Friday is a USDA report day and it is a highly anticipated report on production and supply and demand since the government shutdown last month shuttered the agency. Farmers are anxiously awaiting the noon Eastern Time release and how it might impact prices. They would like those prices to get further beyond the breakeven point for production.
The breakeven price to raise a bushel of corn has increased dramatically over the last decade when it cost a farmer about $1.67 to raise a bushel of corn. University of Illinois Extension Ag Economist Gary Schnitkey says the breakeven price is now closer to the mid-four-dollar range.
“Much of that increase is due to non-land costs and fertilizer is the big one of those, but cash rents have increased as well and those break evens are for cash rented land, so increased quite a lot.”
The breakeven price this year is about three-dollars a bushel higher than it was in 2004. Next year it will drop just a bit.
“For the coming year we are looking at breakeven prices of around $4.30,” he said. “Breakeven prices of a little bit north of $4.30 are down a little bit from this year where we’re projecting $4.60. The reason it’s down is we’re projecting lower fertilizer costs and a bit higher yields. So we’re taking what we would expect for yields for 2014, and while yields were better this year than they were last year, if we ever get a good year we’ll have hopefully much higher yields.”
But the $4.30 breakeven price for next year is actually about the same as the price of corn for next year.
“Right now the cash bids for 2014 are in the $4.30 range, so the breakeven prices are right at what prices are being offered. Net incomes will come down from 2011 and 2012 levels because of lower prices, and right now we’re going into a period where we might see some non-land costs come down, particularly fertilizer, and then we’ll see what happens to cash rents.”
Schnitkey believes those will need to come down. History – however – has not looked favorably on periods of time when agricultural cash rents have decreased. Schnitkey says he primarily uses the breakeven price to benchmark marketing decisions. You shouldn’t sell it unless you know what it costs to produce.
Source: NAFB News Service