Thursday, January 18, 2018

Corn Cost of Production Estimates for 2018

It is difficult to predict the economics of corn production next year. In the last blog we discussed how someone might go about forecasting the 2018 price. A grower has little control over price, but can begin to lock in prices using futures contracts. Of course a lot can happen yet between now and harvest.

A grower has more control over cost of production on their farm. In a year with low corn price predictions, every input from management must be reviewed to lower cost of production. In some years, growing corn may not be the best option.

USDA has been producing cost of production estimates since 1975. These estimates are based on the actual costs incurred by producers. USDA performs the estimates from a survey base conducted every five years. The annual Agricultural Resource Management Survey (ARMS) has been used to modify the survey base since 1996. Cost of production estimates exclude costs for marketing and storage.

ARMS data collection starts during the fall when production practice and cost data are collected, and finishes in the spring when a follow-up interview collects data about whole-farm costs like overhead, interest, and taxes (Figure 1). Each farm sampled in the ARMS represents a known number of farms with similar attributes so that weighting the data for each farm by the number of farms it represents provides a basis for calculating estimates. Actual cost of production data from 2017 is still being collected at this time.

USDA divides the country into 9 farm resource regions. Wisconsin belongs to the Northern Crescent region while the Heartland region is dominated by the "I" states (see map). Cost of corn production in 2016 was $665 per acre in the Heartland region and $587 per acre in the Northern Crescent (Figure 2). Cost of production in 2018 is predicted to be $645 per acre. The breakeven price for corn at a yield level of 200 bu/A is $3.23 per bushel, at 180 bu/A is $3.58 per bushel, and at 160 bu/A is $4.03. Today, December corn on the CBOT closed at $3.85 per bushel making the 2018 growing season a challenging one economically.

Figure 1. USDA-ERS Cost of Production Estimates for Corn in the Northern Crescent and Heartland regions of the U.S. Derived from

Figure 2. Cost of production and profit estimates for the Northern Crescent and Heartland regions of the U.S.
Derived from

Further Reading

Foreman,  L. 2014. Characteristics and Production Costs of U.S. Corn Farms, Including Organic, 2010. USDA-ERS Economic Information Bulletin No. 128.

Tuesday, January 2, 2018

Economic Forecast for Corn Production Next Season

As the holiday season starts to wind down, plans become more and more firm for the 2018 production season. There is still quite a bit of time before planters start rolling in the field, but some key decisions need to be made now at the kitchen table. Projecting prices and potential yields are where many farmers begin. The next step is to calculate production costs and see if gross revenues (price x yield) are greater than costs.

Projected prices for 2018 crop insurance policies will not be set until February for corn and soybean grown in the Midwest. Likewise corn and soybean acreage intentions will not be compiled until the end of March. However, current levels of futures contracts provide estimates of of 2018 projected prices.

Projected prices are used to set minimum guarantees for Revenue Protection (RP). Also, the projected price sets the payment on yield shortfalls associated with Yield Protection (YP). Once set, projected prices determine the overall level of revenue and yield protection offered by crop insurance.

Projected prices are set using futures contracts and vary from year-to-year based on market conditions. For corn grown in Midwest states, the projected price is the average of settlement prices of the December Chicago Mercantile Exchange (CME) contract during the month of February. For soybeans grown in Midwest states, the projected price is the average of settlement prices of the November CME contract during the month of February.

Projecting potential yields are difficult due to weather and management challenges. Using your actual production history (APH) for each farm can help to develop realistic yield projections. However, we know yields are advancing at the rate of 1.5 to 3.0 bu/A per year. So knowing upper limits of production can also help. Below are the highest recorded yields by county as reported by the National Corn Growers Association Corn Yield Contest.

Highest recorded corn yields (bu/A) in Wisconsin counties . Data includes participants in the NCGA yield contest (1983-2016) and Wisconsin PEPS program (1987-2011).