Grain Profitability Outlook Cash Rents Land Values Greg Halich Univ. of Kentucky

December 2015 Corn Futures

Corn Futures CME MonthSettle Dec$ July$ Dec$ July$ Dec$ July$ Dec$4.08 Settled on November 11, 2015

Soybean Futures CME MonthSettle Nov$ July$ Nov$ July$ Nov$ July$ Nov$8.86 Settled on November 11, 2015

Agricultural Economics Prices Corn$4.00/bu Soybeans$9.00/bu

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 $2.25 fuel price. Adjusted to $2.25 fuel price. Trucking – 25 miles (one-way). Trucking – 25 miles (one-way).

Budget Assumptions Base Scenario Fertilizer:$/ton$/unit Anhydrous (N)$650$.40 DAP (P 2 O 5 )$540$.43 Potash (K 2 O)$425$.35

Budget Assumptions Fertilizer Quantity (per acre) 175 bu corn: → 190 units N → 190 units N → 70 units P 2 O 5 → 61 units K 2 O → 61 units K 2 O 51.5 bu soybeans: → 36 units P 2 O 5 → 57 units K 2 O → 57 units K 2 O

Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio 125 bu39.0 bu bu45.5 bu bu51.5 bu bu57.0 bu3.5

Projected 2016 Costs (per acre) Inputs: Corn (175 bu)Soybeans (51.5 bu) Seed $100$70 Nitrogen $76$0 P, K, and Lime $62$45 Pesticides $55$45 Total Inputs $293$160 Machinery and Labor $121$82 Other: Drying Grain $22$0 Crop Insurance $20$15 Misc. $20 Land Rent Variable Operating Interest $7$4 Total Other $69$39 Total Costs $483 + Land Rent$281 + Land Rent Note: 25 mile one-way trucking included in machinery and labor costs.

Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube$18$11 Repairs$30$21 Labor$23$16 Depreciation/Overhead$51$33 Total$121$82 Note: Assumes grain trucked directly to elevator (25 miles one-way) and not stored.

Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation) Expected Price$4.00$9.00 Grain Revenue700$464 Crop Insurance$35$25 Gov’t Payment$20$15 Total Revenue$755$503 Total Costs (Less Land Rent)$483$281 Gross Return (Less Land Rent)$272$222

Baseline Scenario (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.40-N; $.43-P; $.35-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$110$121$ bu corn$191$173$ bu corn$272$222$ bu corn$353$268$310 Note: Subtract land rent to get Net Return.

Agricultural Economics Critical Budget Assumptions 17 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. 4.No-till planting 5.Machinery costs best-case scenario

Baseline Scenario (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.40-N; $.43-P; $.35-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$85$96$ bu corn$166$148$ bu corn$247$197$ bu corn$328$243$285 Note: Subtract land rent to get Net Return.

Agricultural Economics December 2015 Corn Futures

Perceived Profits (per acre) $11.50 Soybeans (elevator) $5.00 Corn (elevator) $.55-N; $.45-P; $.50-K; $3.25/gal fuel Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$194$207$ bu corn$296$274$ bu corn$399$336$ bu corn$502$396$449 Note: Subtract land rent to get Net Return.

Agricultural Economics Kentucky Rents $5/bu Corn $11.50/bu Soybeans Competitive Areas: 175 bu $ /acre rents 175 bu $ /acre rents 150 bu $ /acre rents 150 bu $ /acre rents

Baseline Scenario (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.40-N; $.43-P; $.35-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$110$121$ bu corn$191$173$ bu corn$272$222$ bu corn$353$268$310 Note: Subtract land rent to get Net Return.

Agricultural Economics Why Farmers Will Pay Rents that will Guarantee Losses?

Baseline Scenario (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.40-N; $.43-P; $.35-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$85$96$ bu corn$166$148$ bu corn$247$197$ bu corn$328$243$285 Note: Subtract land rent to get Net Return.

Kentucky Rents $4/bu Corn $9/bu Soybeans Short-run: 175 bu $ /acre 175 bu $ /acre 150 bu $ /acre 150 bu $ /acre Long-run: 175 bu $ /acre 175 bu $ /acre 150 bu $ /acre 150 bu $ /acre

Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$ % 4.0% 3.0% 2.0%

Baseline Scenario (per acre) $11.50 Soybeans (elevator) $5.00 Corn (elevator) $.55-N; $.45-P; $.50-K; $3.25/gal fuel Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$194$207$ bu corn$296$274$ bu corn$399$336$ bu corn$502$396$449 Note: Subtract land rent to get Net Return.

Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$ % $2,000$4,000$6,000$8,000$10, % $2,500$5,000$7,500$10,000$12, % $3,333$6,667$10,000$13,333$16, % $5,000$10,000$15,000$20,000$25,000

Agricultural Economics Kentucky Cropland Values $5/bu Corn $11.50/bu Soybeans Competitive Areas: 175 bu $8-12K /acre 175 bu $8-12K /acre 150 bu $6-9K /acre 150 bu $6-9K /acre

Baseline Scenario (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.40-N; $.43-P; $.35-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$85$96$ bu corn$166$148$ bu corn$247$197$ bu corn$328$243$285 Note: Subtract land rent to get Net Return.

Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$ % $2,000$4,000$6,000$8,000$10, % $2,500$5,000$7,500$10,000$12, % $3,333$6,667$10,000$13,333$16, % $5,000$10,000$15,000$20,000$25,000

KY Cropland Values Comparison Competitive Areas Estimated Price per acre $5/bu Corn $4/bu Corn $5/bu Corn $4/bu Corn 175 bu $8-12K $4-7K 175 bu $8-12K $4-7K 150 bu $6-9K $3-5K 150 bu $6-9K $3-5K