RISING INPUT COSTS:
IMPLICATIONS FOR CROP
ROTATIONS AND CASH RENT
LEVELS
Gary Schnitkey
1
Purpose/Outline
Rising cost impacts:
•
•
Crop rotations: Recent cost increases
favors soybeans versus corn
Rising costs and cash rents in perspective
Use historic FBFM data and projections to
examine issues
2
Cost Categories
1.
Direct – fertilizer, pesticides, seed, drying, storage,
crop insurance
2.
Power – machine hire, utilities, repair, fuel, light
vehicle, machine depreciation
3.
Overhead – hired labor, building repair and rent,
building depreciation, insurance, misc., interest
4.
Land – vary by tenure (e.g., rent for cash rented land,
interest payments for owned land)
3
Costs
• Financial costs (accrued to current year)
• Depreciation (economic not tax)
• No opportunity charges for operator labor and
equity capital
• Historic costs from
Illinois FBFM
4
Operator and Land Return
Return remaining to:
1. Pay for farmland (e.g., cash rent)
2. Provide operator funds for unpaid labor,
equity, and management
$170 operator and land return
- $150 cash rent
$20 return for operator
5
2006 Projected Revenue and Costs Per Acre
Total revenue
Northern
$391
Central
$401
Southern
$321
Direct
Power
Overhead
Non-land cost
$151
70
42
$263
$138
61
37
$236
$136
67
37
$240
Oper. and land return
less cash rent
Operator return
$128
$140
-$12
$165
$148
$18
$81
$100
-$19
6
Crop Rotations
• Since 1998, Illinois farmers have been shifting
soybean acres to corn acres
• Cost increases impact corn more than soybeans
Cost increases since 2002 in Illinois
$35 per acre for corn
$11 per acre for soybeans
• Will a shift back to soybeans occur?
7
Corn Acres Divided by Soybean Acres,
Illinois, 1972 – 2005.
1.3
1.2
1.1
1.0
0.9
0.8
80
85
90
95
Year
00
05
8
Corn-Soybean Ratio Varies Within Illinois
Corn Divided by Soybean Acres
1.6
1.5
2000
1.4
2002
1.3
2004
1.2
1.1
1
0.9
0.8
North
Central
Region
South
9
Corn-Soybean Returns
Northern Illinois
10
Per Acres Costs, Northern Illinois
------ Corn -----2002
2006P
Fertilizer
$51
$77
Pesticides
34
41
Seed
35
41
Other direct
21
24
Total direct
$141
$183
Total power
77
80
Total overhead
41
42
Total non-land $259
$305
--- Soybeans --2002
2006P
$18
$23
30
29
24
31
8
15
$80
$98
60
62
39
41
$179
$201
11
Per Acre Corn Revenue **,
Northern Illinois
Yield
Price
LDP/bu
2003
174
$2.45
.00
2004
185
$2.05
.26
2005P 2006F
130
164
$1.80 $2.25
.35
.00
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
$426
22
1
$449
$427
41
8
$476
$280
49
25
$354
$369
29
1
$399
** blended over corn-after-soybeans and corn-after-corn
12
Per Acre Soybean Revenue,
Northern Illinois
Yield
Price
LDP/bu
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
2003
35
$7.49
.00
2004
52
$5.40
.11
2005P 2006F
47
47
$5.50
$5.80
.00
.00
$262
22
22
$303
$287
41
11
$339
$259
49
10
$318
$273
29
1
$303
13
Per Acre Operator and Land Returns,
Northern Illinois
2000
2001
2002
2003
2004
2005P
2006F
Corn
$148
136
130
193
190
61
94
Soybeans
$123
140
113
138
151
121
102
Corn - Beans
$26
-4
17
55
39
-60
-8
14
2006 Crop Budgets, Northern Illinois
CornCornafter-Soybeans after-Corn
Yield
169 bu
157 bu.
Price
$2.25
$2.25
Revenue *
$410
$383
Non-land costs 298
312
Operator &
land return
$112
$71
* Includes crop revenue, direct and counter-cyclical payments
Soybeans
47 bu.
