G
M
T
C
P
Associate Professor of Agricultural & Applied Economics
University of Wisconsin-Madison pdmitchell@wisc.edu
608-265-6514
Badgerland Lunch n’ Learn, January 2016
Follow me on Twitter: @mitchelluw

• Cost of production for corn and soybeans has been fairly steady for last 4 years, but …
• 2014 and 2015 market prices were/are below the break even prices to meet the cost of production
• Long-term projected market prices over the next several years are below current break even prices
• Long-term: this is not sustainable, something has to give
• Costs for corn and soybean production will decrease
• Present ideas/thought on what farmers can do

Source: http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

• IA State has used a consistent methodology over the years, so great data for comparisons
• Major Cost Categories as % of total cost in 2016
Category
Land (Rent)
Machinery
Seed
Nutrients
Herbicide
Corn
37%
18%
15%
15%
5%
Soybean
50%
14%
10%
10%
6%

300
250
200
• Peaked in 2014
• Rent has dropped
7.3% since 2014
150
100
50
0
2006 2008 2010 2012 2014
• Also peaked in 2014
• Corn machinery costs dropped 17% since 2014
• Soy machinery costs dropped 11% since 2014
2016
160
140
120
100
80
60
40
20
0
2006 2008 2010 2012 2014 2016
Corn
Soy

Wisconsin farmland values declining, which means downward pressure on land rents
Source: http://www.jsonline.com/business/steadyrise-in-wisconsin-farmland-values-may-be-endingb99568446z1-323803101.html

140
120
100
80
• Over the last 10 years,
Corn seed costs rose
104%, Soy by 91%
Corn
Soy
60
40
• Both dropped this year, the first time in a while
20
0
2006 2008 2010 2012 2014 2016
• Since 2012, herbicide costs have been rising
• Corn up 91%, Soy 103%
• Prices increased < 10% since 2012; is it herbicide resistant weeds?
45
40
35
30
25
20
15
10
5
0
2006 2008 2010 2012 2014 2016
Corn
Soy

1,00
0,90
0,80
0,70
0,60
0,50
0,40
0,30
0,20
0,10
0,00
2006 2008 2010 2012 2014 2016
N
P
K
• Fertilizer prices have been declining since
2012
• 30%-37% decrease since 2012
• 41%-51% decrease since 2009
• Dr. Carrie Laboski, UW Soils, Fertilizer Price Survey in
Nov-Dec each year, in 2015
• Nitrogen about $0.41/lb, but UAN almost $0.55/lb
• Phosphate about $0.45/lb with some higher outliers
• Potash ranged $0.32-$0.35

Year Corn Soybean Silage Alfalfa
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
3.99
4.23
4.29
4.31
4.23
3.87
3.40
4.32
3.48
2.96
10.67
10.96
11.13
10.95
10.92
9.45
8.67
9.81
7.79
6.73
37.11
39.28
39.63
40.05
39.87
35.68
31.45
52.16
37.46
32.15
100.78
105.24
106.37
109.34
111.22
99.67
83.86
105.38
75.42
64.97
• Costs of production: flat for last 4-5 years, dropped in 2016
• Decrease since 2015: Corn 5.7%, Soy 2.6%, Silage 5.5%,
Alfalfa 4.2%

12
10
8
6
4
2
0
2006
Cost of Production over last 10 Years and decrease in 2016
Corn Silage
5,00
4,00
3,00
2,00
1,00
0,00
2006 2008 2014
-5.7%
2016
60
50
40
30
20
10
0
2006 2008 2014
-5.5%
2016 2010 2012
Soybean
2010 2012
Alfalfa
2008 2010 2012 2014
-2.5%
2016
120
100
80
60
40
20
0
2006 2008 2010 2012 2014
-4.2%
2016

-------- Corn Price ------------- Soybean Price ------
Year Break Even Farm Average Break Even Farm Average
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
4.23
4.31
4.29
4.23
3.99
2.83
2.96
3.48
4.32
3.40
3.87
6.94
4.51
3.70
3.56
?.??
3.09
4.44
4.13
3.57
5.46
6.35
7.19
6.73
7.79
9.81
8.67
9.45
10.92
10.95
11.13
10.96
10.67
6.62
11.00
10.26
9.55
12.08
13.08
14.54
13.38
9.94
8.70
?.??
Source: http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

