1. Grain Markets and Cost of Production
Paul D. Mitchell
Associate Professor of Agricultural & Applied Economics
University of Wisconsin-Madison
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2. Main Points
Cost of production for corn and soybeans had been fairly steady for
: market prices are/were below break even prices
Projected long-term market prices over the next several years are below break even prices
Long-term: this is not sustainable, something has to give
Short-term: thoughts on what farmers can do

3. Source: http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf

4. -------- Corn Price -------- ------ Soybean Price ------
11 Year History of the Cost of Production Break-Even Price versus Farm Price in Iowa
Corn Price
Soybean Price
Year
Break Even
Farm Average
2006
2.83
3.09
7.19
6.62
2007
2.96
4.44
6.73
11.00
2008
3.48
4.13
7.79
10.26
2009
4.32
3.57
9.81
9.55
2010
3.40
5.46
8.67
12.08
2011
3.87
6.35
9.45
13.08
2012
4.23
6.94
10.92
14.54
2013
4.31
4.51
10.95
13.38
2014
4.29
3.70
11.13
9.98
2015
3.52
10.96
9.02
2016
3.99
???
10.67
Source:

5. 10 Years History of Cost of Production Break-Even Price versus Farm Price in Iowa
Corn
Break Even prices in the $4.25 range for corn and $11 for soybeans for several years
2014 and 2015:
$0.6-$0.7/bu loss for corn
$1-$2/bu loss for soybean
Corn 185
= $120/A loss
Soybean 54 = $81/A loss
2016 = ????
Soybeans

6. University of Illinois Cost and Returns Estimates
Everything above rent line is what you pay yourself and the land
Source: Revised 2015 Corn and Soybean Return Estimates (
Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois, 9/15/2015.

7. Why farmers need to estimate their own cost of production
Cost estimates per bu or per acre are single averages
Tremendous variability exists among farmers
Gary Schnitkey “Crop Production Cost and Rotation Decisions”

8. Long-Term Price Expectations
CME Harvest Futures 10/11/2016
USDA Farm Price Projections
Year
Corn
Soybean
2016
3.46
9.55
3.50
8.55
2017
3.84
9.63
8.80
2018
4.03
9.37
9.10
2019
4.11
9.31
3.55
9.20
2020
9.30
2021
3.60
9.35
2022
3.65
9.40
2023
3.70
9.45
2024
3.75
USDA Long‐Term Projections, February 2016 (p. 64, 69), online:

9. Implications
Long-term, the $0.50/bu loss for corn and soybeans is not sustainable, something has to give
Break-even prices must come down in the long-term by lowering input costs
2015 to 2016 in Iowa: corn dropped $0.24/bu, soybeans $0.29/bu
Land rents, machinery, seeds, fertilizer, chemicals, …
Short-term: looking at another tight year for farmers
Previously they were able to income smooth from the 3-4 good years they had, but not any more

10. Farmer Tactics for 2016 going into 2017
Accept below normal returns to survive for future profits
Negotiate lower land rents for 2017
Better marketing 1 cent/bu x 200 bu/ac x 500 ac = $1,000
Reduce variable input costs: fertilizer, herbicide, seed, …
Sell machinery, keep older machinery, share machinery
Use yield monitors to find unprofitable parts of fields and stop farming them
Switch to crops with lower cost per acre to plant: soybean, wheat, forage, so smaller operating loans (lenders drive?)

11. Agricultural Support Industry Tactics
Get farmers thinking about lowering their cost of production and doing better at marketing
Cost of production tools/spreadsheets to help them know their costs and figure out ways to cut costs
MRTN nitrogen corn and wheat, Seeding rates, ???
Crop insurance: RP, 70-80% coverage level, enterprise units
Marketing clubs and advice for good marketing services
Facilitate custom work or machinery sharing to spread machinery fixed costs over more acres
Try to get ahead of the curve while farmers are harvesting