Posted on October 9, 2014 at 8:00 AM by Iowa Corn
As corn and soybean prices continue to slide lower, it's causing more change in the outlook for ways to help get through the downturn, reaching as far as planting decisions for 2015.
The outlook for crop budgets released in June painted a picture that had costs exceeding crop input for corn and soybeans. But, prices have slid further and now the outlook's more bearish. It's got University of Illinois Extension ag economist Gary Schnitkey calling for specific steps to pare down budgets to make up for the lower forecast grain prices moving through fall.
"The major change has been a reduction in commodity prices. The June version had per bushel prices of $4.20 for corn, $10.50 for soybeans, and $5.50 for wheat. The September version of the budgets have prices of $3.80 for corn (a $.40 per bushel reduction from July budgets), $9.75 of soybeans (a $.75 per bushel reduction), and $5.00 for wheat (a $.50 reduction)," Schnitkey says in a university report. "The revised prices are based on prices on Chicago Mercantile Exchange (CME) futures prices during middle September 2014. Both corn and soybean prices have decreased since July. The price on the December 2015 corn contract decreased from around $4.30 in July 2014 to roughly $3.90 in mid-September 2014. The price of the September 2015 soybean contract decreased from $11.40 in early July to $9.70 in middle September. A factor causing these decreases are above average yields projected for harvest in 2014.
"These new prices result in very low returns, and indicate the need to conserve cash," he adds.
Overall, these prices mean returns, according to Schnitkey, will likely be:
$191 per acre for corn-after-soybeans
$138 per acre for corn-after-corn
$206 per acre for soybeans-after-corn
$225 per acre for soybeans-after-two-years-corn
So, what's the best way to "conserve cash?" The Illinois economist recommends a 4-pronged approach, starting with a general tightening of machinery purchases. And, if recent Association of Equipment Manufacturers (AEM) data are any indication, that's happening. The month of August saw an almost 38% decline in 4-wheel-drive tractor purchases and a 29% drop in combine purchases. Sales of smaller tractors (up to 100 horsepower) were still up for the month, but by only single digits.
See more from AEM's latest report
Fertilizer and seed costs also loom large for the coming crop year, and there could be room to shrink these costs in some cases. The same is true for cash land rents, even if it means giving up a few acres to trim the overall land portion of the crop budget for 2015.
"These two costs [fertilizer and seed] represent a large share of non-land costs. It seems prudent to evaluate whether fertilizer amounts can be lowered and whether lower priced hybrids and varieties should be planted," Schnitkey says. "If cash rents cannot be lowered, it may be prudent to no longer farm a piece of farmland. If return projections hold, significant losses in 2015 could cause the financial position of farms to deteriorate."
Finally, look at "other costs," including family living expenses, for ways to trim your farm's budget, he recommends.
Though this isn't the best news for farms on which income's already tight right now, an acreage shift may hold the key to preventing the downturn from hitting too hard. Based on current prices and projected input costs, soybeans may be a better choice for more acres in some situations.
"Current prices favor soybean planting over corn planting by a relatively large margin. Unless relative corn and soybean prices adjust, there could be large shift to more soybeans planting in 2015. Over the next several months, relative prices on futures exchanges likely will adjust as planting intentions become clearer," Schnitkey says. "Of course, returns projections could change. For example, it is highly likely that prices will differ from projections shown here. Supply and demand factors could change resulting in higher prices. Obviously, prices could be lower. Another large harvest in 2015 could result in lower prices than those shown in 2015 budgets.
"In perspective, the low prices projected for 2014 and 2015 may be below the long-run average, just as the prices from 2010 through 2013 were above the long-run average. Swings in prices have occurred in the past, and are likely to occur in the future," he adds. "These swings also cause swings in profitability. The long-run profitability of agriculture likely has not changed. Now a period of low returns likely is occurring, just as above average returns occurred from 2010 through 2013."Jeff Caldwell, Multimedia Editor for agriculture.com and Successful Farming magazine