Thursday, March 24, 2011

Corn and Soybean Profitability 2011

Corn and Soybean Projected Profitability 2011
March 22, 2011

Greg Halich
Department of Agricultural Economics
University of Kentucky
859-257-8841
Greg.Halich@uky.edu

Corn and Soybean New Crop
Price Estimates for 2011
(Based on CME 3/22/11 Closing)
Scenario:
Corn
Soybeans
   Low
$4.75
$10.75
   Baseline
$5.75
$13.00
   High
$6.75
$15.25

Input w/Greatest Impact on Profit?
Fertilizer Cost.
Let’s look at fertilizer prices.

Fertilizer Prices:
Spiked summer/fall 2010.
Where will they end up?
Retail Fertilizer Prices:
DAP                ↑ $170/ton since July
Anhydrous      ↑ $240/ton since July
Potash             ↑ $90/ton since Sept.
Base Scenario
Fertilizer:
$/ton
$/unit
   Anhydrous (N)
$790
$0.48
   DAP (P2O5)
$680
$0.55
   Potash (K2O)
$590
$0.49
Budget Assumptions - Fertilizer Quantity (per acre)
150 bu corn:
→ 160 pounds N
→   60 pounds P2O5
→   53 pounds K2O
45.5 bu soybeans:
→   32 pounds P2O5
→   50 pounds K2O
Land Rent:
Highly variable.
Not included in the budgets.
   → Subtract from net revenue.
Machinery and Labor:
Fuel, Repairs, Deprecation, Labor.
Based on Custom Machinery Rates.
→ Increased 25%.
Adjusted to $3.50 fuel price.
Trucking – 15 miles (one-way).
Other:
$2.25/gallon LP           3 pts removed corn.
Direct Payment           $20/acre.
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio  
125 bu  
39.0 bu
3.2
150 bu  
45.5 bu
3.3
175 bu  
51.5 bu
3.4
Projected 2011 Costs (per acre)
Inputs:
 Corn (150 bu)
Soybeans (45.5 bu)
   Seed
$76
$45
   Nitrogen
$77
$0
   P, K, and Lime
$69
$52
   Pesticides
$35
$25
Total Inputs
$257
$122
Machinery and Labor
$121
$85
Other:


   Drying Grain
$21
$0
   Crop Insurance
$20
$20
   Misc.
$20
$20
   Land Rent
Variable
Variable
   Operating Interest
$13
$7
 Total Other
$74
$47
Total Costs
$452 + Land Rent
$254 + Land Rent

Machinery and Labor Costs 150 bu/acre Corn (per acre)
Fuel and Lube
$24
Repairs
$28
Labor
$21
Depreciation/Overhead
$48
   Total
$121
Note: Assumes grain trucked directly to elevator and not stored.
Machinery and Labor Costs 45.5 bu/acre Soybeans
(per acre)
Fuel and Lube
$16
Repairs
$20
Labor
$16
Depreciation/Overhead
$33
   Total
$85
Note: Assumes grain trucked directly to elevator and not stored.
Following Costs Increase with Yield:
  1. Fertilizer
  2. Machinery and Labor
  3. Drying (corn)
  4. Interest
Costs Representative of Western KY:
Higher Costs in Rest of State:
Nitrogen                      $5-15/acre
Harvesting                   $0-15/acre      
Trucking                      $10-50/acre
Summary Revenues/Costs (per acre)


Yield and Price:
Corn
Soybeans
Expected Yield (rotation)
150
45.5
Future's Price Fall 2011
$5.75
$13.00
Grain Revenue
$863
$592
Direct Gov’t Payment
$20
$20
Total Revenue
$883
$612
Total Costs (Less Land Rent)
$452
$254
Gross Return (Less Land Rent)
$431
$358

Baseline Scenario (per acre)
$ 13.00 Soybeans (elevator)
$ 5.75 Corn (elevator)
$.48-N; $.55-P; $.49-K
 
Gross Return Corn
Gross Return Soybeans
Gross Return
Rotation
125 bu corn
$295
$295
$295
150 bu corn
$431
$357
$394
175 bu corn
$552
$428
$490
Note: Subtract land rent to get Net Return.
Baseline scenario looks pretty good.  But what if fertilizer or other input prices go up?
High Fertilizer Price Scenario
Fertilizer:
$/ton
$/unit
   Anhydrous (N)
$890
$0.54
   DAP (P2O5)
$780
$0.65
   Potash (K2O)
$690
$0.58
Fertilizer Price Effects
(decrease in profit)
Increasing Fertilizer Prices $100/ton
(per acre)
 
Corn Change
Soybean Change
Rotation Change
125 bu corn
$17
$6
$12
150 bu corn
$19
$7
$13
175 bu corn
$21
$8
$15
Note: Increased in Fertilizer Prices due to $100/ton increase in N, P, and K prices.
Putting Fertilizer Prices in Context:
  1. Corn price drop necessary to equal $100/ton fertilizer price increase?
            →  $.09/bu
  1. What is typical volatility in corn price in an avg. week?
            →  Far greater then $.09/bu
  1. Marketing crop far more important than input prices right now.
What if Commodity Prices Change?
How will this impact profit?
Let’s look at two scenarios
First is the “Home Run” scenario:
High Commodity Price Scenario
$15.25 Soybeans (elevator)
$ 6.75 Corn (elevator)
$.48-N; $.55-P; $.49-K
 
Gross Return Corn
Gross Return Soybeans
Gross Return
Rotation
125 bu corn
$434
$368
$401
150 bu corn
$581
$459
$520
175 bu corn
$727
$544
$636
Note: Subtract land rent to get Net Return.
Looks fantastic, but what if we get:
“Strikeout” scenario:
Low Commodity Price Scenario
$ 10.75 Soybeans (elevator)
$ 4.75 Corn (elevator)
$.48-N; $.55-P; $.49-K
 
Gross Return Corn
Gross Return Soybeans
Gross Return
Rotation
125 bu corn
$184
$193
$189
150 bu corn
$281
$254
$268
175 bu corn
$377
$312
$345
Note: Subtract land rent to get Net Return.
How much of your crop are you willing to gamble on this happening?

Commodity Price Outlook:
  1. Current price levels extremely profitable.
  2. Concentrate on marketing – not worrying about input prices.
  3. How long will prices stay this high?


→ 2011?
→ 2012 and 2013?

  1. What will happen if they drop?

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