can you pay $300/acre land rent with $4 corn? november 18-20, 2013 greg halich...
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Can You Pay $300/acre Land Rent
with $4 Corn? November 18-20, 2013
Greg [email protected]
311 CE Barnhart Dept. Agricultural EconomicsUniversity of KentuckyLexington, KY 40546
Can You Pay $300/acre Land Rent
with $4 Corn?
Agricultural Economics
Commodity Prices
Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. High
Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. $4.50 $11.50 High
Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. $4.50 $11.50 High $5.50 $13.75
Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low $3.50 $9.25 Current Est. $4.50 $11.50 High $5.50 $13.75
Agricultural Economics
Fertilizer Prices
Agricultural Economics
Budget Assumptions
Base Scenario
Fertilizer: $/ton $/unit Anhydrous (N) $680 $.41 DAP (P2O5) $510 $.39 Potash (K2O) $475 $.40
Agricultural Economics
Budget Assumptions
Land Rent:• Not included in the budgets.
→ Subtract from net revenue.
Agricultural Economics
Budget Assumptions
Machinery and Labor:
Agricultural Economics
Budget Assumptions
Machinery and Labor: • Fuel, Repairs, Deprecation, Labor.
Agricultural Economics
Budget Assumptions
Machinery and Labor: • Fuel, Repairs, Deprecation, Labor.• Based on Custom Machinery Rates.
→ Increased 25%.
Agricultural Economics
Budget Assumptions
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).
Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
125 bu 39.0 bu 3.2
Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
125 bu 39.0 bu 3.2150 bu 45.5 bu 3.3
Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
125 bu 39.0 bu 3.2150 bu 45.5 bu 3.3
175 bu 51.5 bu 3.4
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed
Nitrogen
P, K, and Lime
Pesticides
Total Inputs
Machinery and Labor
Other:
Drying Grain
Crop Insurance
Misc.
Land Rent
Operating Interest
Total Other
Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs
Machinery and Labor
Other:
Drying Grain
Crop Insurance
Misc.
Land Rent
Operating Interest
Total Other
Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs $241 $122Machinery and Labor
Other:
Drying Grain
Crop Insurance
Misc.
Land Rent
Operating Interest
Total Other
Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs $241 $122Machinery and Labor $121 $85Other: Drying Grain
Crop Insurance
Misc.
Land Rent
Operating Interest
Total Other
Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs $241 $122Machinery and Labor $121 $85Other: Drying Grain $19 $0 Crop Insurance $20 $20 Misc. $20 $20 Land Rent Variable Variable Operating Interest $8 $5 Total Other
Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs $241 $122Machinery and Labor $121 $85Other: Drying Grain $19 $0 Crop Insurance $20 $20 Misc. $20 $20 Land Rent Variable Variable Operating Interest $8 $5 Total Other $66 $45Total Costs
Note: 15 mile one-way trucking included in machinery and labor costs.
Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu)
Seed $76 $45 Nitrogen $66 $0 P, K, and Lime $54 $42 Pesticides $45 $35Total Inputs $241 $122Machinery and Labor $121 $85Other: Drying Grain $19 $0 Crop Insurance $20 $20 Misc. $20 $20 Land Rent Variable Variable Operating Interest $8 $5 Total Other $66 $45Total Costs $429 + Land Rent $252 + Land Rent
Note: 15 mile one-way trucking included in machinery and labor costs.
Machinery and Labor Costs
Corn
150 buSoybeans
45.5 bu
Fuel and Lube
Repairs
Labor
Depreciation/Overhead
Total
Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.
Machinery and Labor Costs
Corn
150 buSoybeans
45.5 bu
Fuel and Lube $24
Repairs $28
Labor $21
Depreciation/Overhead $48
Total $121
Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.
Machinery and Labor Costs
Corn
150 buSoybeans
45.5 bu
Fuel and Lube $24 $16
Repairs $28 $21
Labor $21 $16
Depreciation/Overhead $48 $33
Total $121 $85
Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.
Machinery and Labor Costs
Corn
150 buSoybeans
45.5 bu
Fuel and Lube $24 $16
Repairs $28 $21
Labor $21 $16
Depreciation/Overhead $48 $33
Total $121 $85
Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.
