Narrowing Farm Profit Margins: A Story of Rising Costs and Falling Prices - UNL CropWatch Aug 2013

Narrowing Farm Profit Margins: A Story of Rising Costs and Falling Prices - UNL CropWatch Aug 2013

August 23, 2013

Where’s Your Cost of Production?

It has been several years (since 2005-2006) since our averages have shown net losses per acre for corn or soybeans. Last year was lower due to the drought, especially with dryland crops, but in general watching your cost of production for the past six years has been a pretty easy task to ignore.

Since cost of production has been so easy to ignore due to the high crop prices, many producers may not know how quickly their cost of production has been increasing. Table 1 shows 10 years of total expenses per acre for irrigated corn and irrigated soybean production for farmers working with Nebraska Farm Business Inc. As a reminder, this would include all production costs, including overhead expenses such as utilities, insurance, and depreciation (management, not tax).


Table 1. Total expenses per acre per year for irrigated corn and irrigated soybeans, 2003-2012, for Nebraska Farm Business Inc. clients.

  2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 
Irrigated
Corn
 $316.99  $328.76  $381.12  $356.06  $405.83  $489.34  $534.04  $496.74  $578.31  $676.10
Irrigated
Soybean
 $247.48  245.33  260.01  271.01  298.96  356.42  364.06  $378.26  $416.94  $502.41

 

Costs have more than doubled in the 10 years since 2003 when we saw a net return of only $4 per acre. While growers have been able to make money in large amounts in the last couple of years, with an investment of $700 per acre, there comes an equal ability to lose money in large amounts.

Breaking it Down

I think everyone has been aware that the cost to produce a crop has risen dramatically, but it’s more eye-opening when we put it to a per bushel number. In 2012 the average cost of production (farm only expenses) for irrigated corn reached $4/acre for irrigated corn and $10/acre for irrigated soybeans. With new crop prices hovering around $4.50 for corn and $12 for beans, there is not a lot of room for average farm costs to increase in 2013, but it’s still positive. If our “average farm” farms 1,000 acres, split evenly between corn and soybeans, and has average yields of 200 bu/ac and 60 bu/ac, respectively, a total profit of $110,000 could still be expected.

Family Living and Taxes

Calculating your cost of production for all farm costs is one thing, but you must also consider having enough left to take care of your family living needs and income taxes. These costs have been increasing dramatically as well over the past 10 years.

Tina Barrett
Director, Nebraska Farm Business Inc.