Changing Costs of Crop Production
Crop Advantage SeriesOsceola, IA
Michael DuffyExtension Economist
January 15, 2009
Outline
• Background• 2009 estimates• Distribution of costs• Discussion
Returns to Management for Farms in the Iowa Farm Business Association
-$70,000
-$20,000
$30,000
$80,000
$130,000
$180,000
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
*
High Third Low Third Average
Corn Total Economic Cost Per Bushel, 2007Iowa Farm Business Association
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
< 100 100 - 400 401 - 800 801 - 1200 1201-1500 > 1500
Number of Row Crop Acres
Do
llars
Pe
r B
ush
el
Total Economic Cost per Bushel by Cost Group, 2007 Iowa Farm Business Association
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
High Third Middle Third Low Third Total Group
Soybean Total Economic Cost Per Bushel, 2007Iowa Farm Business Association
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
< 100 100 - 400 401 - 800 801 - 1200 1201-1500
>1500
Number of Row Crop Acres
Do
llars
Pe
r B
ush
el
Soybean Total Economic Cost Per Bushel, 2007Iowa Farm Business Association
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Low Third Mid Third High Third All Groups
Cost Group Category
Dol
lars
Per
Bus
hel
Iowa Average Corn Price, 2006 - 2008
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D
Iowa Average Soybean Price, 2006 to 2008
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D*
Costs for 2009
• Extremely hard to predict this year– Pre-paid vs. spot– Changes in world and domestic
demand – Changes due to financial crisis– New varieties and traits– Energy markets
Baseline assumptions
• Diesel $2.50• N $.68, P $.90 K $.72• LP $1.90• Corn seed; $250 Soybeans $45/50lb• Land; $178 $205 $232• Yields; continuous corn 125 145 165
–Rotated corn 140 160 180–Soybeans 45 50 55
2009 Base Estimated Costs of Production per Bushel
$5.40$5.10
$4.88$4.48 $4.32 $4.21
$10.04$9.81 $9.64
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Low Medium High
Cont Corn Corn/Sb Soybeans
Estimated Total Cost per Bushel
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
1999 2000 2001 2002 2003* 2004* 2005** 2006*** 2007*** 2008 2009
$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Corn after Corn Corn after Beans Soybeans
Estimated Total Costs of Production per Acre
$0
$100
$200
$300
$400
$500
$600
$700
$800
1999 2000 2001 2002 2003* 2004* 2005** 2006*** 2007*** 2008 2009
Corn after Corn Corn after Soybeans Soybeans
Corn Seed Costs per Acre
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Estimated Cost Actual Costs FBA
Fertilizer and Lime Costs per Acre
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Estimated costs Actual costs FBA
Machinery Costs per Acre for Corn
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Estimated costs Actual costs FBA
Soybean Seed Costs per Acre
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
ISU FBA
Soybean Herbicide Costs per Acre
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
ISU FBA
The Rise and Fall of Fertilizer Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Ammonia Prices
Source: http://www.fertilizerworks.com/html/market/TheMarket.pdf
Iowa Corn Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
$ pe
r B
ushe
l
Season-average Price Cost
Iowa Soybean Prices vs. Costs
Source: USDA-NASS and Duffy and Smith, http://www.extension.iastate.edu/agdm/crops/pdf/a1-21.pdf
0.00
2.00
4.00
6.00
8.00
10.00
12.00
$ pe
r B
ushe
l
Season-average Price Cost
Impact of Cost Changes
• $.50 increase in diesel adds $.02 to corn and $.06 to soybeans
• $50 increase in corn seed adds $.13
• $.25 increase in nitrogen adds $.32 and $.20 for low yield CC and RC, $.28 and $.17 for medium yield and $.24 and $.16 for high yield
Impact of Cost Changes
• A $25 change in rents leads to a $.20, $.17 and $.14 change for CC based on low, medium and high yield land.
• The change is $.18, $.15 and $.14 for rotated corn and $.55, $.50 and $.44 for soybeans.
Iowa Average Land Values
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Current Percentage Changes in Land Values, 7th Federal Reserve District
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
IL IN IA MI WI 7th District
3rd Q, 08 Oct to Oct
Percentage Increase in Iowa Land Values from March 2008 to September 2008, RLI
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
C EC NC NE NW SC SE SW WC State
Iowa Cash Rent per Acre Based on ISU Survey
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Average Rent to Value in Iowa
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Land Values and Seed, Chemical and Fertilizer Costs
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1970
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
La
nd
va
lue
s
$0
$50
$100
$150
$200
$250
$300
Se
ed
, c
he
mic
al
an
d f
ert
iliz
er
Land values Seed, chemicals and fertilizer
Percent Change from Previous Year for Seed, Chemicals and Fertilizer and Land Values
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Input costs Land costs
Conclusions• Input prices have risen dramatically
and will show increased volatility• Some signs world prices have
softened but not likely to be seen until current high priced stocks are used
• Take soil tests and only use what is necessary
• Remember nitrogen credits and apply what will be optimum given the circumstances
Conclusions• Evaluate seed and seeding rates
carefully• Try for flexible lease arrangements• Consider all the pest management
options available• Don’t simply cut back without carefully
evaluating the consequences; you have to spend money to make money
• Consider all the risk management options available
Conclusions
• Know your costs of production • Make cuts and changes where they
will do you the most good• Follow a good marketing plan
Web sites
• Ag Decision Maker: www.extension.iastate.edu/agdm/
• My site:
www.econ.iastate.edu/faculty/duffy/