How to know if you’re making money in low price era for grain
Illinois ag economist Schnitkey determined the break-even price for soybeans by adding non-land costs, such as seed, fertilizer, and fuel, to the cost of cash rent, then subtracted any government payments and any crop insurance revenue.
For the coming year, Schnitkey estimate soybean input costs and other non-land at $326 per acre. If average cash rent is $264 per acre, and there are no government payments nor crop insurance proceeds, then the break-even level for soybeans yielding 56 bushels per acre would be ten dollars and 54 cents per bushel.
click image to zoom When there are no crop insurance indemnity payments, the break even cost drops slightly. Of course the break-even cost in the drought year of 2012 would have been much higher because the yield was less and production costs were the same.
When cash rent is above the $264 level per acre, consequently the break-even price rises. Cash rent that is $100 more per acre at $364 would see the breakeven price for soybeans rise to $12 and 32 cents per bushel.
The projected breakeven point for soybeans in 2014 is slightly below the level for 2013 due to lower production costs and higher yield averages.
Currently cash soybean bids for 2014 fall delivery are near $11.30 per bushel and that is above the breakeven cost of $10 dollars and 54 cents per bushel. However, USDA is projecting soybeans prices to average about $10 and 60 cents per bushel over the next several years, and that would challenge profitability, based on the current breakeven levels for input costs and cash rents.
Just like corn, the breakeven price for soybeans can decline over time, if cash rents decline due to low grain prices. However cash rents tend to hold in place and not drop very far and very fast.
Break even prices will vary from farm to farm, depending on costs, yield levels, and the cost of land. Farms with a lower breakeven price will be able to survive lower commodity prices better than farms with high breakeven prices.
Breakeven prices have been rising for the past 10 years due to higher input costs, particularly higher levels of cash rent. While that has not been a siginificant issue with recent high prices of corn and soybeans, it will become a critical issue as corn prices are in the range of $4 futures and $3 cash, and soybeans test price levels below $12 per bushel. Operators will need to know their breakeven price in a need to understand whether grain sales will be in the red or in the black.
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