2012 Crop Budgets Update

Alan Miller and Craig Dobbins

Learning Tuesday WebinarFebruary 21, 2012

Purdue University is an Equal Opportunity/Equal Access institution.

Yield Relationships ChangedCrop 2011 2012

Soybeans 30% of rotation corn yield 33% of rotation corn yield

DC Soybeans 60% of rotation bean yield

70% of rotation bean yield

Wheat 48% of rotation corn yield on low yield soil, 43% of

rotation corn yield on average & high yield soils

43% of rotation corn yield

0100200300400500600700800900

10001100

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Dol

lars

Per

Acr

e

Year

Indiana Corn Revenue, Variable Cost, and Contribution Margin

Variable Costs Market Revenue Contribution Margin

0

100

200

300

400

500

600

700

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Dol

lars

Per

Acr

e

Year

Soybean Revenue, Variable Cost & Contribution Margin

Variable Costs Market Revenue Contribution Margin

0

100

200

300

400

500

600

700

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Dol

lars

Per

Acr

e

Year

Wheat Revenue, Variable Cost & Contribution Margin

Variable Costs Market Revenue Contribution Margin

Variable Costs (Average Cropland)

Crops 2010$/acre

2011$/acre

2012$/acre

% ∆11 to 12

Continuous Corn 355 415 486 +17%Rotation Corn 342 397 461 +16%Rotation Soybeans 183 200 243 +22%Wheat 149 181 202 +12%Double Crop Soybeans 156 174 205 +18%

Variable Cost ChangesRotation Corn (Average Cropland)

Cost Component2011

$/acre2012

$/acre% ∆

11 to 12Fertilizers 151 175 +16%Seed 99 107 +8%Pesticides 35 38 +9%Drying fuel 26 32 +23%Machine fuel 23 27 +17%Machinery repairs 14 21 +50%Interest 11 13 +18%Insurance, Misc. 23 33 +43%

Variable Cost ChangesRotation Soybeans (Average Cropland)

Cost Component2011

$/acre2012

$/acre% ∆

11 to 12Fertilizers 69 83 +20%Seed 59 62 +5%Pesticides 27 29 +7%Machine fuel 10 16 +60%Machinery repairs 10 18 +80%Interest 6 7 +17%Insurance, Misc. 14 23 +64%

Variable Cost ChangesWheat (Average Cropland)

Cost Component2011

$/acre2012

$/acre% ∆

11 to 12Fertilizers 97 104 +16%Seed 39 41 +5%Pesticides 7 8 +14%Machine fuel 14 16 +14%Machinery repairs 10 18 +80%Interest 5 6 +20%

Variable Cost ChangesDouble Crop Soybeans

(Average Cropland)

Cost Component2011

$/acre2012

$/acre% ∆

11 to 12Fertilizers 45 62 +38%Seed 68 72 +6%Pesticides 25 26 +4%Machine fuel 10 12 +20%Machinery repairs 10 15 +50%Interest 5 6 +50%

Contribution Margins, 2010 – 2012 (Average Cropland)

Crops 2010

$/acre2011

$/acre2012

$/acre% ∆

11 to 12Continuous Corn 271 422 371 –12%Rotation Corn 326 495 452 –9%Rotation Soybeans 287 443 400 –10%Wheat 194 394 246 –38%Double Crop Soybeans 122 206 247 +20%

Contribution Margin by Crop & Yield, 2012

Crops LowYield

($/acre)

AverageYield

($/acre)

HighYield

($/acre)DC Wheat/Soybeans 348 493 638Rotation Corn 310 452 619Rotation Soybeans 285 400 514Continuous Corn 241 371 525Wheat 183 246 308

Contribution Margin by Rotation, 20121

Crops in RotationLowYield

($/acre)

AverageYield

($/acre)

HighYield

($/acre)Corn – Wheat/DC Beans 329 472 628Corn – Soybeans 298 426 566Soybean – Corn – C-Corn 279 408 553Continuous Corn 241 371 525

1Sum 2012 contribution margins for individual crops, then divide by years in rotation.

Variable Costs Per Bushel 2010 – 20121

Rotation

Low Yield Average Yield High Yield$/Bushel $/Bushel $/Bushel

10 11 12 10 11 12 10 11 12

Rotation Corn

2.43 2.78 3.22 2.15 2.47 2.83 1.86 2.14 2.44

Rotation Beans

4.46 4.79 5.28 3.73 4.08 4.50 3.31 3.61 4.00

Fixed Costs Change, 2011 – 2012 (3000 Acre Farm Size)

Rotation

Low Yield Average Yield High Yield$/Acre $/Acre $/Acre

11 12 % ∆ 11 12 % ∆ 11 12 % ∆

MachineryOverhead

68 77 +13% 72 82 +14% 74 84 +14%

Family & Hired Labor

38 45 +18% 38 45 +18% 38 45 +18%

Land Rent

138 146 +6% 167 189 +13% 208 239 +15%

Total Overhead

244 268 +10% 277 316 +14% 320 368 +15%

Cost Structure – Rotation Corn 2012

Rotation Corn

Low Yield

Average Yield

High Yield

% of Total Cost

% of Total Cost

% of Total Cost

Variable Cost

61 59 57

Fixed Cost

39 41 43

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

% of Total Cost

Variable Cost

46 43 41

Fixed Cost

54 57 59

Fixed costs are for 3000 acre farm. Assumes fixed costs are shared equally between corn and beans.

Total Costs Per Bushel 2010 – 20121

Rotation

Low Yield Average Yield High Yield$/Bushel $/Bushel $/Bushel

10 11 12 10 11 12 10 11 12

Rotation Corn

4.31 4.67 5.28 3.89 4.19 4.77 3.54 3.80 4.32

Rotation Beans

10.56 11.05 11.51 9.40 9.73 10.35 8.75 9.03 9.66 1Overhead 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 Yield Average Yield High Yield$/Acre $/Acre $/Acre

10 11 12 10 11 12 10 11 12

1000-acrecorn-bean -43 81 8 19 182 90 77 279 184

3000-acre corn-bean -8 115 47 50 212 130 114 315 224

-150-100

-500

50100150200250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Dol

lars

Per

Acr

e

Year

Per Acre Earnings on Corn Bean Rotation (average yield, 1000 acre)

Budgeted Earnings from ID-166

-150-100

-500

50100150200250

2007 2008 2009 2010 2011

Dol

lars

Per

Acr

e

Year

Budget vs. Estimated Actual Earnings on Corn Bean Rotation (average yield,

1000 acre)

Budgeted Earnings from ID-166 Budgeted Cost at Actual Yield & Price

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.