Crop budgets and acreage implications for 2014
USDA has recently updated the budgets for major crops through 2012. Doane Advisory Services has extended those budgets through 2013 and forecast them for 2014. It is not an exact science but does provide some information about relative rates of returns among the various crops and even estimates of break-even prices. This analysis provides at least some information that will help to determine how acreage might shift next year.
The actual data reported by USDA are a little out of date, only going through 2012. Our first step is to extend the budgets through 2013. To do that we use the year-over-year changes in prices paid by farmers for the various inputs based on the April 30, 2013 Agriculture Prices report. We increase the per acre costs by that amount. For example, the year-over-year change in agricultural chemicals was a 4.6% increase from April 2012 to April 2013. We increase the per acre ag chemicals cost by that amount from what USDA reported for 2012. This is done for each of the cost variables included in the budgets. The same multiplier is used for all of the major crops.
The revenues in the USDA budgets are based on yield per planted acre – while most of us think about yields per harvested acre. This is not a big deal for corn and soybeans since most of the land planted to these crops get harvested. Corn for silage is a separate source of revenue so the yield per planted acre for corn is typically a couple of bushels under the yield per harvested acre. For wheat and cotton, the differences between the yield per harvested acre and the yield per planted acre can be pretty big if there is a lot of acres that go unharvested either because yield potential is so low or the crop is used for grazing (wheat pasture) or a cover crop. The yield per harvested acre is multiplied by the harvest-time price to calculate revenue.
The costs are broken up into two parts – operating costs and allocated overhead. The operating costs are those out-of-pocket costs associated with crop production. These costs are the key costs when comparing relative rates of return among various crop alternatives. Allocated overhead costs are essentially fixed costs. A producer needs to pay machinery costs, taxes, land costs, etc regardless of what crop gets planted – and in most cases even if no crop is planted. These costs are important in determining if an acre of land or a farm is covering all costs and making or losing money – but may not figure into the decision about which crops to plant. Economic theory says that producers should continue to produce if revenue exceeds variable costs, even if total revenue does not cover total costs.
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