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?