Tuesday, August 17, 2010
Will 2011 Be Profitable For Your Farm Operation?
Crops across the very southern stretches of the Cornbelt are maturing, and corn is probably already being harvested in Arkansas, Tennessee and Kentucky, and maybe the southern reaches of Illinois and Missouri. With harvest in the central Cornbelt focused on Labor Day, many farmers will soon realize they need to finalize plans for the 2011 crop, because fall fieldwork and fertilizer application may be less than two months away. In preparation for market watching, calculate your budgets and compute a breakeven price for 2011.Crop production costs for 2011 may be the driver for your cropping pattern, how much you are rotating, and where wheat may fit into your cropping plan. And a return to operator and farmland will help you determine how well your family will be fed, after you determine how much cash rent you can afford to pay. These numbers are contributed by University of Illinois Farm Management Specialist Gary Schnitkey in his periodic newsletter.
With the recent volatility in the wheat market, and the fact that many wheat acres were unplanted last fall, many Cornbelt farmers with small grain drills may be looking to limber them up again soon, but is that an activity that pays in cash or pays in good feelings? Schnitkey’s evaluation of lighter soils with medium productivity indicates that wheat acreage will increase as a result of the recent price movements upward. However, he says it may take a double crop with beans after wheat to generate sufficient revenue. Using market prices of $3.75 for corn, $9.50 for beans, and $5.00 for wheat, the double crop revenue he calculates would be $28 more than corn after beans, and should generate about $202 per acre. But he says in past years with potentially good double crop revenue, the final returns can be both sides of an initial estimate due to yield variability. Over the past 8 years, double crop wheat and beans generated revenue that ranged from $63 below corn to $58 above corn.
In higher productivity soils, Schnitkey projects returns to operator and farmland from $296 to $322 per acre, depending upon geography. $322 per acre represents the profit that the operator can capture along with the cash rent he can afford to pay. The higher the cash rent that comes out of the $322, the lower the amount left over for family living expenses. The $296 return represents corn that is $84 more profitable than soybeans, which is more than the historical average for most of the decade. The $322 return represents corn that is $64 more profitable than soybeans, and is above the $36 average for most of the decade. Schnitkey urges you to keep in mind that commodity prices can vary widely, and when they do, the relationships change, and that can shift profitability very significantly.
The prices used by Schnitkey for his crop budgets are based on futures prices for fall 2011 delivery. While they may be lower than futures prices currently posted, they suggest prices in the upper part of the forecast price range and may also suggest the need for hedging to lock in better prices. And he is estimating corn trend yields at 2 bushels above 2010 levels, along with half bushel increments for both beans and wheat.
Input costs for 2011 should be nudged upward from 2010 inputs costs. There will be modest increase for seed, but 2011 fertilizer and fuel should be about the same level as summer 2010. However cash rents, which should not justifiably increase from 2010, may well increase based on landowner demands. And when computing your potential profit after deducting production costs from gross revenue, the cash rent has to come out before one can determine whether he was operating in the red or the black. By computing crop budgets for the coming year at this early date on the calendar, it will allow many farmers to open rent negotiations with a landlord in a timely manner.
Summary:
Returns to operator and land for 2011 are expected to be above those of 2009 but below those of 2007 and 2008. While that may be low, returns were shaping up to be much lower before recent upward price moves. Input costs will be about the same as 2010, or slightly higher, but cash rents will have to be carefully calculated or some producers will send money to a land owner that was needed for family living expenses. Yields will have a large impact on revenue, and price variability could change cropping patterns before either spring planting or fall wheat planting.
Posted by Stu Ellis on 08/17 at 01:48 AM | Permalink