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February 27, 2020
Breakeven prices are helpful when making crop decisions and marketing crops. Breakeven prices for corn and soybeans vary substantially by soil type and farm. Without breakeven price information, it’s difficult for a producer to gauge or evaluate market opportunities as crop prices change, or to make crop rotation decisions.
From a marketing perspective, producers need to be able to take advantage of spikes in crop prices. In 2019, the nearby weekly corn futures price ranged from $3.50 per bushel in late April to $4.48 in late June, while the nearby weekly soybean futures price ranged from $8.09 per bushel in mid-May to $9.34 in late December. This article uses enterprise budget information in the Purdue University Crop Cost and Return Guide to estimate breakeven prices for corn and soybeans for average- and high-productivity soils.
Most enterprise budgets use economic costs rather than cash costs. This means that in addition to cash costs and depreciation, opportunity costs are included. An opportunity cost represents the income that could have been earned if an input were sold or rented to someone else. Opportunity costs for unpaid family and operator labor, owned machinery, and owned land need to be included in an enterprise budget.
The bottom-line figure in the budget, either earnings or losses, represents an economic profit. Over a long period of time, because all inputs (including cash items, depreciation and opportunity costs) are being paid at the market rate, economic profit is zero. If economic profit is positive, input prices will be bid up — similar to what happened to cash rents during the 2007-14 period — and economic profit will migrate toward zero. Conversely, if profit is negative, inputs prices will decline, and economic profit will migrate toward zero.
Using the Purdue crop budgets, the estimated breakeven price for corn to cover all costs is $4.25 per bushel for average-productivity soil and $3.85 for high-productivity soil. For full-season soybeans, the breakeven price to cover all costs is $10.45 per bushel for average-productivity soil and $9.60 for high-productivity soil.
It’s important to note that the Purdue budget uses average production costs. It is not uncommon for production costs for individual farms to be 10% below or 10% above the production costs reported in the Purdue budgets.
Thus, at a minimum, it’s extremely important to compute production costs for individual farms. Ideally, a producer should compute breakeven costs for each farm unit or tract of land. These computations don’t make marketing decisions or crop rotation decisions easy, but they certainly provide important information that can be used when making these decisions.
Langemeier is a Purdue University Extension agricultural economist and associate director of Purdue’s Center for Commercial Agriculture. He writes from West Lafayette, Ind.
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