Crunching Corn And Soybean Budgets 2016

By David Bau

The 2016 corn and soybean budgets look unprofitable at projected input costs and current market prices available.  For the past 10 years corn input costs have been increasing at rate of 9.8% per year while soybean input costs have been increasing at 8.5%.  From 2013 to 2014 input costs actually declined slightly from $755.44 in 2013 to $732.92 in 2014 for corn.  While soybeans increased from $451.38 in 2014 to $456.18 in 2014.  If you take 2014 figures and apply the 10 year trend of 9.8% increase for corn the 2014 numbers would increase to $804.75 in 2015 and $883.61 in 2016.   For soybeans applying 8.5% it would imply $494.95 in direct cost in 2015 and $537.03 in 2016.  Using 180 bushels corn and 50 bushels for soybeans, the price necessary to cover direct cost would be $4.91 for corn and $10.74 for soybeans.

Forward contract bids for 2016 corn and soybeans are under $3.60 and $8.80 respectively.  Farmer breakeven prices necessary to cover input costs and living expenses are in the $4.50 to $5.00 range for corn and $11.50 to $12.50 range for soybeans for 2016, which means if prices do not improve, many will have losses on 2016 crops.  This where the budget crunch comes, unless farmers are able to lower input costs or commodity prices improve dramatically to $5.00 for corn and $11.00 for soybeans.  In the 2013 and 2014 crops crop insurance provided an additional revenue source.  Crop insurance in 2015 might not pay anything if the harvest prices average close to spring prices of $4.15 for corn and $9.73 for soybeans with average to above average yields in Minnesota expected.

So what can a farmer do to try to lower their input costs?  The top input cost on both corn and soybean budget is land rents.  In 2014 FINBIN data land rent accounted for 33% of the direct input costs for corn and 52% of the direct input costs for soybeans.  In 2007 farmers in the FINBIN data base sold their corn for $3.68 and soybeans for $9.52 while land rent averaged $125.44 compared to 2014 average rent of $241.36, and the average price received were $3.93 for corn and $10.15 for soybeans.  For 2010, 2011, 2012 and 2013 average prices received were $4.68, $5.66, $6.50 and $4.45 for corn and $10.87, $11.40, $13.77 and $12.63 for soybeans.  Using price only rents should have been the highest in 2012 and have fallen since.  There is always a lag time or reaction time that takes place and that is why rents continued to in 2013 and fell only slightly in 2014.  This trend for declining rent should continue in 2015 and 2016, but will not decline as rapidly to reach the comparable prices of 2007 when average rents were $125.44.  Rental negotiations will be a struggle this year and will be a major deciding factor if a farmer will be able to coming close to breakeven in 2016.

Flexible rental agreement may be one options where both landlord and farmer share the price risk, if prices improve so does the rental payment, maybe you start with the 2007 rental rate as a base and current prices and then share 50-50 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.

The next highest input cost for corn in 2014 was fertilizer accounting for 22% of the costs.  If a farmer cuts this input they are also cutting yield and 60% of the yield is determined by fertility.  For Soybeans the second highest input cost is seed which accounted for 13% of the total input costs.  Seed was the third highest for corn and again cutting seed costs and seed treatment costs again will have a direct impact on yields.

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 to price the crops when the target prices are achieved.

Source:umn.edu