Crop Production Costs and Crop Production Costs and Rotation - PDF document

Crop Production Costs and Crop Production Costs and Rotation Decisions Rotation Decisions Gary Schnitkey schnitke@uiuc.edu University of I llinois 2 0 0 7 I llinois Farm Econom ic Sum m it The Profitability of I llinois Agriculture: W here to from Here? Topics 1. Cost increases 2. Impacts on per acre break-even revenues 3. Corn versus soybean decisions 4. Controlling costs with more corn 2 2 0 0 7 I llinois Farm Econom ic Sum m it 1

Per Acre Non-land Costs, Central Illinois High-Productivity Farmland 400 Corn ($123 increase) 350 300 $ per acre 250 Soybeans ($54 increase) 200 150 100 00 01 02 03 04 05 06 07P 08P Year 3 2 0 0 7 I llinois Farm Econom ic Sum m it Variability Across Farms � Reporting averages Fertilizer Expenses, 2006 Greater than $80 � Large variability $70 to $80 across farms $60 to $70 $50 to $60 $40 to $50 � More variability in $30 to $40 2008 because of fertilizer price $20 to $30 variability Less than $20 0% 5% 10% 15% 20% 25% 30% Percent 4 2 0 0 7 I llinois Farm Econom ic Sum m it 2

Items Contributing to Increase Per Acre Cost Differences from 2003 to 2008P, Central Illinois, High Productivity Farmland Soybeans Soybean Co Corn rn Fe Fertilizer rtilizer $58 $58 Fertilizer Fe rtilizer $18 $18 Seed Seed 19 19 Seed Seed 11 11 Crop insurance Crop insurance 13 Fuel and oil Fuel and oil 6 Stor St orage age 7 Crop insurance Crop insurance 5 Fuel and oil Fuel and oil 7 Interest 4 Inte rest 4 In Inte terest rest 4 Mach de Mach depreciation 4 preciation 4 Mach de Mach depreciation 4 preciation 4 Ot Other 6 Other Ot 11 Total Total $54 54 Total Tot $123 123 5 2 0 0 7 I llinois Farm Econom ic Sum m it Non-land Costs and Revenue Breakevens Break-Even Revenues to Cove Break- Even Revenues to Cover Non-L r Non-Land Costs, nd Costs, Central Illinois, High-P Central Illinois, High-Pro roductivity Farmland ductivity Farmland Corn Corn Soybeans Soybeans Expected y Expect ed yiel eld 186 bu. 186 bu. 54 bu. 54 bu. Direct cos Direct costs $252 $252 $114 $114 Power costs wer costs 62 55 Ove Overhead costs ad costs 50 46 46 Non-land costs Non-land costs $364 $364 $215 $215 Break Break-ev even revenue * en revenue * $1.99 $1.99 $3.98 $3.98 * Non-land costs divi * Non-land co sts divided by ded by expect expected y ed yield eld 6 2 0 0 7 I llinois Farm Econom ic Sum m it 3

Break-Even Revenues to Cover Non-Land Costs Corn Soybeans Exp. Break- Exp. Break- Yield Even Yield Even Northern 178 $2.13 51 $4.47 Central (high-prod) 186 $1.99 54 $3.98 Central (low-prod) 168 $2.18 50 $4.30 Southern 148 $2.50 47 $4.77 7 2 0 0 7 I llinois Farm Econom ic Sum m it Non-land Costs and Revenue Breakevens Break-Even Revenues to Cover Total Costs, Break-Even Revenues to Cover Total Costs, Central Illinois, High-P Central Illinois, High-Pro roductivity Farmland ductivity Farmland Corn Corn Soybeans Soybeans Expect Expected y ed yiel eld 186 bu. 186 bu. 54 bu. 54 bu. Direct cos Direct costs $252 $252 $114 $114 Power costs wer costs 62 55 Ove Overhead costs ad costs 50 46 46 Non-land costs Non-land costs $364 $364 $215 $215 Land cost Land cost 190 190 190 190 Tot Total costs l costs $554 $554 $405 $405 Break Break-ev even revenue * en revenue * $2.98 $2.98 $7.50 $7.50 * Total costs divi * Total costs divided by ded by exp expected cted yield yield 8 2 0 0 7 I llinois Farm Econom ic Sum m it 4

Break-Even Revenues Per Bushel Break-Even Per Bushel Break-Even Revenues fo Revenues for Di r Diffe ffering ring Per Acre Cash Rent Levels Per Acre Cash Rent Levels Cash Cash Rent Rent Co Corn rn Soybea ybeans ns 175 175 $2.91 $2.91 $7.22 $7.22 200 200 3.05 3.05 7.69 7.69 225 225 3.18 3.18 8.15 8.15 250 250 3.32 3.32 8.61 8.61 275 275 3.45 3.45 9.07 9.07 300 300 3.59 3.59 9.54 9.54 325 325 3.72 3.72 10.00 10.00 350 350 3.86 3.86 10.46 10.46 9 2 0 0 7 I llinois Farm Econom ic Sum m it Break-even to Actual Prices U.S. Corn Prices, 1960 to 2006. 4.00 3.50 3.00 60 - 72 2.50 Average $ per Bu. $1.17 2.00 ? 1.50 73 - 05 1.00 Average 0.50 $2.36 0.00 60 65 70 75 80 85 90 95 00 05 10F Year 10 2 0 0 7 I llinois Farm Econom ic Sum m it 5