$5.80
$303
201
$102
15
Corn/Soybean Returns
Central Illinois
High-Productivity Farmland
16
Per Acres Costs, Central Illinois
------ Corn -----2002
2006P
Fertilizer
$55
$79
Pesticides
34
39
Seed
34
40
Other direct
23
23
Total direct
$146
$181
Total power
68
67
Total overhead
39
39
Total non-land $253
$287
-- Soybeans -2002
2006P
$20
$24
31
28
24
30
8
11
$83
$93
54
55
38
38
$175
$186
17
Per Acre Corn Revenue **,
Central Illinois
Yield
Price
LDP/bu
2003
186
$2.41
.00
2004
190
$2.10
.26
2005P 2006F
157
175
$1.80 $2.25
.35
.00
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
$448
22
1
$471
$448
40
8
$493
$338
45
25
$390
$394
27
1
$422
** blended over corn-after-soybeans and corn-after-corn
18
Per Acre Soybean Revenue,
Central Illinois
Yield
Price
LDP/bu
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
2003
41
$7.39
.00
2004
56
$5.45
.11
2005P 2006F
40
51
$5.50
$5.80
.00
.00
$303
22
9
$334
$305
40
4
$355
$275
45
1
$321
$296
27
1
$324
19
Per Acre Operator and Land Returns,
Central Illinois
2000
2001
2002
2003
2004
2005P
2006F
Corn
$171
160
135
220
226
112
135
Soybeans
$144
153
146
167
179
140
138
Corn - Beans
$27
8
-11
53
47
-28
-3
20
2006 Crop Budgets, Central Illinois
CornCornafter-Soybeans after-Corn
Yield
180 bu
168 bu
Price
$2.25
$2.25
Revenue *
$433
$406
Non-land costs 280
294
Operator &
land return
$153
$112
* Includes crop revenue, direct and counter-cyclical payments
Soybeans
51 bu
$5.80
$324
186
$138
21
Corn/Soybean/Wheat Returns
Southern Illinois
22
Per Acres Costs, Southern Illinois
------ Corn -----2002
2006P
Fertilizer
$54
$75
Pesticides
31
33
Seed
35
43
Other direct
13
14
Total direct
$133
$164
Total power
73
70
Total overhead
36
40
Total non-land $242
$274
-- Soybeans -2002
2006P
$20
$24
27
29
23
30
5
13
$75
$96
58
61
34
39
$167
$196
23
Per Acre Corn Revenue **,
Southern Illinois
Yield
Price
LDP/bu
2003
134
$2.54
.00
2004
170
$2.15
.26
2005P 2006F
130
136
$1.80 $2.25
.35
.00
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
$340
16
13
$369
$410
26
5
$441
$280
30
3
$313
$306
19
1
$326
** blended over corn-after-soybeans and corn-after-corn
24
Per Acre Soybean Revenue,
Southern Illinois
Yield
Price
LDP/bu
Crop/LDP rev
DP and CCP
Crop insurance
Gross revenue
2003
39
$7.39
.00
2004
50
$5.55
.11
$288
16
6
$310
$278
26
3
$313
2005P 2006F
42
43
$5.50
$5.80
.00
.00
$231
30
1
$262
$249
19
1
$269
25
Per Acre Operator and Land Returns,
Southern Illinois
2000
2001
2002
2003
2004
2005P
2006F
Corn
$133
104
14
134
185
48
52
Soybeans
$113
102
51
143
136
72
73
Corn - Beans
$21
2
-38
-9
49
-24
-21
26
2006 Crop Budgets, Southern Illinois
Corn
Yield
136 bu
Price
$2.25
Revenue *
$326
Non-land costs 274
Operator &
land return
$52
Soybeans
43 bu
$5.80
$269
196
Wheat
51 bu
$3.20
$240
160
$73
$80
* Includes crop revenue, direct and counter-cyclical payments
27
Crop Rotations
• Recent cost increases reduce profitability of
corn production relative to soybean production
• Suggest switching to more soybeans
• Some risks to move (soybean rust)
28
Rising Costs and Cash Rents
• Average returns and costs blended over
corn, soybeans, wheat, and other crop
acres
• Between 1995 through 2002, non-land
costs increased an average of $1.43 per
acre.
• Between 2002 and 2006P, non-land costs
increased an average of $6.50 per acre
• Revenue has not exhibited a trend
29
Revenue and Costs, Illinois, 1995-2006
450
$ per Acre
400
Gross Revenue
350
$350
300
Non-Land Costs
250
200
150
95
96
97
98
99
00
01
02
03
04
05P
06F
Year
30
Per Acre Costs, 1995 through 2006,
Illinois
160
140
Direct
$ per Acre
120
100
80
Power
60
40
Overhead
20
0
95
96
97
98
99
00
01
02
03
04
05P
06F
Year
31
Per Acre Direct Costs, Illinois
60
50
Fertilizer
$ per Acre
40
30
Pesticides
Seed
20
Drying/Storage
10
0
95
96
97
98
99
00
01
Year
02
03
04
05P
06F
32
Change in Per Acre Costs Between
2002 and 2006P, Illinois
60
2002
2006
$ per Acre
50
40
30
20
10
0
Fertilizer
Seed
Fuel & Oil
Category
33
Change in Per Acre Costs, 2002 and
2006P, Illinois
Fertilizer
Cash rent
Seed
Fuel
Pesticides
$18
$12
$7
$5
$2
Fertilizer and fuel
account for $23 of the
total cost increase, but
energy prices may decline
in the future
Cash rent, seed, and
pesticides account for $21
of the increase, not likely
to decline
34
Points
• Energy related costs (fertilizer and fuel) may
come down in future
• Technology related costs likely will not
• Cash rent levels are closing the gap between
operator and land returns.
35
Operator and Land Return Compared to Cash
Rent, Northern Illinois
250
$ per Acre
200
Operator and Land Return
150
Cash Rent
100
50
0
95
96
97
98
99
00
01
Year
02
03
04 05P 06F
36
Operator and Land Return Compared to Cash
Rent, Central Illinois
250
Operator and Land Return
$ per Acre
200
150
Cash Rent
100
50
0
95
96
97
98
99
00
01
Year
02
03
04 05P 06F
37
Operator and Land Return Compared to Cash
Rent, Southern Illinois
200
180
Operator and Land Return
160
$ per Acre
140
120
100
80
Cash Rent
60
40
20
0
95
96
97
98
99
00
01
Year
02
03
04 05P 06F
38
Cash Rent Points
• Many cash rents above those shown
• Some farms have above/below the
operator and land returns shown above
• It is hard to justify “high” cash rents
from a return/cost perspective. Have to
justify for other reasons (i.e., growth,
machinery/labor efficiencies)
39
Cash Rent Points
• The narrowing of the gap between return
and rent will stop some day (the question
is when)
• May occur when some farmers have
difficulty in paying high cash rents. This
is likely a few years away because of solid
financial position of many farmers
40
Conclusion
• 2006 could be an above average year if
yields are above average
• However, starting at a lower “expected”
level due to cost increases
• Suggests some caution in spending
41