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/