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Do crop breakevens matter to you?

While it's recently reported that corn break-even levels are closer to current price ranges, there's a little more breathing room between the break-even prices for soybeans and where the market is currently trading for that commodity.

While futures prices are still around $13 a bushel, cash grain bids are closer to Gary Schnitkey's $10.70- to $10.82-per-bushel projected break-even price for soybeans for the 2014 marketing year. The University of Illinois Extension economist says the last decade has seen the critical point between loss and gain climb from $5 to the projected $10.70 for the 2013-2014 marketing year. The numbers, based on Illinois Farm Business Management data, are calculated using nonland costs and cash rents on the input side, minus government payments and crop insurance, Schnitkey says.

"For northern Illinois in 2014, nonland costs are projected at $326 per acre, average cash rent at $264 per acre, and there are no government payments or crop insurance proceeds projected for 2014. This gives $590 of crop revenue ($326 nonland costs + $264 cash rent) that must be obtained to break even in 2014. Given a 56-bushel-per-acre expected yield, the break-even price is $10.54 per bushel ($590 crop revenue / 56 bushel yield)," he says. "Inclusion of government payments and crop insurance proceeds lowers break-even prices. In recent years, government program payments only include direct payments, which average $21 per acre in northern Illinois. A direct payment is not projected for 2014. Similarly, break-even prices are lowered by crop insurance proceeds. In particular, 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."

But, just as with his outlook for corn breakevens, Schnitkey is careful to hedge his bets when it comes to input costs, namely farmland.

"Further decreases in break-even prices are possible with cash rent decreases. However, cash rents tend to be sticky," he says. "This suggests that a protracted period of losses would have to occur before cash rents decline."

What does all this matter on the farm level? For some farmers, it's just a few numbers that rarely influence how a crop is raised, managed, and marketed.

"I'm going to be a radical and say that I don't know my break-even costs, and I don't worry very much about them. So, what is all the hubbub about knowing your break-even cost? When push comes to shove, I try to get the best price I can for my grain. If it is over the cost of production, great. I make money. If it is less than the cost of production, too bad, I lose money. I am not Ford Motor company.  I don't make fewer cars when sales are slow. I grow about the same amount of about the same crops," says Agriculture.com Marketing Talk veteran adviser Jim Meade / Iowa City. "Cost of production may affect whether I buy machinery, but I can't think of one time that cost of production has ever entered into my determination of making a sale. Making a sale has more to do with how much money I think I can get and cash flow desires."

Other farmers say they're more inclined to use break-even costs as a measuring stick for potential revenue, even as they pertain to marketing strategies and decisions.

"I run breakevens or cost-of-production reports at least twice a year and usually more. I usually run a rough one about now for next year, and then firm it up a bit after January 1. I will then adjust as necessary if actual expenses differ from projected," adds Marketing Talk veteran contributor IllinoisSteve. "I run one late summer after guesstimating yields and drying costs. I run a final one after everything is in the bin. Good grief! I run more of these in a year than I realized. Maybe too many. At any rate, yes, my marketing decisions are somewhat based on cost of production. To me it is an important and helpful thing to keep a handle on."

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