By Robert Tigner
As the 2018 harvest finishes across Nebraska, it is time to think about next year. This week Nebraska Extension is releasing 78 crop budgets to help farmers plan financially for the coming growing season. This article will use the 2019 budgets to project returns for the 2019 corn, soybean, wheat, and grain sorghum crops. The analysis will not include farm commodity program payments because Congress has yet to extend or pass a new farm bill. This article will demonstrate a three-step projection method (Yield Estimate, Commodity Price Projection, Direct Cost and Overhead) to illustrate how growers can do their own crop income projection.
Step 1. Yield Estimate
The first step in the analysis is to decide what yield to use in the financial projections. The best approximation for future yield is to use either trend-line yield for a state or Actual Production History (APH) for a farm. For Nebraska, the average yield would be: corn, 185 bushels per acre, soybeans, 58 bu/ac, wheat, 47 bu/ac, and grain sorghum (milo), 92 bu/ac, based on the past four-year state average yields. National Agricultural Statistics Service (NASS) reports data to calculate the state average yield. A Nebraska Extension CropWatch article charted the Nebraska trend-line yields using NASS data. Of course, many irrigated corn yields will be in excess of 200 bu/ac so the calculations will use average and 240 bu/ac for irrigated corn. In this case, APH can be used to project yield.
Step 2. Commodity Price Projection
The second step in projecting revenue is to decide on price to calculate revenue. Gross revenue (yield times price) is just as difficult to project accurately, but we can use prices now offered for 2019 crop sales. The revenue projection will use prices offered for forward contract sales at harvest 2019 (see Table 1).
Table 1: 2019 Harvest Prices at Red Cloud Cooperative Producers Inc., October 30, 2019
| Corn | $3.55 | October 2019 |
| Soybean | $7.70 | October 2019 |
| Grain Sorghum | $3.35 | October 2019 |
| Wheat | $4.60 | July 2019 |
| CROP | PRICE | SALE MONTH |
|---|
Step 3. Direct Cost and Overhead
Table 2 below calculates projected return to land and management using several 2019 Nebraska Extension Budgets, the third step. The return to land and management calculation is the residual income available to pay for use of land and to pay the operator who produces the crop.
Table 2. 2019 Projected Crop Income
| CATEGORIES, INCOME, EXPENSE | CORN,
EASTERN IRR,
NO-TILL | CORN, EASTERN,
NON-IRR,
NO-TILL | CORN, SOUTHWESTERN,
DRYLAND,
NO-TILL | SOYBEANS,
IRR | GRAIN
SORGHUM | WHEAT |
|---|
| YIELD (BU/ACRE) | 240 | 185 | 110 | 60 | 105 | 55 |
|---|
| PRICE PER BU | $3.55 | $3.55 | $3.55 | $7.70 | $3.35 | $4.60 |
|---|
| GROSS CROP REVENUE | $852.00 | $656.75 | $390.50 | $462.00 | $351.75 | $253.00 |
|---|
| SEED | $110.00 | $75.00 | $62.00 | $56.00 | $12.40 | $27.00 |
|---|
| FERTILIZER | $115.00 | $74.00 | $63.00 | $0.00 | $46.00 | $54.00 |
|---|
| CROP PROTECTION | $75.00 | $52.00 | $53.00 | $33.00 | $62.00 | $11.00 |
|---|
| HAULING | $26.00 | $21.00 | $14.00 | $7.00 | $11.00 | $7.00 |
|---|
| STORAGE | $29.00 | $22.00 | $15.00 | $8.00 | $13.00 | $7.00 |
|---|
| DRYING | $14.00 | $10.00 | $0.00 | $0.00 | $0.00 | $0.00 |
|---|
| SCOUTING | $9.00 | $9.00 | $7.00 | $7.00 | $7.00 | $7.00 |
|---|
| CROP INSURANCE | $25.00 | $24.00 | $17.00 | $25.00 | $9.00 | $11.00 |
|---|
| TOTAL DIRECT COSTS | $403.00 | $287.00 | $231.00 | $136.00 | $160.40 | $124.00 |
|---|
| MACH LEASE/HIRE | $10.00 | $19.00 | $7.00 | $30.00 | $2.00 | — |
|---|
| MACHINE REPAIRS | $27.75 | $20.00 | $18.00 | $36.00 | $22.00 | $11.00 |
|---|
| FUEL & OIL | $55.00 | $8.00 | $7.00 | $58.00 | $13.00 | $6.00 |
|---|
| MACHINERY DEPRECIATION | $40.00 | $30.00 | $42.00 | $39.00 | $39.00 | $33.00 |
|---|
| LABOR | $20.00 | $20.00 | $10.00 | $18.00 | $17.00 | $6.00 |
|---|
| TOTAL POWER COST | $152.75 | $97.00 | $84.00 | $181.00 | $93.00 | $56.00 |
|---|
| TOTAL OVERHEAD* | $102.00 | $96.00 | $62.00 | $102.00 | $35.00 | $42.00 |
|---|
| TOTAL PRODUCTION COSTS | $657.75 | $480.00 | $377.00 | $419.00 | $288.40 | $222.00 |
|---|
| RETURN TO OPERATOR & LAND | $194.25 | $176.75 | $13.50 | $43.00 | $63.35 | $31.00 |
|---|
* Includes property taxes
|
The calculations in Table 2 are best estimates taking into account current price offers and a Nebraska Extension survey of crop production costs. Projected returns range from $13.50 per acre for dryland corn to $194.55 per acre for irrigated corn. But, what if 2019 harvest prices end up nearer 2018 harvest prices? Table 3 calculates returns to land and management in that case.