Acres in Crops Crop Reporting 2006 2007 District Acres Acres Change (,000) acres Northwest 1,857 2,089 12% Northeast 1,045 1,245 19% West 1,069 1,234 15% Central 1,619 1,904 18% East 1,596 1,855 16% West Southwest 1,612 1,838 14% East Southeast 1,490 1,721 16% Southwest 484 627 30% Southeast 528 687 30% Illinois Total 11,300 13,200 17% U.S. 78,327 93,616 20% 11 2 0 0 7 I llinois Farm Econom ic Sum m it Corn Versus Soybean Acres Corn Minus Soybean Returns on Illinois FBFM Grain Farms, 2004 - 2008P Year 120 04 100 05 06 80 07P $ per Acre 60 08P 40 20 0 -20 North Central - High Central - Low South -40 Prod. Land Prod. Land Region 12 2 0 0 7 I llinois Farm Econom ic Sum m it 6

Corn Versus Soybeans Corn-after Corn-after -Soybeans -Corn Soybeans Panel A. Northern Illinois Yield ($ per acre) 183 173 51 Price ($ per bushel) $3.75 $3.75 $9.20 Total revenue (per acre) $715 $678 $498 Non-land costs (per acre) 373 387 228 Operator and land return $342 $291 $270 Panel B. Central Illinois (high-productivity farmland) Yield ($ per acre) 191 181 54 Price ($ per bushel) $3.80 $3.80 $9.25 Total revenue (per acre) $753 $715 $527 Non-land costs (per acre) 357 371 215 Operator and land return $396 $344 $312 ` 13 2 0 0 7 I llinois Farm Econom ic Sum m it Corn Versus Soybeans Corn-after Corn-after -Soybeans -Corn Soybeans Panel C. Central Illinois (low-productivity farmland) Yield ($ per acre) 173 163 52 Price ($ per bushel) $3.80 $3.80 $9.25 Total revenue (per acre) $682 $644 $506 Non-land costs (per acre) 359 373 215 Operator and land return $323 $271 $291 Panel D. Southern Illinois Yield ($ per acre) 148 138 47 Price ($ per bushel) $3.85 $3.85 $9.30 Total revenue (per acre) $589 $550 $456 Non-land costs (per acre) 363 377 224 Operator and land return $226 $173 $232 14 2 0 0 7 I llinois Farm Econom ic Sum m it 7

Price Variability Table 2. Break-Even Soybean Prices for Different Corn-After-Corn to Have Same Return as Soybeans. 1 Central Illinois Corn Northern High Low Southern Price Illinois Productivity Productivity Illinois $ per Bushel 3.00 7.06 7.17 6.38 5.55 3.25 7.91 8.00 7.17 6.29 3.50 8.75 8.84 7.95 7.02 3.75 9.60 9.68 8.74 7.76 4.00 10.45 10.52 9.52 8.49 4.25 11.30 11.36 10.30 9.22 4.50 12.15 12.19 11.09 9.96 1 Break-even soybean prices calculated using yields and costs shown in Table 1. 15 2 0 0 7 I llinois Farm Econom ic Sum m it Planting more corn � Budgets assume costs don’t change with increases in corn acres (e.g., power costs do not increase with corn acre increases) � Much concern about controlling yield drags in corn-after-corn � More of a concern may be controlling costs as increase corn acres 16 2 0 0 7 I llinois Farm Econom ic Sum m it 8

Operator and Land Returns by Percent Acres in Corn � Average Operator and Land Returns for FBFM farms that: � Are in Northern and Central Illinois � Receive most of their income from grain operations � Have limited other farm activities � Average returns by “Percent Acres in Corn” 17 2 0 0 7 I llinois Farm Econom ic Sum m it Farm Level Results Operator and Farmland Returns by Percent of Land in Corn Percent acres Year in corn 2003 2004 2005 2006 40.1% to 45% 170 182 142 182 45.1% to 50% 171 187 165 199 50.1% to 55% 167 197 158 212 55.1% to 60% 170 200 150 208 60.1% to 65% 177 198 147 213 65.1% to 70% 169 194 150 216 70.1% to 75% 178 209 151 214 More than 75% 162 201 140 190 18 2 0 0 7 I llinois Farm Econom ic Sum m it 9

2006 Scatter Graph Operator and Land Return by Percent of Land in Corn, 2006 400 300 200 $ per Acre 100 0 20% 30% 40% 50% 60% 70% 80% 90% 100% -100 -200 Percent in Corn 19 2 0 0 7 I llinois Farm Econom ic Sum m it Farm Level Results in 2006 Per Acre Costs and Yields Percent acres Costs Yields in corn: Power Non-land Corn Soybeans 40.1% to 45% 63 242 172 51 45.1% to 50% 63 250 174 53 50.1% to 55% 62 255 176 54 55.1% to 60% 65 269 179 54 60.1% to 65% 71 278 179 54 65.1% to 70% 78 301 184 55 70.1% to 75% 84 305 179 57 More than 75% 95 341 177 56 20 2 0 0 7 I llinois Farm Econom ic Sum m it 10

Summary � Costs increase cause break-evens to be at new levels � Corn looks more profitable in 2008 on high- productivity farmland � Cost control is key for more corn-after-corn 21 2 0 0 7 I llinois Farm Econom ic Sum m it 11