can you pay $300/acre land rent with $4 corn? november 18-20, 2013
DESCRIPTION
Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013. Greg Halich 859-257-8841 [email protected]. 311 CE Barnhart Dept . Agricultural Economics University of Kentucky Lexington, KY 40546. Can You Pay $300/acre Land Rent with $4 Corn? . Commodity Prices. - PowerPoint PPT PresentationTRANSCRIPT
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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
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Can You Pay $300/acre Land Rent
with $4 Corn?
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Agricultural Economics
Commodity Prices
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Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. High
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Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. $4.50 $11.50 High
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Agricultural Economics
Corn and Soybean PricesNew Crop 2014
Price Scenario: Corn Soybeans Low Current Est. $4.50 $11.50 High $5.50 $13.75
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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
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Agricultural Economics
Fertilizer Prices
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Agricultural Economics
Budget Assumptions
Base ScenarioFertilizer: $/ton $/unit Anhydrous (N) $680 $.41 DAP (P2O5) $510 $.39 Potash (K2O) $475 $.40
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Agricultural Economics
Budget AssumptionsLand Rent:• Not included in the budgets.
→ Subtract from net revenue.
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Agricultural Economics
Budget AssumptionsMachinery and Labor:
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Agricultural Economics
Budget AssumptionsMachinery and Labor: • Fuel, Repairs, Deprecation, Labor.
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Agricultural Economics
Budget AssumptionsMachinery and Labor: • Fuel, Repairs, Deprecation, Labor.• Based on Custom Machinery Rates.
→ Increased 25%.
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Agricultural Economics
Budget AssumptionsMachinery and Labor: • Fuel, Repairs, Deprecation, Labor.• Based on Custom Machinery Rates.
→ Increased 25%.• Adjusted to $3.50 fuel price.• Trucking – 15 miles (one-way).
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Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
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Agricultural Economics
Three Soil Productivity Levels
Corn Yield
Soybean Yield
Corn/Soybean Yield Ratio
125 bu 39.0 bu 3.2
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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
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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 3.3175 bu 51.5 bu 3.4
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Projected 2014 Costs (per acre)Inputs: Corn (150 bu) Soybeans (45.5 bu) Seed Nitrogen
P, K, and Lime PesticidesTotal InputsMachinery and LaborOther: Drying Grain Crop Insurance
Misc. Land Rent Operating Interest Total OtherTotal CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 InputsMachinery and LaborOther: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total OtherTotal CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 LaborOther: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total OtherTotal CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 OtherTotal CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 OtherTotal CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 CostsNote: 15 mile one-way trucking included in machinery and labor costs.
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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 RentNote: 15 mile one-way trucking included in machinery and labor costs.
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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.
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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.
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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.
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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.
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Agricultural Economics
Following Costs Increase with Yield:
• Fertilizer• Machinery and Labor• Drying (corn)
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Agricultural Economics
Critical Budget AssumptionsSummary
40
1. Does not include land rent.
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Agricultural Economics
Critical Budget AssumptionsSummary
41
1. Does not include land rent.2. Includes “non-cash” costs (e.g.
depreciation/overhead, unpaid labor).
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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.
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain RevenueDirect Gov’t PaymentTotal RevenueTotal Costs (Less Land Rent)Gross Return (Less Land Rent)
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain Revenue $675 $523Direct Gov’t PaymentTotal RevenueTotal Costs (Less Land Rent)Gross Return (Less Land Rent)
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain Revenue $675 $523Direct Gov’t Payment $10 $10Total RevenueTotal Costs (Less Land Rent)Gross Return (Less Land Rent)
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain Revenue $675 $523Direct Gov’t Payment $10 $10Total Revenue $685 $533Total Costs (Less Land Rent)Gross Return (Less Land Rent)
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain Revenue $675 $523Direct Gov’t Payment $10 $10Total Revenue $685 $533Total Costs (Less Land Rent) $429 $252Gross Return (Less Land Rent)
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Agricultural Economics
Summary Revenues/Costs (per acre)
Yield and Price: Corn SoybeansExpected Yield (rotation) 150 45.5Expected Price $4.50 $11.50Grain Revenue $675 $523Direct Gov’t Payment $10 $10Total Revenue $685 $533Total Costs (Less Land Rent) $429 $252Gross Return (Less Land Rent) $256 $281
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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.
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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.
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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.
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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.
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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.
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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.
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Agricultural Economics
What about $4/bu Corn?
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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 cornNote: Subtract land rent to get Net Return.
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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 $275Note: Subtract land rent to get Net Return.
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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 $275Note: Subtract land rent to get Net Return.
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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 cornNote: Subtract land rent to get Net Return.
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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 $202Note: Subtract land rent to get Net Return.
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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 $202Note: Subtract land rent to get Net Return.
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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.
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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.
![Page 64: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/64.jpg)
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.
![Page 65: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/65.jpg)
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.
![Page 66: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/66.jpg)
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.
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Agricultural Economics
Fertilizer Price Effects (decrease in profit)
Increasing Fertilizer Prices $100/ton(per acre)
Corn
ChangeSoybean Change
RotationChange
125 bu corn $17 $6 $12150 bu corn $19 $7 $13175 bu corn $21 $8 $15Note: Increased costs due to $100/ton increase in N, P, and K prices.
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Agricultural Economics
Putting Input Prices in ContextFertilizer:• Corn price drop necessary to equal
$100/ton fertilizer price decrease?
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Agricultural Economics
Putting Input Prices in ContextFertilizer:• Corn price drop necessary to equal
$100/ton fertilizer price decrease?→ $.10/bu
![Page 70: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/70.jpg)
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?
![Page 71: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/71.jpg)
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.
![Page 72: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/72.jpg)
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.
![Page 73: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/73.jpg)
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.
![Page 74: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/74.jpg)
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.
![Page 75: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/75.jpg)
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.
![Page 76: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/76.jpg)
Agricultural Economics
Cash Rent Projection
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Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years.
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Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years. → Highest rents will drop.
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Agricultural Economics
Cash Rent Projection
Likely to stabilize next few years. → Highest rents will drop. → Undervalued rents will increase.
![Page 80: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/80.jpg)
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?
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Agricultural Economics
Profitability Summary
![Page 82: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/82.jpg)
Agricultural Economics
Profitability Summary
• Profits will be squeezed.
![Page 83: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/83.jpg)
Agricultural Economics
Profitability Summary
• Profits will be squeezed.→ Lots of excess machinery capacity.
![Page 84: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/84.jpg)
Agricultural Economics
Profitability Summary
• Profits will be squeezed.→ Lots of excess machinery capacity.• Is this the “New Normal”?
![Page 85: Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013](https://reader036.vdocuments.us/reader036/viewer/2022062501/568164e7550346895dd7519b/html5/thumbnails/85.jpg)
Agricultural Economics
Profitability Summary
• Profits will be squeezed.→ Lots of excess machinery capacity.• Is this the “New Normal”?• Ethanol Mandate?