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.

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