After several years of high grain prices, farmers worldwide have pulled millions more acres into production. "With a big crop produced in 2013, prices have already declined significantly and the stage is set. We'll have lower grain prices in 2014 than we've had the past few years," cautions Steve Johnson, an Iowa State University Extension farm management specialist. "Farmers will have to adjust their thinking when it comes to grain marketing, controlling costs and managing margins."
The first step is to know your cost of production, to determine the price you'll need for corn and soybeans to break even this year. One helpful tool farmers can use is Iowa State University's annual production cost estimates. The 2014 version of the publication, Estimated Costs of Crop Production in Iowa, will be available in early January. It will be online on ISU's Ag Decision Maker website and can be downloaded. The publication number is FM-1712.
A printed version will also eventually be available from ISU Extension's Online Store. But check the Ag Decision Maker site first, as that's where the publication will initially appear.
How can farmers use this tool? Use it as a guide to help you figure your own cost of production
ISU Extension economist Mike Duffy prepares this annual publication, pulling together estimated costs for various inputs. He contacts people in industry for updates and confers with the ISU Extension team of field specialists in farm management and crop production across the state to get ideas and observations. Duffy has been authoring this publication each year since 1985.~~~PAGE_BREAK_HERE~~~
"These estimates are not intended to be ISU telling you what your costs are going to be," notes Steve Johnson. "We leave blank spaces in the publication so each farmer can look at various input costs, crop rotation and yield expectations. You can plug in your own cash rent figure or land value, for example. Then you can calculate the total cost per acre or per bushel. We provide examples of cost of production according to crop rotation, by making estimates based on input costs, yields etc."
What will it take for corn production to be profitable in 2014?
For corn, there is little change in production cost for 2014 versus 2013, according to ISU estimates. Cost per acre and cost per bushel are actually going to decrease slightly for 2014. No major changes, but fertilizer costs are down, as is the cost of crop insurance. Other costs, including seed, crop chemicals and machinery, as well as land are remaining relatively flat to slightly higher.
Depending on the rotation, crop production costs vary. For corn following soybeans, with a medium yield of 180 bushels of corn per acre, $4.29 per bushel is the estimated corn production cost for 2014. For corn following corn, ISU estimates a cost of $4.97 per bushel. So somewhere between $4.29 and $4.97 will be the cost of production for corn in Iowa in 2014, notes Johnson.
Cost of production for soybeans in 2014 is up slightly, as soybeans don't get the fertilizer offset corn does
Cost of production for soybeans at the 50 bushel per acre yield level is $11.13 per bushel, according to ISU's estimate. That's perhaps up a couple percent from 2013, as soybeans don't share the fertilizer price decline as much as corn does—since corn is the heavier user of fertilizer.
"I think Iowa farmers in general are not going to leave the crop rotation they've been using," says Johnson. "It looks like Iowa will likely remain constant for soybean acres planted, and Iowa farmers will end up planting more corn acres in 2014 than they did in 2013. Of course, this assumes decent spring weather for planting crops on time in 2014."~~~PAGE_BREAK_HERE~~~
What crop production input shows the biggest potential price increase for 2014 versus 2013? It's probably seed cost, which is up 3%. "Our cash rent equivalent is about 4% higher than in 2013," says Johnson. "Crop protection and energy costs are up slightly. But because fertilizer cost has declined about 20%, that's a key reason we'll likely see corn acres at least remaining fairly constant in Iowa in 2014. Probably they will increase. Iowa farmers when looking at what fertilizer costs this year, especially to buy nitrogen, they're looking at 25% to 28% less cost in 2014 than in 2013. Thus, I think there will be an attraction for farmers to stay with corn in the crop rotation."
Which crop looks like farmers will have the better chance to make money on in 2014?
Cost of production for soybeans is estimated at $11.13 per bushel. Corn futures prices are currently trading at around $4.50 a bushel, and new crop November 2014 beans are around $11.46 a bushel. You look at those numbers and ask—which of these two crops do I have the better chance of making money on?
"Number one, its corn following beans," says Johnson. "Probably number two is soybeans following corn. The tougher call is corn following corn. Many farmers have over the last few years invested in corn production and grain drying equipment, and have prepared to grow more corn. There is tremendous corn demand with the number of ethanol plants in Iowa and with livestock feeding that is taking place. And, it comes down to basis. Iowa has a very attractive basis for both old crop as well as new crop corn marketing. For all of these reasons, I don't think you are going to see the more productive land in Iowa leave corn and switch to soybeans in 2014."
So, you don't anticipate more soybeans planted in Iowa in 2014?
"That's what it looks like now, as the cost/price relationship still slightly favors corn over soybeans," notes Johnson. "The expectation is corn prices are going to remain strong enough to favor staying with corn rather than switching to soybeans on the so-called swing acres. USDA figures show Iowa had more than 725,000 acres of 'prevented planting' in 2013. That is, over 3% of the tillable acres didn't get planted in 2013. Those acres will make a difference this year. I think most of those acres will be planted to corn in 2014."~~~PAGE_BREAK_HERE~~~
States that have the more productive soils, such as Iowa, Illinois and Minnesota, those soils are able to hold moisture into July and August. They will favor corn acres, says Johnson. "I think we'll see soybean acres probably increase outside our major corn producing states this year," he adds.
Last year's 'prevented planting' acres will make a difference this year, as most will likely be planted to corn
Johnson adds: "When you have more than 3% of the Iowa cropland that didn't get planted and those soils are good, black dirt and they were probably tilled this past fall or they ended up with cover crops planted on them in 2013, I think those farmers are going to want to plant corn on those acres. Such soils will warm up early, and farmers likely don't have much tillage to do on those acres this spring. And when you look at the cost of corn production vs. soybean production, you'll see it favors corn."
A lot of the corn or soybean planting decision will depend on spring weather. "But a considerable amount of tillage was done this past fall and many fields have had fertilizer applied. It depends on what happens in April and May in terms of weather and if we can get into the fields early with the planters. If we get a window like we did in 2012, I think we'll see a lot of corn planted in Iowa in 2014."