Table 3. 2019 Projected Crop Income, Based on Low Harvest Prices
| CATEGORIES, INCOME, EXPENSE | CORN, IRR,
NO-TILL | CORN, EASTERN,
NON-IRR,
NO-TILL | CORN,
SOUTHWESTERN
DRYLAND, NO-TILL | SOYBEANS,
IRR | GRAIN
SORGHUM | WHEAT |
|---|
| YIELD PER ACRE | 240 | 185 | 110 | 60 | 105 | 55 |
|---|
| PRICE PER BU | $3.20 | $3.20 | $3.20 | $7.40 | $3.02 | $4.42 |
|---|
| GROSS CROP REVENUE | $768.00 | $592.00 | $352.00 | $444.00 | $317.1 | $243.1 |
|---|
| SEED | $110.00 | $75.00 | $62.00 | $56.00 | $12.40 | $27.00 |
|---|
| FERTILIZER | $115.00 | $74.00 | $63.00 | $0.00 | $46.00 | $54.00 |
|---|
| CROP PROTECTION | $75.00 | $52.00 | $53.00 | $33.00 | $62.00 | $11.00 |
|---|
| HAULING | $26.00 | $21.00 | $14.00 | $7.00 | $11.00 | $7.00 |
|---|
| STORAGE | $29.00 | $22.00 | $15.00 | $8.00 | $13.00 | $7.00 |
|---|
| DRYING | $14.00 | $10.00 | $0.00 | $0.00 | $0.00 | $0.00 |
|---|
| SCOUTING | $9.00 | $9.00 | $7.00 | $7.00 | $7.00 | $7.00 |
|---|
| CROP INSURANCE | $25.00 | $24.00 | $17.00 | $25.00 | $9.00 | $11.00 |
|---|
| TOTAL DIRECT COSTS | $403.00 | $287.0 | $231.00 | $136.00 | $160.40 | $124.00 |
|---|
| MACHINE LEASE/HIRE | $10.00 | $19.00 | $7.00 | $30.00 | $2.00 | |
|---|
| MACHINE REPAIRS | $27.75 | $20.00 | $18.00 | $36.00 | $22.00 | $11.00 |
|---|
| FUEL & OIL | $55.00 | $8.00 | $7.00 | $58.00 | $13.00 | $6.00 |
|---|
| MACHINERY DEPRECIATION | $40.00 | $30.00 | $42.00 | $39.00 | $39.00 | $33.00 |
|---|
| LABOR | $20.00 | $20.00 | $10.00 | $18.00 | $17.00 | $6.00 |
|---|
| TOTAL POWER COST | $152.75 | $97.00 | $84.00 | $181.00 | $93.00 | $56.00 |
|---|
| TOTAL OVERHEAD* | $102.00 | $96.00 | $62.00 | $102.00 | $35.00 | $42.00 |
|---|
| TOTAL PRODUCTION COSTS | $657.75 | $480.00 | $377.00 | $419.00 | $288.40 | $222.00 |
|---|
| RETURN TO OPERATOR & LAND | $110.25 | $112.00 | -$25.00 | $25.00 | $28.70 | $21.10 |
|---|
* Includes property taxes
|
Some crops in Table 3 show very low returns to land ownership and to the farmer producing the crop. In the case of dryland corn, it shows negative returns. The Return to Operator and Land calculation is after property taxes are paid. This calculation then is the amount left to pay for land ownership and the operator’s labor and management. News reports indicate fertilizer and fuel costs are likely to be higher in 2019 compared to 2018. Fuel prices began to rise in summer 2018 and fertilizer price increases followed. Seed corn prices are the same or slightly lower than 2018 with herbicide and insecticide prices a mixed bag. The input survey conducted while preparing the 2019 Nebraska Extension crop production budgets confirmed these observations, lending credence to this analysis.
Summary
The take-away from this analysis is three-fold. Risk management is an important factor for 2019 income. Risk management would incorporate crop insurance and a marketing plan that captures prices now offered on at least a significant portion of 2019 crops.
A second part of the risk management plan requires locking in crop production costs so you can estimate 2019 crop costs. Working with and communicating with landlords about the financial picture is a best practice for farmers. Tenants may want to change rental contracts to a flexible lease. Landlords will appreciate the desire to move to that type of lease if they have a full understanding of the financial projections.
Third, these projections are the first step in cash flow planning for 2019. Cash flow planning allows farmers to communicate with their lender before the 2019 crop year and helps with lending and production decisions.