1. Can You Pay $300/acre Land Rent with $4 Corn? November 18-20, 2013 Greg Halich 859-257-8841Greg.Halich@uky.edu 311 CE Barnhart Dept. Agricultural Economics University of Kentucky Lexington, KY 40546

2. Can You Pay $300/acre Land Rent with $4 Corn?

3. Agricultural Economics Commodity Prices

4. Agricultural Economics Corn and Soybean Prices New Crop 2014 Price Scenario:CornSoybeans Low Current Est. High

5. Agricultural Economics Corn and Soybean Prices New Crop 2014 Price Scenario:CornSoybeans Low Current Est.$4.50$11.50 High

6. Agricultural Economics Corn and Soybean Prices New Crop 2014 Price Scenario:CornSoybeans Low Current Est.$4.50$11.50 High$5.50$13.75

7. Agricultural Economics Corn and Soybean Prices New Crop 2014 Price Scenario:CornSoybeans Low$3.50$9.25 Current Est.$4.50$11.50 High$5.50$13.75

8. Agricultural Economics Fertilizer Prices

18. Agricultural Economics Budget Assumptions Base Scenario Fertilizer:$/ton$/unit Anhydrous (N)$680$.41 DAP (P 2 O 5 )$510$.39 Potash (K 2 O)$475$.40

19. Agricultural Economics Budget Assumptions Land Rent: Not included in the budgets. Not included in the budgets. → Subtract from net revenue.

20. Agricultural Economics Budget Assumptions Machinery and Labor:

21. Agricultural Economics Budget Assumptions Machinery and Labor: Fuel, Repairs, Deprecation, Labor. Fuel, Repairs, Deprecation, Labor.

22. Agricultural Economics Budget Assumptions Machinery and Labor: Fuel, Repairs, Deprecation, Labor. Fuel, Repairs, Deprecation, Labor. Based on Custom Machinery Rates. Based on Custom Machinery Rates. → Increased 25%.

23. Agricultural Economics Budget Assumptions Machinery and Labor: Fuel, Repairs, Deprecation, Labor. Fuel, Repairs, Deprecation, Labor. Based on Custom Machinery Rates. Based on Custom Machinery Rates. → Increased 25%. Adjusted to $3.50 fuel price. Adjusted to $3.50 fuel price. Trucking – 15 miles (one-way). Trucking – 15 miles (one-way).

24. Agricultural Economics Three Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio

25. Agricultural Economics Three Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio 125 bu39.0 bu3.2

26. Agricultural Economics Three Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio 125 bu39.0 bu3.2 150 bu45.5 bu3.3

27. Agricultural Economics Three Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio 125 bu39.0 bu3.2 150 bu45.5 bu3.3 175 bu51.5 bu3.4

28. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed Nitrogen P, K, and Lime Pesticides Total Inputs Machinery and Labor Other: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total Other Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

29. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs Machinery and Labor Other: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total Other Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

30. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs $241$122 Machinery and Labor Other: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total Other Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

31. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs $241$122 Machinery and Labor $121$85 Other: Drying Grain Crop Insurance Misc. Land Rent Operating Interest Total Other Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

32. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs $241$122 Machinery and Labor $121$85 Other: Drying Grain $19$0 Crop Insurance $20 Misc. $20 Land Rent Variable Operating Interest $8$5 Total Other Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

33. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs $241$122 Machinery and Labor $121$85 Other: Drying Grain $19$0 Crop Insurance $20 Misc. $20 Land Rent Variable Operating Interest $8$5 Total Other $66$45 Total Costs Note: 15 mile one-way trucking included in machinery and labor costs.

34. Projected 2014 Costs (per acre) Inputs: Corn (150 bu)Soybeans (45.5 bu) Seed $76$45 Nitrogen $66$0 P, K, and Lime $54$42 Pesticides $45$35 Total Inputs $241$122 Machinery and Labor $121$85 Other: Drying Grain $19$0 Crop Insurance $20 Misc. $20 Land Rent Variable Operating Interest $8$5 Total Other $66$45 Total Costs$429 + Land Rent$252 + Land Rent Note: 15 mile one-way trucking included in machinery and labor costs.

35. Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube Repairs Labor Depreciation/Overhead Total Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.

36. Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube$24 Repairs$28 Labor$21 Depreciation/Overhead$48 Total$121 Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.

37. Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube$24$16 Repairs$28$21 Labor$21$16 Depreciation/Overhead$48$33 Total$121$85 Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.

38. Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube$24$16 Repairs$28$21 Labor$21$16 Depreciation/Overhead$48$33 Total$121$85 Note: Assumes grain trucked directly to elevator (15 miles one-way) and not stored.