Agricultural Economics
Following Costs Increase with Yield:
• Fertilizer• Machinery and Labor• Drying (corn)
Agricultural Economics
Critical Budget AssumptionsSummary
40
1. Does not include land rent.
Agricultural Economics
Critical Budget AssumptionsSummary
41
1. Does not include land rent.2. Includes “non-cash” costs (e.g.
depreciation/overhead, unpaid labor).
Agricultural Economics
Critical Budget AssumptionsSummary
42
1. Does not include land rent.2. Includes “non-cash” costs (e.g.
depreciation/overhead, unpaid labor). 3. P and K application at removal rate.
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue
Direct Gov’t Payment
Total Revenue
Total Costs (Less Land Rent)
Gross Return (Less Land Rent)
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue $675 $523
Direct Gov’t Payment
Total Revenue
Total Costs (Less Land Rent)
Gross Return (Less Land Rent)
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue $675 $523
Direct Gov’t Payment $10 $10
Total Revenue
Total Costs (Less Land Rent)
Gross Return (Less Land Rent)
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue $675 $523
Direct Gov’t Payment $10 $10
Total Revenue $685 $533
Total Costs (Less Land Rent)
Gross Return (Less Land Rent)
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue $675 $523
Direct Gov’t Payment $10 $10
Total Revenue $685 $533
Total Costs (Less Land Rent) $429 $252
Gross Return (Less Land Rent)
Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn Soybeans
Expected Yield (rotation) 150 45.5
Expected Price $4.50 $11.50
Grain Revenue $675 $523
Direct Gov’t Payment $10 $10
Total Revenue $685 $533
Total Costs (Less Land Rent) $429 $252
Gross Return (Less Land Rent) $256 $281
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn $256 $281
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn $256 $281 $268
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $162 $213 $188
150 bu corn $256 $281 $268
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $162 $213 $188
150 bu corn $256 $281 $268
175 bu corn $350 $345 $347
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$11.50 Soybeans (elevator)
$4.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $162 $213 $188
150 bu corn $256 $281 $268
175 bu corn $350 $345 $347
Note: Subtract land rent to get Net Return.
Agricultural Economics
What about $4/bu Corn?
Agricultural Economics
Baseline Scenario 2014 (per acre)$10.38 Soybeans (elevator)
$4.00 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$10.38 Soybeans (elevator)
$4.00 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $100 $169 $134
150 bu corn $181 $230 $205
175 bu corn $263 $287 $275
Note: Subtract land rent to get Net Return.
Agricultural Economics
Baseline Scenario 2014 (per acre)$10.38 Soybeans (elevator)
$4.00 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $100 $169 $134
150 bu corn $181 $230 $205
175 bu corn $263 $287 $275
Note: Subtract land rent to get Net Return.
Agricultural Economics
Low Price Scenario 2014$9.25 Soybeans (elevator)
$3.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
Low Price Scenario 2014$9.25 Soybeans (elevator)
$3.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $37 $125 $81
150 bu corn $106 $178 $142
175 bu corn $175 $229 $202
Note: Subtract land rent to get Net Return.
Agricultural Economics
Low Price Scenario 2014$9.25 Soybeans (elevator)
$3.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $37 $125 $81
150 bu corn $106 $178 $142
175 bu corn $175 $229 $202
Note: Subtract land rent to get Net Return.
Agricultural Economics
High Price Scenario 2014$13.75 Soybeans (elevator)
$5.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
High Price Scenario 2014$13.75 Soybeans (elevator)
$5.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.
Agricultural Economics
High Price Scenario 2014$13.75 Soybeans (elevator)
$5.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $287 $301 $294
150 bu corn $406 $383 $395
175 bu corn $525 $460 $493
Note: Subtract land rent to get Net Return.
Agricultural Economics
High Price Scenario 2014$13.75 Soybeans (elevator)
$5.50 Corn (elevator)$.41-N; $.39-P; $.40-K
Gross Return
CornGross Return
SoybeansGross Return
Rotation
125 bu corn $287 $301 $294
150 bu corn $406 $383 $395
175 bu corn $525 $460 $493
Note: Subtract land rent to get Net Return.
Agricultural Economics
Fertilizer Price Effects (decrease in profit)
Increasing Fertilizer Prices $100/ton(per acre)
Corn
ChangeSoybean Change
RotationChange
125 bu corn $17 $6
150 bu corn $19 $7
175 bu corn $21 $8Note: Increased costs due to $100/ton increase in N, P, and K prices.
