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Crop inputs vs. profit margins

STEVE JOHNSON 09/02/2011 @ 12:29pm Farm Management Specialist with ISU Extension housed in Polk County, Iowa. Areas of expertise include crop marketing, grain contracts, government farm programs, crop insurance, farmland leasing and other crop risk management strategies. Reach Steve by e-mail at sdjohns@iastate.edu.

While most producers are concerned with their shrinking 2011 corn crop potential, keeping their focus on profits margin for 2012 is advised. Trying to pick the highest price and sell all your crops seems futile.

Besides, it’s net revenue; yield times prices minus costs that will determine if you made money from your corn and soybean crops.

Making consistent pre-harvest sales as the market moves toward high prices should work again as a strategy for the 2012 crop. Along with  managing the rising cost of inputs to produce the crop.

2012 Profit Margins

ISU Extension economist Mike Duffy released early estimates for 2012 crop costs in July to assist farm operators and landlords in cash rent negotiations. Iowa has a September 1 farm lease termination deadline to make changes for the following crop year, much earlier than most states.

Duffy’s expectations are that non-land costs for 2012 will increase approximately 15% over those realized in 2011; led by higher fertilizer, fuel, seed and crop protection costs.

ISU cost estimates are made by crop rotation and displayed as four different categories; land, crop inputs, machinery and labor. The bar chart accompanying this newsletter indicates three different yield expectations: 160 bu./A, 180 bu./A and 200 bu./A. Costs are then assigned based on these yields. These particular cost estimates are for a corn-following-soybean rotation for conventional tillage. Note that increasing yield expectations also carry a higher cash rent equivalent – values that range from $222 to $296 per acre.

Using the middle column of this bar chart (180 bu./A corn yield) would have a total cost estimated at $796 per acre or $4.42 per bushel. Note that the cash rent equivalent used was $258 per acre and serves to help estimate the cost for producing 180 bu./A corn in 2012. The marketplace will set the Iowa cash rental rates on rented ground.

Most cash rental rates for 2012 are still being established between landlords and tenants. An August report from a survey of professional farm managers in Iowa, Minnesota and Illinois found that $400 cash rents will be commonplace in 2012 on highly productive land. Increases of 10% to 20% were thought to be common, depending on when the lease terms were established.

Many farmers own their land or have multi-year land rental agreements. Many have already “locked in” fertilizer for application this fall at prices much lower than those available today. Farmers who have the land and fertilizer “locked in” have already established two of the most important and variable largest crop production costs for 2012. These two prices added together for land and fertilizer likely represent nearly 50% of their total crop production costs.

The ability to now “lock in” a cash sales price on a portion of the 2012 crop has the potential for a positive margin. With December 2012 corn futures trading over $6.65 per bushel in late August, a harvest cash price of $6 per bushel is available at most many elevators, processors sand river terminals in the Corn Belt. A comparison of crop costs, crop revenue and margin per acre can now be made.

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