Managing Tight Crop Margins In 2014

By Steven D. Johnson, Farm Management Specialist, Iowa State University Extension

Profit margins for corn and soybean production in 2014 will be much tighter. Both final yields and grain marketing will be critical. For the past several years, with high grain prices and favorable crop insurance revenue protection levels, profitable margins were a given. Since last summer, however, crop prices have dropped significantly while cost of production remains relatively high. Cash corn prices have dropped by 35% from the 2012 average cash price and soybeans are down by more than 10%.

Iowa State University Extension is set to release its annual Estimated Costs of Crop Production in Iowa – 2014 to help farmers figure their potential crop costs per acre and per bushel for various crops, rotations and tillage practices. Estimates for 2014 corn and soybean production are not expected to change significantly from 2013. Profit margins will be tight and final yields and marketing strategies will be critical.

Fertilizer costs are expected to drop approximately 20% in 2014 but will be offset by slightly higher seed, crop protection, energy and cash rental rates. Estimated costs to produce a bushel of corn are expected to be down about 1%, while cost to produce soybeans is up 2%. Thus, cost estimates for most inputs in 2014 should remain fairly flat, except for fertilizer.

Land costs for 2014 aren’t expected to drop significantly, however, flexible cash leases (adjusted for yield, price and costs) are beginning to replace some of the high fixed cash rent leases.

2014 Iowa Crop Cost Estimates

The “2014 Crop Cost Estimates” reflects current ISU cost of production estimates for three different crop rotations, conventional tillage practices and medium yields.

While much is still not known about the 2014 growing season, now is the time to plan ahead. Farmers can’t predict with a high degree of accuracy their final yields or highest price available for next year’s crops. However, the decisions they make regarding input buying and revenue risk management such as crop insurance coverage are determined long before spring planting.

Remember, its net revenue—yield times price minus total costs—that will determine if farmers made money on their 2014 crops. Plugging into your budget the harvest prices available next fall as currently reflected in new crop futures shows a potential for some very tight crop profit margins. When making crop estimates, assume average yield expectations.

Land costs for 2014 aren’t expected to drop significantly, however, flexible cash leases (adjusted for yield, price and costs) are beginning to replace some of the high fixed cash rent leases statewide.
Farmers can compare their potential costs by crop rotation, tillage practice and yield expectations. ISU Extension’s release of 2014 crop cost estimates for producing corn and soybeans are made according to crop rotation and displayed as three different medium categories: soybeans following corn with an average yield of 50 bushels per acre; corn following soybeans with an average yield of 180 bushels per acre; and corn following corn with an average yield of 165 bushels per acre.

Looking back at 2013, making pre-harvest sales during spring and summer months proved profitable again. Use of revenue protection crop insurance provided a peace of mind in making those cash sales when futures were above the 2013 spring projected prices for crop insurance of $5.65 per bushel for corn and $12.87 per bushel for soybeans. Those early sales generated fall and winter cash flow and prevented storing a large percent of your crops unpriced. Guessing about potential widespread weather problems and the highest corn and soybean prices proved futile once again for most farmers.

Compare by crop rotation

Compare your potential profit margins by crop rotation. ISU Extension & Outreach’s release of 2014 crop cost estimates for producing corn and soybeans are made according to crop rotation and displayed as three different categories: soybeans following corn with an average yield of 50 bushels per acre; corn following soybeans with an average yield of 180 bushels per acre; and corn following corn with an average yield of 165 bushels per acre.

Johnson uses the accompanying chart “2014 Crop Cost Estimates” showing current ISU cost of production estimates for different crop rotations. Keep in mind land costs are removed to determine a return to land and management. Conventional tillage is used to make rotational comparisons. The average cash price forecast for the 2014-15 marketing year is $4.50 per bushel corn and $11 per bushel soybeans. This assumes a slight drop in U.S. planted corn acres in 2014, an increase in soybean acres, and normal production weather in both the southern and northern hemispheres.

Source : iastate.edu