Each winter brings one of the most important functions of futures markets: optimally allocating available cropland among alternative crops competing for that land. The burden is on the world’s commodity buyers to, collectively, know 1) how much acreage will be needed to meet their collective needs for a particular crop, 2) current comparative costs and returns farmers are looking at, and 3) that they’ll need to bid more aggressively for the crop they need if it’s badly losing the bidding for acreage share next spring!

The tables below address item 2: comparative costs and returns using current new crop futures quotes for the eight major crops, USDA’s latest estimates of 2014 costs of production; and both variable costs and total costs.

Looking first at 2013 comparative returns over variable costs only, rice still leads the pack. Soybeans come in second for 2013 by a wide margin over corn. And that margin favoring beans (for old crop) is even more profound in returns over total costs. And notice that when total costs are deducted, sorghum, oats, cotton and barley all show negative returns at current futures values and last year’s actual costs and yields.

But now switch to the bottom pair of tables, showing projected returns for 2014 using trend yields, current new crop futures quotes and USDA’s just released estimates of production costs, both variable and fixed. Looking first at implied returns over variable costs only, rice still leads, but corn and soybeans change places. Spring wheat comes in fourth again, but sorghum rises above cotton. Oats and barley still come in at seventh and eighth place.

Now switch to 2014 rankings in futures’ returns over all costs, crop by crop. Margins are drastically lower for all, compared to old crop, but soybeans have risen to first place, even ahead of rice, when all costs are factored in. Also, soybeans edge out corn if all costs are factored in, albeit by a small margin easily reversed with even minor changes in the soybean:corn price ratio between now and planting time. And the final four (sorghum, oats, barley and cotton) all project losses against all costs for 2014, and cotton  drops to last place in the bidding for acres in 2014.

The trend yield assumptions and costs for 2014 won’t change much until spring. It’s the futures prices that will change. Doane Advisory Services will be updating those regularly in its U.S acreage allotment model as the annual winter “acreage allocation auction” unfolds between now and planting time in futures markets!

   

2013 Rank in Profitability

2013 Rank in Profitability

(returns over var. costs)

(returns over all costs)

Rice

$666

 

Rice

$205

 

Soybeans

$423

 

Soybeans

$148

 

Corn

$332

 

Corn

$20

 

Wheat

$184

 

Wheat

$4

 

Cotton

$151

 

Sorghum

-$48

 

Sorghum

$121

 

Oats

-$132

 

Oats

$101

 

Cotton

-$157

 

Barley

$44

 

Barley

-$197

 

2014 Proj. Rank in Profitability

2014 Proj. Rank in Profitability

(returns over variable costs)

(returns over all costs)

Rice

$529

 

Soybeans

$90

 

Corn

$404

 

Corn

$87

 

Soybeans

$370

 

Rice

$60

 

Wheat

$189

 

Wheat

$6

 

Sorghum

$153

 

Sorghum

-$19

 

Cotton

$102

 

Oats

-$143

 

Oats

$94

 

Barley

-$200

 

Barley

$46

 

Cotton

-$212