Lower Costs Bring Cautious Optimism In 2017

Feb 16, 2017

By Alejandro Plastina

The cost of corn and soybean production in Iowa is expected to fall this year, according to a new study done by Iowa State University Extension and Outreach. The cost of corn production is expected to drop by 12 percent and soybean production will dip by 9 percent.

While dips in production costs are encouraging, the large drop is attributed more to math than it is to lower input prices.

“The study shows the driver behind these falling costs is the decline in both rent and machinery costs,” said Alejandro Plastina, assistant professor and extension economist with Iowa State University. “Both of those variables are affected by a one-time change in methodology.”

In May 2016, Ag Decision Maker published an article on farm machinery efficiency. The new information on increasingly efficient machinery was incorporated into the formula used to calculate input costs.

“Despite the projected increase in fuel prices, the total machinery costs ended up being lower than what we reported last year because of an improvement in the efficiency of those machines,” said Plastina. “There has also been a $30-35 gap between the cash rent projected for the estimated costs of production and the cash rents reported in our annual cash rent survey since January 2014. The 2017 production cost estimates now use cash rent totals that are expected to be within $8 of the reported averages in the 2017 cash rent survey.”

As for the results, the cost per bushel for mid-range yield corn is projected at $4.08 for corn following corn and $3.51 for corn following soybeans. Costs per bushel of soybeans are $9.66 for the herbicide tolerant variety and $9.60 for non-herbicide tolerant beans.

“A decline in the price of fertilizer and lime prices, machinery costs and land rents are expected to more than offset increases in herbicide costs,” said Plastina.

These lower costs of production, when combined with a well-executed marketing plan, will likely result in small but positive profit margins in certain rented acres of both corn and soybeans with cash rents similar to the ones used in the report, as well as owned land with reasonable fixed costs associated with ownership factors. Budgets are available for corn following soybeans, corn following corn, and soybeans following corn. They are also available for low-till, strip till, hay, oats and pasture acres.

“If current price projections are realized with the cost structure we are using, then there should be some positive margins this year,” Plastina said.

Source:iastate.edu

Video: Will the 2025 USDA December Crop Report Be a Market Mover/Surprise?

Historically, the USDA December crop report is a non-event or another dud report as the USDA reserves any final supply changes to the final report in January of the following year in this case 2026. But after the longest U.S. government shutdown in history at 43 days and no October crop report will they provide more data/surprise and make an exception?
Our China U.S. soybean purchase tracker is now at 26.6% or a total of 3.2 mmt but for traders it’s taking too long to unfold.
The final Stats Canada production report was bearish canola and wheat projection a record crop in both (it adds to the global glut of supplies) and bullish local corn and soybean prices in Ontario/Quebec thanks to a drought. It will not help the fund flow short-term, the USDA may need to offset it?
A U.S. Fed interest rate cut of another 25-basis point next Wednesday (probability 87.1%) could help fund flow and sentiment in stock and ag commodities into year end.
More inflows into Bitcoin this past week saw prices rebound back above 90,000 with support at 82,000 and resistance at 96,000.
A V-shaped bottom in cattle suggest the lows are in after Mexico reported another new world screwworm case. Lower weights, seasonal demand and higher U.S. beef select/choice values with a continued closure of the Mexican border to cattle will result in a resumption of higher cattle futures into yearend.
Australia is expected to produce its 3rd largest wheat crop ever at 36 mmt adding to the global glut of supplies.
Reports of ASF in hogs in Spain the largest pork exporter in Europe could see the U.S. win more pork export business long-term.
If the rains verify into next week of 3-5 inches for Brazil it would go a long way to fixing the dry regions from the last 2-months, but the European weather model has been wrong for the past 2-months!
Natural gas futures are surging to the 3rd price count as frigid hold temps set in.
CDN $ is also surging to end the week on a very resilient economy and better employment numbers suggesting no interest rate cuts next week.
Finally, the CFTC report showed funds were net buyers of soybeans but sellers of corn, canola and wheat. In real time the funds have gone back to selling as they take some profits.