The first in a five part series dealing with controlling costs on grain farms.
Corn and soybean prices are likely to be considerably lower in the next several years as compared to prices from 2010 through summer of 2013. Lower commodity prices then will lead to lower crop revenues. While crop revenues have come down abruptly, costs likely will decrease much more slowly, and likely not decrease as much as revenues have fallen. Moreover, management decisions may influence the extent to which costs decrease. This post documents cost changes that have occurred over time, thereby showing historical cost decreases as a guide for potential future cost decreases. Future posts will examine specific costs and potential ways of lowering those costs.
Increases in Non-land Costs
Non-land costs include all the financial costs associated with production, except those that relate to farmland. Non-land costs include fertilizer, seed, pesticides, drying, storage, crop insurance, as well as machinery and overhead costs.
Figure 1 shows costs over time for central Illinois farms with high-productivity farmland. As can be seen in Figure 1, corn and soybean costs have increased dramatically since 2006. Non-land costs for corn increased from $302 per acre in 2006 to $581 per acre in 2012, an increase of 92%. Soybean costs increased from $190 per acre in 2006 to $353 per acre in 2012, an increase of 86%.
The last time non-land costs increased as much as the 2006-2012 period was from 1972 through 1984. Non-land costs for corn increased from $85 per acre in 1972 to $224 per acre in 1984, an increase of 164%. Soybean costs increased from $64 per acre in 1972 to $148 per acre in 1984, an increase of 131%.
Costs increased more during the 1972-1984 period than the 2006-2012 period. For corn, costs increased 164% in the 1972-1984 period compared to 92% in the 2006-2012 period. However, the 1972-1984 period contains more years. There are 12 years between 1972 and 1984, compared to 6 years between 2006 and 2012.
Perhaps instructive for the next several years are the costs decreases that occurred between 1984 through 1988. The 1984-1988 period occurred during the height of the 1980s financial crisis. It is extremely unlikely that the next several years will be as bad as the 1984-1988 period; however, cost decreases during the 1984-1988 period may be indicative of likely changes in the near future. From 1984 to 1988, corn costs decreased from $224 per acre to $192 per acre, a 14% decrease. Soybean costs decreased from $148 in 1984 to $130 in 2012, a 12% decrease.