Your profitability for the 2009 corn and soybean crop may depend on when you purchased crop inputs, last fall or this spring. As we head toward the March 31 USDA Prospective Plantings report, many farmers, particularly with high cash rent, may find few opportunities to avoid a year filled with red ink on the balance sheet.
Whether you booked seed, fuel, anhydrous ammonia and other fertilizer last fall or this spring, the prospects for profitability are not assured. And even with a bounce in the market after the planting intentions report, there may not be enough pricing opportunity to offset the higher costs of production. That is the bottom line in the new crop budgets calculated by Gary Schnitkey, Farm Management Specialist at the University of Illinois.
His latest newsletter indicates that wholesale prices of fertilizer and energy have declined substantially, but whether they have declined as much at the retail level depends on when the dealer booked his inventory. Compared to fall prices of $1,000 per ton of anhydrous ammonia and DAP and $900 for potash, spring prices have fallen to $700 for anhydrous ammonia and $500 for DAP, with potash remaining at $900 per ton. Your price will depend on whether the dealer still has high priced inventory that is clogging the pipeline. Compared to fall fertilizer prices of $210/acre for corn and $92 for beans, Schnitkey says spring prices are closer to $151 for corn and $83 for beans.
Prices may or may not have come down for fertilizer at your supplier. In parts of the Corn Belt where a late harvest and early winter prevented typical fall application, prices may remain high. Similarly with seed; where Schnitkey says changes in acreage may soften some seed prices. And costs of fuel are considerably lower. But the key is whether there are funds remaining after input and cash rent costs are paid. Schnitkey says if spring input costs are used, non-land costs are $476 for corn and $293 for soybeans on highly productive land, which will demand a high cash rent. Based on $3.75 for corn the return to operator and land (cash rent has to be paid from this) is $222. Based on $8.30 for soybeans, the return to operator and land (cash rent has to be paid from this) is $153. In other words, if cash rent is $180, 180-bu. corn provides a $42/acre profit and a 51-bu. bean yield provides a $27/acre loss. Schnitkey says, “Higher yields or higher prices will increase returns. Conversely lower yield or lower prices will decrease returns.”
Many farmers may be locked into 2009 acreage as a result of fertilizer application, but others may have discretionary acreage and have not yet decided whether to plant corn or soybeans. Comparing per acre revenue, Schnitkey says if your inputs were priced last fall, corn may provide slim revenue or even a loss. Soybeans may provide more revenue, when soybean revenue potential is subtracted from corn revenue potential. “For planting decisions, a key will be whether farmers are facing fall pricing versus spring pricing. In some areas, input prices have not fallen as much as in other areas. In areas where input prices have not fallen, soybeans may be more profitable than corn.”
When comparing returns that are calculated by subtracting soybean revenue from corn revenue, Schnitkey says, “Corn-minus-soybean returns decreased dramatically from September 2008 until February 2009. Since February, futures price changes indicate increasing profits for corn relative to soybeans.”
As you get in the tractor seat this spring, one issue to consider is cash rent for 2010. While you may have recently settled that for the current year, it is never too early to make long term plans, and 2009 profitability will certainly impact cash rent levels for 2010. Schnitkey downward pressure on rents as a result of lower operator and farmland returns this year. And he says if corn and soybean prices remain where they are, rents will have to decline if your profitability is going to return to historical levels.
2009 profitability will depend in large part on input costs, and those will depend on whether suppliers are pricing fertilizer based on fall or spring wholesale prices. Spring prices have declined, but that may not benefit farmers in all areas of the Corn belt. In some cases, high input costs and moderate cash rents will not be covered by current corn and soybean prices. Farmers who have yet to decide on a cropping pattern for 2009 may be able to adjust acreage based on costs of inputs. Future cash rents will have to decline, if commodity prices remain at current levels.