Pushing the Pencil on the 2013 Crop

Harvest has begun in Adair County of early planted corn fields. As expected, thus far yields are very good. Full season soybeans have begun to dry down as late planted double crop soybeans try to squeeze in maturity before frost. As harvest has neared, activity has picked up in the grain markets. Corn futures for December have dropped from $5.70 in June to $4.51 as of September 20^th. Soybean futures for November have rallied from $11.75 in early August to over $13.00 for the past 4 weeks. As the 2013 crop is harvested and the new crop hits the market, we can expect more movement in market prices.

While corn has taken a hit in prices this year, the outlook for yields is good and will help make up some of the difference. Soybeans have prices in their favor but double crop plantings were delayed due to rain in early July compromising yield potential. It is likely that some soybeans planting will not mature before frost resulting in very poor yields. With these factors in mind, it is worth taking a look at this year's production costs and potential returns for the 2013 grain crop.

Grain producers can estimate their net return per acre with the help of corn and soybean budgets developed by the University Of Kentucky Department of Ag Economics. These budgets include fertilizer, seed, pesticide, machinery costs, crop insurance premiums, drying, trucking, fuel, repairs, taxes, 5% interest, and depreciation. Users may add land rent and edit other values to reflect their own operation. Using average spring 2013 fertilizer prices in Adair County, multiple scenarios reflecting changes in crop value and yield were conducted to develop the included tables. Keep in mind that these values DO NOT include land rent. 

If we first look at the estimated returns for corn, the shadowed area are the most likely returns for corn given yield outlooks and current market prices. If you deduct land rent from these values, it is possible that net returns for the 2013 corn crop could be negative. Farmers with good yields and/or contracted prices in late winter/early spring are comfortably sitting at decent margins.
For soybeans, scenario results are similar to corn. Full season soybeans have performed well this year and will likely have average to slightly above average yields providing decent margins. For double crop soybeans, yields may lead to near break-even returns.

The purposes of providing these estimates are not to provide growers with a means of estimating their crop value, but to encourage growers to push the pencil on their own crop this year. Knowing your profit potential will be important as marketing decisions are made and as plans are made for next year. The past two year's weather conditions and swing in prices is a reminder of how risky our business can be. It's also reminds us how important it is to manage risks through the use of crop insurance, grain storage, and by using futures. As corns rose above $6.00 in previous years, growers naturally sought every way possible to add a few more bushels in the bin. Many times, these strategies included trying new products that seldom provided yield increases and adding acres with lower yield potential. 2013 will be remembered as a year of great corn yields, but also maybe a turning point in the way we approach both crop and risk management.

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