September 26, 2022
Breakeven prices are helpful when making crop decisions and marketing crops. They vary substantially by soil type and farm operation. Without breakeven prices, it’s difficult to make crop rotation decisions or evaluate market opportunities as crop prices change.
From January through August, the weekly average December 2022 corn futures price ranged from $5.54 per bushel in early January to $7.47 in mid-May, while the weekly average November 2022 soybean futures price ranged from $13.02 in mid-January to $15.60 in mid-June. These wide differences illustrate how important it is to know a farm’s breakeven price when evaluating forward-pricing strategies and developing scenarios pertaining to potential cash flows.
Let’s use enterprise budget information in the Purdue 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. In addition to cash costs and depreciation, opportunity costs are included.
An opportunity cost represents income that could have been earned if an input was sold or rented to someone else. Opportunity costs for unpaid family and operator labor, owned machinery and owned land should be included. The bottom-line figure in the budget reflects an economic profit or loss.
Over a long period of time, since all inputs — including cash items, depreciation and opportunity costs — are paid at the market rate, economic profit is zero. If economic profit is positive, input prices will be bid up, like what happened to cash rents from 2007 to 2014. Economic profit will migrate toward zero. Conversely, if profit is negative, input prices will decline. Economic profit will migrate toward zero.
Using the 2022 Purdue crop budgets, estimated breakeven price to cover all costs was $5.60 per bushel for corn for average-productivity soil and $5.13 for high-productivity soil. Breakeven prices in 2022 were about 26% above those for 2021.
For full-season soybeans, the breakeven price to cover all costs was $12.53 per bushel for average-productivity soil and $11.60 for high-productivity soil. That is about 15% above the breakeven prices in 2021 for soybeans.
Looking ahead to 2023, breakeven prices for corn and soybeans for average-productivity soil are estimated at $5.90 and $13.40 per bushel, respectively. These breakeven prices are 5% to 7% higher than in 2022. Note that the Purdue budget uses average production costs. Production costs for individual farms could be 10% below or 10% above production costs in the budgets.
At a minimum, it’s extremely important to compute production costs for individual farms. Ideally, compute breakeven costs for each farm unit or tract. These computations do not make marketing decisions or crop rotation decisions easy, but they provide important information for use when making these decisions.
Remember as you compute budgets using your own information that Purdue budgets cover all costs, including opportunity costs. Don’t dismiss them just because you believe you can produce corn and/or soybeans at much lower costs. Make sure you’re comparing apples to apples, and include opportunity costs, not just direct cash costs, when figuring your personalized cost of production to find breakeven prices.
Langemeier is a Purdue Extension agricultural economist and associate director of the Purdue Center for Commercial Agriculture.
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