$8,00
$7,00
$6,00
$5,00
$4,00
$3,00
$2,00
Corn
$1,00
$0,00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Break Even prices in the
$4.25 range for corn and $11 for soybeans for several years
16,00
14,00
12,00
10,00
8,00
6,00
4,00
Break Even
Soybeans
Mkting Year Avg
These farm prices and costs of production mean a $0.67/bu loss for corn & a $2.26/bu loss for soy
2,00
0,00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Break Even Mkting Year Avg
Source: http://www.extension.iastate.edu/agdm/crops/pdf/a2-11.pdf

Extension and Outreach/Department of Economics
Curtesy of Dr. Chad Hart, ISU Economics

Extension and Outreach/Department of Economics
Curtesy of Dr. Chad Hart, ISU Economics

University of Illinois Cost and Returns Estimates
Source: Revised 2015 Corn and Soybean Return Estimates (http://farmdocdaily.illinois.edu/pdf/fdd150915.pdf)
Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois, 9/15/2015.

• 2014 and 2015 were big crops
• Good yields and more acres in production (CRP acres)
• Slow livestock demand for grain
• Slowing ethanol demand
• Global uncertainty, solid US economy, and the Fed raising interest rate all mean a strong dollar, so exports are down
• Chinese economic slow down

Dr. Brenda Boetel UW-RF and UWEX Grain
Marketing: Where will Corn go in 2016?
• Depends on acres & weather
• Corn acreage increase from 2015 seems likely
• Trend yield of 168.1 bu/acre
• Harvested acres of 82.7 M
• About 1.5 million acres less than 2015
• About 5.4 million less than 2012
• 13.9 BB production + 1.785 BB carryover + 30 MB imports
= 15.69 BB supply (record high)
• Keeping current demand gives stocks to use of 15.1%
• Cash prices could be as low as $2.91 at harvest

Dr. Brenda Boetel UW-RF and UWEX Grain
Marketing: Where will Soybeans go in 2016?
• Depends on acres & weather
• Likely see a decrease in acreage
• Trend yield of 46.7 bu/acre
• Harvested acres of 81.6 M
• 3.98 BB production + 465 MB carryover + 25 MB imports = 4.3 BB supply (record high)
• Keeping current demand gives stocks to use of 15.2%
• Cash prices could be as low as $7.46 at harvest

Year
CME Harvest Futures 1/11/2016 USDA Long-Term Projections
Corn Soybean Corn Soybean
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
3.78
3.94
4.06
4.10
8.74
8.82
8.80
8.90
3.40
3.50
3.50
3.50
3.55
3.55
3.60
3.65
3.70
3.75
USDA Long ‐ Term Projections, February 2015 (p. 64, 69), online: http://www.usda.gov/oce/commodity/projections/USDA_Agricultural_Projections_to_2024.pdf
8.50
8.55
8.80
9.10
9.20
9.30
9.35
9.40
9.45
9.55

• Long-term, a $0.50-$0.75/bu loss for corn and a $1-$2/bu loss for soybeans is not sustainable, something has to give
• Cost of production break-even prices must come down in the long-term via lower input costs
• Land rents, machinery, seeds, fertilizer, chemicals, …
• Short-term: looking at another tight year for farmers
• Previously were able to smooth income from the 3-4 good years, but not any more
• Lots of 2015 grain waiting to be sold for better prices that are not coming

• First thing is to estimate your own cost of production!
• These numbers I give are estimates of the average, tremendous variation in costs exists among farmers
Gary Schnitkey “Crop Production Cost and Rotation Decisions” http://www.farmdoc.illinois.edu/presentations/2007%20items/ifes2007/Farm%20Economic%20Summit%20 ‐ %20Schnitkey.pdf

• Variable inputs like rent, fertilizer, seed, chemicals, insurance, interest etc. are fairly easy to figure out
• Spreadsheet tools exist
• http://waushara.uwex.edu/files/2015/10/Crop-Budget-Analyzer-Oct-
1_2015.xlsx
• http://www.aae.wisc.edu/pdmitchell/Budget%20Template.xls
• http://www.aae.wisc.edu/pdmitchell/Corn%20Soybeans%20Small%
20Grains.xls
• http://www.uwex.edu/ces/farmteam/budgets/documents/2015CropB udgetCostofProductionCalculatorforWisconsin.xls
• Make your own spreadsheet or paper version
• Machinery Costs are the hard part, can only estimate

