Where Can Farmers Lower Cost?

By David Bau

Average 2017 corn and soybean budgets for cash rented farmland look unprofitable at projected input costs and current market prices available.  In 2007, prices were similar to what is available in 2017 for corn and soybeans. The table below compares actual figures for 2007 and 2015 from the FINBIN database for southern Minnesota and compares them to trends for 2017.



The figures for 2017 indicate losses on both corn and soybeans. Even with crop insurance and government payments and corn lost money in 2015. Examine the fourth line from the bottom: Total direct expense per bushel you will see that in 2007 Southern Minnesota farmers needed $2.37 per bushel of corn to cover the direct costs and $5.12 per bushel for soybeans. Comparing these to the trend figures for 2017 of $3.43 for corn and $8.16 for soybeans, this represent a 45% increase for corn costs and 59% increase for soybean costs while prices are the same or flat.  Farmers setting up marketing plans are interested in the last row where corn is projected at $4.16 per bushel after government and insurance payments and $10.18 for soybeans.

With current 2017 prices well below these levels, farmers are forced to look for ways to make $3.25 corn and $9.00 soybean prices work.   Also listed on the table are the major input costs.  Rents are the top input cost accounting for 41% soybeans and 27% for corn in the trend 2017 columns at $194 per acre.  There should be pressure on rental rates to decrease in 2017, but there will need to be some tough negotiations.  Landlords with increasing property taxes have been behind the curve increasing rental rates during the record prices and now are trying to play catch up at a time when budgets do not support current rental rates and other input costs.

For corn the next major input cost is fertilizer.  Fertilizer prices have declined significantly in 2017. There is a very direct relationship between potential yield and fertilizer, so not a good area for farmers to cut on amount.  Seed cost is the next highest and there may be a small decrease in seed costs for 2017 from dealers, but again it will be hard to lower these costs further without affecting yields.  The 2015 are the most recent actual numbers available but farmers should use their 2016 costs when looking for areas to cut costs.

Depreciation is one item that can be trimmed, but does not quickly change as a farmer’s equipment size usually matches their farm size. I am sure farmers will be looking at all costs and trying to lower them somehow.

Farmers will need 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.  It would be nice if farmers could generate the positive incomes of 2007 compared to projected losses in 2017.

Source:umn.edu