39. Agricultural Economics Following Costs Increase with Yield: Fertilizer Fertilizer Machinery and Labor Machinery and Labor Drying (corn) Drying (corn)

40. Agricultural Economics Critical Budget Assumptions Summary 40 1.Does not include land rent.

41. Agricultural Economics Critical Budget Assumptions Summary 41 1.Does not include land rent. 2.Includes “non-cash” costs (e.g. depreciation/overhead, unpaid labor).

42. Agricultural Economics Critical Budget Assumptions Summary 42 1.Does not include land rent. 2.Includes “non-cash” costs (e.g. depreciation/overhead, unpaid labor). 3.P and K application at removal rate.

43. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue Direct Gov’t Payment Total Revenue Total Costs (Less Land Rent) Gross Return (Less Land Rent)

44. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue $675$523 Direct Gov’t Payment Total Revenue Total Costs (Less Land Rent) Gross Return (Less Land Rent)

45. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue $675$523 Direct Gov’t Payment $10 Total Revenue Total Costs (Less Land Rent) Gross Return (Less Land Rent)

46. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue $675$523 Direct Gov’t Payment $10 Total Revenue $685$533 Total Costs (Less Land Rent) Gross Return (Less Land Rent)

47. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue $675$523 Direct Gov’t Payment $10 Total Revenue $685$533 Total Costs (Less Land Rent) $429$252 Gross Return (Less Land Rent)

48. Agricultural Economics Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) 15045.5 Expected Price $4.50$11.50 Grain Revenue $675$523 Direct Gov’t Payment $10 Total Revenue $685$533 Total Costs (Less Land Rent) $429$252 Gross Return (Less Land Rent) $256$281

49. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return.

50. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn$256$281 175 bu corn Note: Subtract land rent to get Net Return.

51. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn$256$281$268 175 bu corn Note: Subtract land rent to get Net Return.

52. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$162$213$188 150 bu corn$256$281$268 175 bu corn Note: Subtract land rent to get Net Return.

53. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$162$213$188 150 bu corn$256$281$268 175 bu corn$350$345$347 Note: Subtract land rent to get Net Return.

54. Agricultural Economics Baseline Scenario 2014 (per acre) $11.50 Soybeans (elevator) $4.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$162$213$188 150 bu corn$256$281$268 175 bu corn$350$345$347 Note: Subtract land rent to get Net Return.

55. Agricultural Economics What about $4/bu Corn?

56. Agricultural Economics Baseline Scenario 2014 (per acre) $10.38 Soybeans (elevator) $4.00 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return.

57. Agricultural Economics Baseline Scenario 2014 (per acre) $10.38 Soybeans (elevator) $4.00 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn $100$169$134 150 bu corn $181$230$205 175 bu corn $263$287$275 Note: Subtract land rent to get Net Return.

58. Agricultural Economics Baseline Scenario 2014 (per acre) $10.38 Soybeans (elevator) $4.00 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn $100$169$134 150 bu corn $181$230$205 175 bu corn $263$287$275 Note: Subtract land rent to get Net Return.

59. Agricultural Economics Low Price Scenario 2014 $9.25 Soybeans (elevator) $3.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return.

60. Agricultural Economics Low Price Scenario 2014 $9.25 Soybeans (elevator) $3.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn $37$125$81 150 bu corn $106$178$142 175 bu corn $175$229$202 Note: Subtract land rent to get Net Return.

61. Agricultural Economics Low Price Scenario 2014 $9.25 Soybeans (elevator) $3.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn $37$125$81 150 bu corn $106$178$142 175 bu corn $175$229$202 Note: Subtract land rent to get Net Return.

62. Agricultural Economics High Price Scenario 2014 $13.75 Soybeans (elevator) $5.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return.

63. Agricultural Economics High Price Scenario 2014 $13.75 Soybeans (elevator) $5.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return.

64. Agricultural Economics High Price Scenario 2014 $13.75 Soybeans (elevator) $5.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$287$301$294 150 bu corn$406$383$395 175 bu corn$525$460$493 Note: Subtract land rent to get Net Return.

65. Agricultural Economics High Price Scenario 2014 $13.75 Soybeans (elevator) $5.50 Corn (elevator) $.41-N; $.39-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$287$301$294 150 bu corn$406$383$395 175 bu corn$525$460$493 Note: Subtract land rent to get Net Return.

66. Agricultural Economics Fertilizer Price Effects (decrease in profit) Increasing Fertilizer Prices $100/ton (per acre) Corn Change Soybean Change Rotation Change 125 bu corn $17$6 150 bu corn $19$7 175 bu corn $21$8 Note: Increased costs due to $100/ton increase in N, P, and K prices.

67. Agricultural Economics Fertilizer Price Effects (decrease in profit) Increasing Fertilizer Prices $100/ton (per acre) Corn Change Soybean Change Rotation Change 125 bu corn $17$6$12 150 bu corn $19$7$13 175 bu corn $21$8$15 Note: Increased costs due to $100/ton increase in N, P, and K prices.

