If your fieldwork is practically finished and your daily focus has shifted from the tractor seat to the desk, you probably have been thinking quite a bit about crop budgets and your plans for 2011. How much investment will it take to put a crop in the ground? Will next year look like it may be profitable, or will some changes have to be made to insure profitability? We need to work through the numbers.
“Crop costs will be up in 2011.” There is little doubt left with that statement, which starts the production cost portion of Purdue’s 2011 Outlook. Crop costs will be up in the coming year, after dropping for the 2010 crop. Crop budgets show production costs for corn up 5%, soybeans up 2% and wheat up 8% compared to the 2010 cost of production.
Fertilizer. Costs have declined since the fall of 2008, particular nitrogen and phosphorous. For fall application, USDA cost estimates are $535-675 for anhydrous ammonia, $485-580 for DAP and potash at $420-550. That would put fertilizer costs for corn at $105-135 depending on several factors. Fertilizer pricing is difficult to manage because supply and demand factors are not always parallel to other commodities, say Purdue economists. However, many fertilizer costs have a relation to the cost of energy.
Seed. A significant portion of seed costs stem from technology costs charged by seed companies, and the percent of biotech corn acreage is approaching the 90% level where biotech soybeans have been for a number of years. Per-acre seed prices for 2011 are expected to be slightly higher after all of the discounts and incentives are applied.
Crop Protection. The costs of herbicides, insecticides and fungicides have been relatively stable. The cost of glyphosate went up in 2009, and retreated in 2010. Some of the newer chemistry will be priced higher, but the entire crop protection chemical price list should be changed little from 2010.
Energy. Fuel costs will be up as demand climbs in coming months with the slow recovery of the economy. Crude oil will be up about 6% along with diesel prices. Unleaded gas prices at the retail level will be up an estimated 7%.
Machinery. Iron costs have continued to rise. While sales of small tractors have been down because of the slow construction industry, sales of large tractors and combines were not as strong in the past year as they were earlier.
Variable production costs in 2011 will be nearly $4/bu. for corn, $9.50 for soybeans and $6 for wheat according to the Purdue economists, who also added cash rent, machinery depreciation and family living expenses to those. Market prices above those levels will provide a profit, or return to labor and management.
So what should you produce in the coming year? The Purdue economists calculated returns in the area of $300 each for corn, soybeans and wheat, on average land and using early September market prices. Those calculations will have to be redone for your land costs, and using more current market pricing. The farm management specialists seem to strongly urge wheat to be part of your crop mix, whether it is double cropped with soybeans, or shares acreage with corn and soybeans. They say the market is bidding for acres for all three, unlike 2009, when wheat was not in the picture. They anticipate more wheat acres and fewer soybean acres in 2011.
Summary
Production costs will be up slightly for 2011, with higher costs for seed and fuel, and slightly higher prices for fertilizer. Current market prices are well above breakeven levels for corn, wheat and soybeans. All three crops are expected to show profitability in 2011, and the market is currently bidding for corn and wheat acres, particularly, at the cost of soybean acres.