for 2009 to cover input costs and family living expenses based on expected yields and prices. This worksheet was utilized to do the calculations for this article. It can be found at the Southwest Research and Outreach Center's website at: swroc.coafes.umn.edu. Once you are at the website click on Farm Business Management and you will find the spreadsheet. It is easy to use. If you have problems or would like some assistance e-mail me at schop002@umn.edu with your figures or questions.

 
 

 

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