How Do Farmers Survive A Year Without Profits?

By David Bau

Forward contract bids for 2015 corn and soybeans are $3.50 and under $9.00 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 for soybeans, which means if prices do not improve, many will have losses on 2015 crops. Losses started for many in 2013 when over half the corn producers lost money on corn production and twenty percent of soybean producers in the Southern Minnesota Adult Farm Management programs. On average they sold their 2013 corn for $4.45 and 2013 soybeans for $9.47 and the average breakeven prices were $4.78 for corn and $11.69 for soybeans.

The first thing many farmers have done is they saved the good time profits from prior years in their balance sheets. This will allow them to weather a poor or a no profit year in 2015. But what else can a farmer do?

On the income side, the new farm bill program is designed to help when prices are low and yields are poor depending on which program is used. This will help cover part of the potential losses with potential payments of $70 per base acre for corn and $45 per base acre on soybeans in 2015 average this across all planted will vary with amount of farmland that is covered by program crop base acres. If I use 75% of land is covered by base acres this would lower the payment across all planted acres to $52 for corn and $34 for soybeans and using yields of 175 for corn and 50 bushels per acre for corn, the breakeven price would be lowered by 30 cents and for soybeans 68 cents.

If using average 2015 breakeven prices of $4.75 for corn and $12.00 for soybeans, after farm bill projected revenue the breakeven is now $4.25 for corn and $11.38 for soybeans. A farmer can carry good coverage levels of crop insurance, with a revenue product that will protect them if either price or yields are down in 2015. They can also monitor the markets and market their crops if prices recover to levels that will allow them to make a profit.

Where can a farmer cut costs in 2015? The table below lists the input cost as percentage of direct costs with the exception of depreciation which is compared as percentage to direct and indirect costs. The top three for corn are land rent, fertilizer and seed accounting for 72.8% of direct cost. For soybeans the top two inputs are land rent and seed which account for 65.4%. Land costs are the largest cost for both commodities for the last ten years. Land rent costs accounted for 30% of the direct costs for corn and 48.5% for soybeans so you can see projected costs for rent for both budgets is about this 10 year average. The actual rental rent used in the budget was $250 well below what many Southern Minnesota rental agreements are at. If I used the 10 year average rent for corn would be $230 and $231 for soybeans.

Yields are the most important factor in determining the previously mentioned breakeven prices so the challenge for the farmer is to examine if there are any input costs that if cut will have the least impact on yield.

Source:umn.edu