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Tips for managing tight crop margins during 2014

January 12, 2014
By STEVEN D. JOHNSON, ISU Extension farm and ag management specialist , Messenger News

It's time to plan ahead for 2014 crop production, input buying decisions and estimating potential crop profit margins.

Cost estimates for most inputs should remain flat, with the exception of fertilizer, with a decline of 15 percent to 20 percent.

That's good, because cash corn prices have dropped by 30 percent from the 2012 average cash price and soybeans by more than 10 percent.

Expect the 2014 crop margins to remain tight and final yields and next year's cash price to go a long way in determining profitability.

Remember, it's net revenue - yield times price minus total costs - that will determine if you made money on your 2014 crops.

Plugging in harvest prices available next fall reflected in new crop futures shows the potential for some tight profit margins.

These estimates assume average yield expectations.

Making pre-harvest sales during the spring and summer months of 2013 proved profitable again.

Use of revenue protection crop insurance provided a peace of mind in making those cash sales when futures were above the 2013 spring projected prices of $5.65 per bushel corn and $12.87 per bushel soybeans.

Those early sales generated fall and winter cash flow and prevented storing a large percent of your crops unpriced.

Guessing widespread weather problems and the highest corn and soybean prices proved futile once again for most farmers.

Iowa State University released 2014 crop cost estimates that indicate minor changes in costs, with the exception of fertilizer.

Land costs are not expected to drop significantly, however, flexible cash leases (adjusted for yield, price and costs) are beginning to replace some of the high fixed cash rent leases.

Comparing potential margins by crop rotation

ISU Extension's early release of crop cost estimates for producing corn and soybeans are made according to crop rotation and displayed as three different categories:

Soybeans following corn with an average yield of 50 bushels per acre yield.

Corn following soybeans with an average yield of 180 bushels per acre.

Corn following corn with an average yield of 165 bushels per acre.

Land costs are removed to determine a return to land and management.

Conventional tillage is used to make rotational comparisons.

The average cash price forecast for the 2014-15 marketing year is $4.50 per bushel corn and $11 per bushel soybeans.

This assumes a slight drop in U.S. planted corn acres in 2014, an increase in soybean acres, and normal production weather in both the southern and northern hemispheres.

Among these rotations, the potential profit margins expressed as a return to land and management is:

$280 per acre for soybeans following corn .

$325 per acre for corn following soybeans.

$210 per acre for corn following corn.

Controllable factors

While much is still not known about the 2014 growing season, now is the time to plan ahead.

Farmers can't predict with a high degree of accuracy the yields or prices for next year's crops.

However, the decisions they make regarding input buying and revenue risk management such as crop insurance coverage are determined long before spring planting.

When updating your financial statement, many farmers will realize that their net equity gains have slowed or turned negative for 2013.

Work with your primary lender to determine corrective actions which might include:

Buying select crop inputs ahead and receiving cash discounts.

Partnering with others to get receive bulk discounts.

Sharing farm machinery and/or selling unused equipment.

Leasing equipment versus purchasing new.

Eliminating non-essential purchases.

ISU released its annual "Estimated Costs of Crop Production in Iowa," FM-1712 publication on Jan. 2.

The online version is file A1-20 that can be found on the ISU Ag Decision Maker website: www.extension.iastate.edu/agdm.

Both versions have spaces where farmers can insert their own cost estimates for a variety of decisions reflecting different crop rotations, tillage practices, machinery costs and inputs planned.

 
 

 

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