•
Estimate for your specific age and size of machinery
“Estimating Farm Machinery Costs” ISU Extension (2015): https://www.extension.iastate.edu/agdm/crops/html/a3-29.html
or Google “Estimating Farm Machinery Costs”
•
Adjust Custom Rates for your size of your farm
Google “Custom Rates and the Total Cost to Own and Operate
Farm Machinery In Kansas” from KSU Extension: http://www.agmanager.info/farmmgt/machinery/MF2583.pdf
• Wisconsin Spreadsheet and documentation http://www.aae.wisc.edu/pdmitchell/Budget%20Template.xls
http://www.aae.wisc.edu/pdmitchell/Fast%20and%20Simple%2
0Method.pdf

• Custom Rates usually lower than farm costs
• They spread fixed costs over more acres, lower price for poor timing, under charge friends and relatives, …
Crop Acres % Higher Crop Acres % Higher
200 41% 1000 27.4%
400
600
800
32%
30%
28%
1250
1500
2000
26.7%
26.3%
25.8%
• http://www.aae.wisc.edu/pdmitchell/Budget%20Template.xls
• Google “Wisconsin Custom Rate Guide” 2013
• Google “Iowa Custom Rate Guide” 2015

• Accept below normal returns to survive for future profits
• May take you a few years to reduce costs
• Cut overhead costs: pickup truck, shop, electricity, …
• Negotiate lower land rents
• If too late this year, next year as this is a long term issue
• Share risk with owner: Google “Flexible Farm Lease”
• Better marketing: 1 cent/bu x 200 bu/ac x 500 ac = $1,000
• Hire a marketing company
• Do not have to use them for your whole crop, give them some as a test to see if they help you
• Often want to integrate your market plan with insurance

• Be cautious with inputs: wide ranges of “optimal” inputs, shave some cost and use the lower end of the ranges
• Use on-farm trials/experiments, not whole farm at once
• Think long-term, to be sure, reduce risk
• Use the decision aids – it’s hard to argue with data
• Seeding density
• Fertilizer: count your N credits for rotation and manure
• Mine the P and K, but you will have to pay for it later

• Reduce seeding costs by adjusting seeding rates
• Commonly recommended soybean seeding rate of
140,000 seeds/A
• Shawn Conley UW Agronomy
• Use insecticide seed treatment and reduce seeding rate
• With $9/bu soybeans, recommends 111,500 seeds/A if untreated seed and 94,000 seeds/A if insecticide seed treatment
• http://www.coolbean.info/library/documents/SoybeanTreatmentRisk
_2014_FINAL.pdf
• If using 140,000 and seed treatment, reduces cost by
33% and if using untreated seed, reduces cost by 20%

• Notice how
“flat” the curves are
• Means you can reduce seeding rate and see little reduction in net returns
• Note the seed treatment effect
Source: http://www.coolbean.info/library/documents/SoybeanTreatmentRisk_2014_FINAL.pdf

• 2016 has a seed:corn price ratio of about 1.0
• Again: Notice how “flat” the curves are
• Means you can reduce seeding rate and see little reduction in net returns
Bands within $1/A of optimum
Source: http://corn.agronomy.wisc.edu/Management/pdfs/L003_HO_A.pdf

• Again: Notice how “flat” the curves are
• Means you can reduce seeding rate and see little reduction in net returns
Bands within $1/A of optimum
Source: http://corn.agronomy.wisc.edu/Management/pdfs/L003_HO_A.pdf

Source: http://extension.agron.iastate.edu/soilfertility/nrate.aspx
• Again: Notice how “flat” the curve is
• Means you can reduce N rate and see little change in net returns

• Machinery Costs
• Keep older machinery: less depreciation
• Share machinery with neighbors/relatives to spread fixed costs over more acres
• Sell machinery and use custom hire
• Keep machinery and do custom work to spread fixed costs over more acres
• Use yield monitors to find unprofitable parts of fields and stop farming them (areas you added the last few years)
• Know your cost of production and use yield history to see if you will make break even yield
• Waterways, low/wet spots, rocky spots, shady spots or by walnut trees, etc.

• Cost of Production for Corn and Soybeans is above the expected market prices == Farmers have to cut costs
• Long-term trend, not a short-term issue
• You are not alone, all ag sector is cutting costs
• Presented several ideas for ways to cut costs, but I’m sure some do not apply to you and you have better ideas
• Don’t be afraid to ask for help, to rely on your family and neighbors: All wealth is not measured in money

Paul D. Mitchell
Agricultural and Applied Economics
University of Wisconsin, Madison, WI
Email pdmitchell@wisc.edu
Office: 608-265-6514 http://www.aae.wisc.edu/pdmitchell/extension.htm
Follow me on Twitter: @mitchelluw