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Corn breakevens slithering in

Jeff Caldwell 11/06/2013 @ 7:53am Multimedia Editor for Agriculture.com and Successful Farming magazine.

It's a couple of words that rattle anyone's nerves when it comes to raising and marketing a crop: Below breakeven.

That's where things may sit for corn prices "over the next several years" in the heart of the Corn Belt if current projections reach fruition, one ag economist says. Yet there remains some wiggle room in the equation yielding break-even prices, and that room comprises things like nonland input costs and cash land rents.

"For farmland that is cash rented near average rent levels, break-even corn prices have increased from $1.67 per bushel in 2004 to the mid-$4.00 range in 2013 and 2014. Mid-$4.00 break-even prices will cause losses when corn prices are in the in the low-$4 range or below," says University of Illinois Extension ag economist Gary Schnitkey. "There are good possibilities of prices being below break-even prices over the next several years."

Break down the numbers for the key variables for the average northern Illinois farm, one Schnitkey uses as an example. According to current data from Illinois Farm Business Farm Management, nonland costs are expected to be around $565 an acre, and cash rent is likely to be around $264 an acre. In the absence of government payments, like those through federal crop insurance (which is unlikely in northern Illinois moving into next year), that adds up to an $829-per-acre break-even point. Raise more than that per acre, you're in good shape. Slip below that, and you're in the red.

"A direct payment is not projected for 2014. Break-even prices in the drought year of 2012 would have been much higher had crop insurance proceeds not been included in break-even calculations," Schnitkey adds. "Break-even prices are calculated given a cash rent situation with cash rent levels near averages. Farms with above-average cash rent levels will have higher break-even levels, and vice versa. Break-even prices will differ for owned and share-rent farmland."

How much could the cost structure change, and what's that mean for marketing options? Schnitkey says a quick look at the futures market right now shows contracts 20 cents or so below break-even, while the cash market is still hovering at or slightly above that level. So, it's going to take a sharp eye for buying things like fertilizer.

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economy 11/06/2013 @ 9:09pm Jeff, What is this going to do to the economy? I have already had two comments from local businesses about how they can tell farmers are tightening their belts again.

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Jeff Caldwell Re: Re: economy 11/14/2013 @ 7:11am Hello, Robert! Thanks for your comments here. What were they seeing farmers doing? Holding back on big-ticket purchases, or smaller things?

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