2012 Crop Budgets Update Alan Miller and Craig Dobbins Learning Tuesday Webinar February 21, 2012 Purdue University is an Equal Opportunity/Equal Access institution.

Budgeted Crop Price Changes 2011 Crop in Jan Crop in Oct Crop in Jan Corn$5.54/bu.$5.40/bu.$5.60/bu. Soybeans$13.12/bu.$11.60/bu.$11.90/bu. Wheat$8.21/bu.$6.40/bu.

Yield Relationships Changed Crop Soybeans30% of rotation corn yield33% of rotation corn yield DC Soybeans60% of rotation bean yield 70% of rotation bean yield Wheat48% of rotation corn yield on low yield soil, 43% of rotation corn yield on average & high yield soils 43% of rotation corn yield

Variable Costs (Average Cropland) Crops 2010 $/acre 2011 $/acre 2012 $/acre % ∆ 11 to 12 Continuous Corn % Rotation Corn % Rotation Soybeans % Wheat % Double Crop Soybeans %

Variable Cost Changes Rotation Corn (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed % Pesticides3538+9% Drying fuel % Machine fuel % Machinery repairs % Interest % Insurance, Misc %

Variable Cost Changes Rotation Soybeans (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed5962+5% Pesticides2729+7% Machine fuel % Machinery repairs % Interest67+17% Insurance, Misc %

Variable Cost Changes Wheat (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed3941+5% Pesticides78+14% Machine fuel % Machinery repairs % Interest56+20%

Variable Cost Changes Double Crop Soybeans (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed6872+6% Pesticides2526+4% Machine fuel % Machinery repairs % Interest56+50%

Contribution Margins, 2010 – 2012 (Average Cropland) Crops 2010 $/acre 2011 $/acre 2012 $/acre % ∆ 11 to 12 Continuous Corn –12% Rotation Corn –9% Rotation Soybeans –10% Wheat –38% Double Crop Soybeans %

Contribution Margin by Crop & Yield, 2012 Crops Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) DC Wheat/Soybeans Rotation Corn Rotation Soybeans Continuous Corn Wheat

Contribution Margin by Rotation, Crops in Rotation Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) Corn – Wheat/DC Beans Corn – Soybeans Soybean – Corn – C-Corn Continuous Corn Sum 2012 contribution margins for individual crops, then divide by years in rotation.

Variable Costs Per Bushel 2010 – Rotation Low YieldAverage YieldHigh Yield $/Bushel Rotation Corn Rotation Beans

Fixed Costs Change, 2011 – 2012 (3000 Acre Farm Size) Rotation Low YieldAverage YieldHigh Yield $/Acre 1112% ∆1112% ∆1112% ∆ Machinery Overhead % % % Family & Hired Labor % % % Land Rent % % % Total Overhead % % %

Cost Structure – Rotation Corn 2012 Rotation Corn Low Yield Average Yield High Yield % of Total Cost % of Total Cost Variable Cost Fixed Cost Fixed costs are for 3000 acre farm. Assumes fixed costs are shared equally between corn and beans.

Cost Structure – Rotation Beans 2012 Rotation Corn Low Yield Average Yield High Yield % of Total Cost % of Total Cost Variable Cost Fixed Cost Fixed costs are for 3000 acre farm. Assumes fixed costs are shared equally between corn and beans.

Total Costs Per Bushel 2010 – Rotation Low YieldAverage YieldHigh Yield $/Bushel Rotation Corn Rotation Beans Overhead costs based on corn–bean rotation on 3000 acre farm.

Source: Keep in Mind Family Living When Doing Crop Budgets, farmdocDAILY, February 17, 2012.

Returns Above Total Costs Per Acre, 2010 – 2012 Acres & Rotation Low YieldAverage YieldHigh Yield $/Acre acre corn-bean acre corn-bean

Management Implications –Input prices increase sending variable costs higher –Overhead costs will increase in response to strong contribution margins – machinery overhead, family living/labor expenses, and land rent –Potential for economic profit –Budget reflects strong demand for corn which may influence rotation decisions –Risk of margin squeeze/margin decline likely will be significant because of price volatility

Questions, Comments Purdue University is an Equal Opportunity/Equal Access institution.