68. Agricultural Economics Putting Input Prices in Context Fertilizer: Corn price drop necessary to equal $100/ton fertilizer price decrease? Corn price drop necessary to equal $100/ton fertilizer price decrease?

69. Agricultural Economics Putting Input Prices in Context Fertilizer: Corn price drop necessary to equal $100/ton fertilizer price decrease? Corn price drop necessary to equal $100/ton fertilizer price decrease? → $.10/bu

70. Agricultural Economics Putting Input Prices in Context Fertilizer: Corn price drop necessary to equal $100/ton fertilizer price decrease? Corn price drop necessary to equal $100/ton fertilizer price decrease? → $.10/bu How much has corn dropped last year? How much has corn dropped last year?

71. Agricultural Economics Various Commodity Price Scenarios Gross Return (per acre) $3.50 Corn $9.25 Beans $4.00 Corn $10.38 Beans $4.50 Corn $11.50 Beans $5.00 Corn $12.63 Beans $5.50 Corn $13.75 Beans 125 bu corn 150 bu corn 175 bu corn Note: Subtract land rent to get Net Return. Labor, depreciation, overhead accounted for in costs.

72. Agricultural Economics Various Commodity Price Scenarios Gross Return (per acre) $3.50 Corn $9.25 Beans $4.00 Corn $10.38 Beans $4.50 Corn $11.50 Beans $5.00 Corn $12.63 Beans $5.50 Corn $13.75 Beans 125 bu corn$81$134$188$241$294 150 bu corn$142$205$268$332$395 175 bu corn$202$275$347$420$493 Note: Subtract land rent to get Net Return. Labor, depreciation, overhead accounted for in costs.

73. Agricultural Economics Various Commodity Price Scenarios Gross Return (per acre) $3.50 Corn $9.25 Beans $4.00 Corn $10.38 Beans $4.50 Corn $11.50 Beans $5.00 Corn $12.63 Beans $5.50 Corn $13.75 Beans 125 bu corn$81$134$188$241$294 150 bu corn$142$205$268$332$395 175 bu corn$202$275$347$420$493 Note: Subtract land rent to get Net Return. Labor, depreciation, overhead accounted for in costs.

74. Agricultural Economics Various Commodity Price Scenarios Gross Return (per acre) $3.50 Corn $9.25 Beans $4.00 Corn $10.38 Beans $4.50 Corn $11.50 Beans $5.00 Corn $12.63 Beans $5.50 Corn $13.75 Beans 125 bu corn$81$134$188$241$294 150 bu corn$142$205$268$332$395 175 bu corn$202$275$347$420$493 Note: Subtract land rent to get Net Return. Labor, depreciation, overhead accounted for in costs.

75. Agricultural Economics Various Commodity Price Scenarios Gross Return (per acre) $3.50 Corn $9.25 Beans $4.00 Corn $10.38 Beans $4.50 Corn $11.50 Beans $5.00 Corn $12.63 Beans $5.50 Corn $13.75 Beans 125 bu corn$81$134$188$241$294 150 bu corn$142$205$268$332$395 175 bu corn$202$275$347$420$493 Note: Subtract land rent to get Net Return. Labor, depreciation, overhead accounted for in costs.

76. Agricultural Economics Cash Rent Projection

77. Agricultural Economics Cash Rent Projection Likely to stabilize next few years.

78. Agricultural Economics Cash Rent Projection Likely to stabilize next few years. → Highest rents will drop. → Highest rents will drop.

79. Agricultural Economics Cash Rent Projection Likely to stabilize next few years. → Highest rents will drop. → Highest rents will drop. → Undervalued rents will increase. → Undervalued rents will increase.

80. Agricultural Economics Cash Rent Projection Likely to stabilize next few years. → Highest rents will drop. → Highest rents will drop. → Undervalued rents will increase. → Undervalued rents will increase. Wildcard: Are you willing to walk away?

81. Agricultural Economics Profitability Summary Profitability Summary

82. Agricultural Economics Profitability Summary Profitability Summary Profits will be squeezed. Profits will be squeezed.

83. Agricultural Economics Profitability Summary Profitability Summary Profits will be squeezed. Profits will be squeezed. → Lots of excess machinery capacity.

84. Agricultural Economics Profitability Summary Profitability Summary Profits will be squeezed. Profits will be squeezed. → Lots of excess machinery capacity. Is this the “New Normal”? Is this the “New Normal”?

85. Agricultural Economics Profitability Summary Profitability Summary Profits will be squeezed. Profits will be squeezed. → Lots of excess machinery capacity. Is this the “New Normal”? Is this the “New Normal”? Ethanol Mandate? Ethanol Mandate?