Corn, soybean profit margins could be squeezed to nothing

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If you are a Corn Belt farmer, how will you be making enough money to survive a decade from now?  That is a question for you and your family to ponder, based on profitability projections in the latest publication of the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI).  FAPRI has calculated a significant squeeze on profitability for corn and soybean production over the next 10 years.  And when you get to 2022, everyone in a farm family will need several part time jobs to put enough food on the table.

The FAPRI analysis and projection of the agricultural economy over the next 10 years was in a report provided to Congress, and many of the numbers parallel the recent 10 year projection of the Congressional Budget office.  While there were detailed financial numbers provided, FAPRI also offered some generalizations:

Corn

  • Higher corn prices almost offset sharply lower yields in 2012/13, leaving average Corn returns decline from 2011/12 peak per-acre corn market revenues only slightly lower than the 2011/12 record.
  • Lower prices more than offset the projected yield increases, so market revenues decline in 2013/14 and 2014/15.
  • Variable expenses (which exclude land costs) continue to increase.
  • Projected farm program payments are very small relative to corn market receipts.

When FAPRI looked at corn, economists projected an initial surge in planted acres to nearly 97 million in 2013, with the acreage quickly tapering off in 2014 and remaining near the 91 million acre mark for the remainder of the 10 year period. With trend line yields rising to 180 bushels, production approaches the 15 billion bushel mark, with annual carryover of 1.5 to 2.0 billion bushels. Relationships between feed, ethanol, and exports generally stay in the same range, with exports returning to the 2.5 billion bushel range.

The kicker for the corn grower is the projected price fails to average over $5 per bushel.  FAPRI calculates the farm price in the high $4 range through 2022.  With the trend yield, that puts average gross revenue per acre in the $800 range for most of the period.  Variable expenses slow rise from the current $350 per acre to over $400 per acre, with net returns generally in the $450 range.  The question that corn growers will have to answer is whether land acquisition costs, whether rent or mortgage payments, can be covered by that level of margin and still have enough money for family living expense.

Soybeans

  • The increase in soybean prices is more than enough to offset the drop in soybean yields, so per-acre market receipts are at record levels in 2012/13.
  • In 2013/14, projected prices fall more than yields increase, causing per-acre revenues to decline.
  • Soybean returns must remain strong for soybeans to be competitive with corn.
  • As with other crops, soybean prices and returns are likely to be very volatile.

When the FAPRI economists looked at soybean numbers, they found planted acres would reach over 78 million this year, but stay in the 77 million acre range for the balance of the 10 year period. The average yield will slowly rise from the 43.5 bu. expected in 2013 to 47.9 bushels in 2022, resulting in annual production in the 3.3 to 3.6 billion bushel range.  The crush will range from 1.6 to 1.8 billion bushels, exports will range from 1.4 to 1.6 billion, and FAPRI projects the carryout will remain below 200 million bushels annually. 

The average farm price each year will be in the mid-$11 range for the 10 years studied.  Gross soybean receipts will begin under $500 per acre, and end in the mid-$500 range in 2022-23.  Subtracting variable expenses of $140 to $160 per acre, leaves net returns to labor and land of $340 to $380 per acre.  As in the case of corn, can a soybean producer in the Corn Belt grow and sell soybeans with that level of return and still have money left for either cash rent or land mortgage payments and still have enough for family living expenses?

Summary:

  • Projected corn and soybean production over the next ten years is expected to slowly increase with higher yields, but with marginally higher demand, farmgate prices will remain at levels which could be challenging for many farmers. 
  • Corn prices are forecast to average under $5 through 2022 and soybean prices are forecast to average under $12 for the same period. 
  • Net returns to labor and land over the ten year period may be less than what cash rents will average.  That will leave insufficient amounts for family living expenses.

Source: FarmGate blog



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