Agricultural Economics
Fertilizer Price Effects (decrease in profit)
Increasing Fertilizer Prices $100/ton(per acre)
Corn
ChangeSoybean Change
RotationChange
125 bu corn $17 $6 $12
150 bu corn $19 $7 $13
175 bu corn $21 $8 $15Note: Increased costs due to $100/ton increase in N, P, and K prices.
Agricultural Economics
Putting Input Prices in ContextFertilizer:• Corn price drop necessary to equal
$100/ton fertilizer price decrease?
Agricultural Economics
Putting Input Prices in ContextFertilizer:• Corn price drop necessary to equal
$100/ton fertilizer price decrease?
→ $.10/bu
Agricultural Economics
Putting Input Prices in ContextFertilizer:• Corn price drop necessary to equal
$100/ton fertilizer price decrease?
→ $.10/bu• How much has corn dropped last year?
Agricultural Economics
Various Commodity Price ScenariosGross Return (per acre)
$3.50 Corn$9.25 Beans
$4.00 Corn
$10.38 Beans
$4.50 Corn
$11.50 Beans
$5.00 Corn
$12.63 Beans
$5.50 Corn
$13.75 Beans
125 bu corn
150 bu corn
175 bu corn
Note: Subtract land rent to get Net Return.Labor, depreciation, overhead accounted for in costs.
Agricultural Economics
Various Commodity Price ScenariosGross Return (per acre)
$3.50 Corn$9.25 Beans
$4.00 Corn
$10.38 Beans
$4.50 Corn
$11.50 Beans
$5.00 Corn
$12.63 Beans
$5.50 Corn
$13.75 Beans
125 bu corn $81 $134 $188 $241 $294
150 bu corn $142 $205 $268 $332 $395
175 bu corn $202 $275 $347 $420 $493
Note: Subtract land rent to get Net Return.Labor, depreciation, overhead accounted for in costs.
Agricultural Economics
Various Commodity Price ScenariosGross Return (per acre)
$3.50 Corn$9.25 Beans
$4.00 Corn
$10.38 Beans
$4.50 Corn
$11.50 Beans
$5.00 Corn
$12.63 Beans
$5.50 Corn
$13.75 Beans
125 bu corn $81 $134 $188 $241 $294
150 bu corn $142 $205 $268 $332 $395
175 bu corn $202 $275 $347 $420 $493
Note: Subtract land rent to get Net Return.Labor, depreciation, overhead accounted for in costs.
Agricultural Economics
Various Commodity Price ScenariosGross Return (per acre)
$3.50 Corn$9.25 Beans
$4.00 Corn
$10.38 Beans
$4.50 Corn
$11.50 Beans
$5.00 Corn
$12.63 Beans
$5.50 Corn
$13.75 Beans
125 bu corn $81 $134 $188 $241 $294
150 bu corn $142 $205 $268 $332 $395
175 bu corn $202 $275 $347 $420 $493
Note: Subtract land rent to get Net Return.Labor, depreciation, overhead accounted for in costs.
Agricultural Economics
Various Commodity Price ScenariosGross Return (per acre)
$3.50 Corn$9.25 Beans
$4.00 Corn
$10.38 Beans
$4.50 Corn
$11.50 Beans
$5.00 Corn
$12.63 Beans
$5.50 Corn
$13.75 Beans
125 bu corn $81 $134 $188 $241 $294
150 bu corn $142 $205 $268 $332 $395
175 bu corn $202 $275 $347 $420 $493
Note: Subtract land rent to get Net Return.Labor, depreciation, overhead accounted for in costs.
Agricultural Economics
Cash Rent Projection
Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years.
Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years.
→ Highest rents will drop.
Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years.
→ Highest rents will drop.
→ Undervalued rents will increase.
Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years.
→ Highest rents will drop.
→ Undervalued rents will increase.
Wildcard: Are you willing to walk away?
Agricultural Economics
Profitability Summary
Agricultural Economics
Profitability Summary
• Profits will be squeezed.
Agricultural Economics
Profitability Summary
• Profits will be squeezed.
→ Lots of excess machinery capacity.
Agricultural Economics
Profitability Summary
• Profits will be squeezed.
→ Lots of excess machinery capacity.• Is this the “New Normal”?
Agricultural Economics
Profitability Summary
• Profits will be squeezed.
→ Lots of excess machinery capacity.• Is this the “New Normal”?• Ethanol Mandate?