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Wednesday, August 22, 2012

Crop Budgets for 2013 Production May Be A Pleasant Surprise


As your combine yield monitor displays numbers never before seen, you wonder how you will be able to pay for putting in a crop next year, particularly if you don’t have crop insurance or have a high deductible.  When you get to the point of putting pencil to paper to calculate 2013 crop budgets the cost may not be as much as you anticipated.  The only problem is, can you rely on today’s estimates when it comes time in estimating your profit margin next year.


There are a lot of uncertainties in trying to cobble together a budget for next year’s crop production.  You will have to do it soon as seed companies pressure you for an order and you book anhydrous ammonia for fall application.  But University of Illinois farm management specialist Gary Schnitkey has presented some numbers that seemingly allow more profitability than one would have imagined.  But to his credit, Schnitkey raises questions about the certainty of revenue based on his estimated market prices for corn and beans in the coming year.


Starting from the top, Schnitkey uses trend line yields for corn and soybeans, which will be 195 and 57 bushels respectively in 2013.  Trend line yields were used for 2012 budgets and did not turn out that way, but using those estimates provides a necessary starting point.  The value of the crop is one of the bigger question marks, but Schnitkey suggests using $6 for corn and $12.50 for soybeans based on prices that are currently projected by the futures market for harvest prices next year.  August 23rd futures prices for both corn and soybeans were about 9% above that level.  However, Schnitkey says that projects gross revenue of $1170 and $713 per acre for the two crops.


A big issue that farmers will have to resolve on their own is cash rent and other land cost, and Schnitkey does not address land cost, so his budget is based on a return to labor, management,  and land.


Direct costs for corn are lead with fertilizer, and Schnitkey reports a $10 reduction in fertilizer cost from 2012, with $155 per acre estimated.  Seed cost is estimated at $100 per acre, up $2 from last year, pesticide is at $52, also up $2.  Some farmers may find his seed estimate conservative, based on expected higher prices due to drought-reduced supplies.  But if farmers are forced to plant lesser desirable hybrids, then seed costs may not be as high.  Storage and drying costs remain at $27, and crop insurance is steady at $28 per acre.  That puts total direct costs at $362 which is a $6 cut from 2012.

Power costs are $92 per acre, which is up only $2 from the current year, and that is attributed to machinery depreciation.  Other overhead costs are labor, insurance, building costs and those are all steady at $62 per acre.


For corn, his non-land cost is $516 for corn production, and is allocated for a return to land of $302 and a $90 return to management and labor.  That leaves a $262 net return, which has to cover cash rent or other land costs.


For soybeans, Schnitkey is budgeting a $177 direct cost to cover crop inputs, which is down $1 from 2012 with the primary reduction from fertilizer, although seed and pesticide costs will be slightly higher.  For soybeans his power costs are $83 per acre, up $3 from last year, due to machinery depreciation.  Overhead costs remain at $48 from last year; and that puts total non-land cots at $308, up only $2 from 2012.  The soybean return to operator and land is $405, which leaves only $18 for a net return that needs to be applied against cash rent or other land costs.  


Based on returns to land, which are $45 less for corn and $79 less for soybeans, compared to 2012, Schnitkey says, “These fundamentals do not suggest that increases in cash rents should occur in 2013.”  His numbers do promote corn production over soybeans for 2013 because of the $244 per acre additional return, and he says that is large compared to historical numbers that have averaged about $75 per year for the past 6 years.  However, he says, “Whether these relative prices persist into 2013 is an open question, depending on demand conditions and harvests in both North and South America.  Whether these relative prices influence 2013 planting decisions also is an open question.”



Posted by Stu Ellis on 08/22 at 10:43 PM | Permalink


You make some great points here about how to organize spending. There is a lot to consider especially after this year. Thanks Stu!

Posted by: chris at August 27, 2012 1:01PM

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