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Managing 2017 crop production costsManaging 2017 crop production costs

Another year of large corn and soybean supplies will limit price improvement and keep margins tight.

Steve Johnson

January 26, 2017

4 Min Read
COST CONTROL: Managing crop costs and making effective in-season crop input management decisions is critical to overall profitability. Use your actual farm records of each field and the efficiency of crop rotation to cope with tight profit margins again in 2017.

Large 2016 crop yields provided much lower actual crop costs per bushel. However, looking ahead, you can expect U.S. and global ending stocks to remain burdensome in 2017, adding to continued tight profit margins.

Without major weather events, market analysts expect national average cash prices to be $3.50 per bushel for corn and $9 per bushel for soybeans for the 2017-18 crop marketing year. That’s a slight increase in the national corn price of $3.40 per bushel forecast for the 2016-17 crop marketing year, but about 40 cents per bushel lower for soybeans. This assumes trend-line yields and that roughly 3 million to 4 million fewer U.S. corn acres will be planted in 2017 compared to 2016. Soybeans, however, will likely pick up most of these missing corn acres, plus another 2 million acres from smaller winter wheat acreage.

How will you make a profit in 2017?
Start with these three steps:
• Determine your 2016 actual costs and cost of production.
• Separate your fixed costs and variable costs.
• Develop a 2017 crop breakeven price assuming normal yields.

First, calculate your actual 2016 costs. A good recordkeeping system could allow you to track costs by crop in a farm field on a per acre or per bushel basis. Knowing these numbers so you can compare them year to year is key to making management decisions.

Tracking various crop cost categories (both fixed and variable) over several years can help establish a baseline for understanding how best to manage these costs. Those fixed crop costs represent about 50% of total costs for a typical row crop operation and are often referred to as the Big Three:
• land (rent, or principal and interest payments)
• machinery and equipment costs
• family living expenses

Getting a handle on fixed costs
Hopefully, over the past few years, you’ve already renegotiated cash rents, restructured existing real estate loans, reduced capital expenditures for machinery and equipment, and implemented a tighter family budget. Fixed costs in row crop farming operations tend to separate the low-cost from the high-cost producers.

While variable costs are important, there tends not to be large differences across farming operations for items, such as fertilizer, seed, crop protection, fuel, labor, hauling, drying, interest and insurance-related costs. Most states have farm business management associations that provide consultants and computerized recordkeeping systems to help producers keep track of both fixed and variable costs.

If you need to add machinery or equipment to your operation, consider buying used, leasing rather than buying, or trading your labor for the use of a neighbor’s machinery. Knowing your machinery costs per crop, per acre and per bushel is critical. Don’t expect 2017 average fixed and variable costs to vary much from those of 2016. Perhaps cash rent and fertilizer costs on average may decline slightly.

Timely in-field cost management tips
the goal might be to not just cut costs, but also manage variable input costs that will still lead to profitable yields. Here are five timely cost management tips to consider:
1. Reduce field passes of machinery and equipment to reduce compaction, fuel and labor costs.
2. Use no-till and minimal-till practices to save fuel and labor expenses.
3. Sample soil and have it tested for making fertilizer application decisions to optimize plant growth or assist in solving soil-related problems.
4. Incorporate variable-rate application technology. Once established it can reduce field overlaps, amount of products applied, fuel used and labor.
5. Assess crop yield potential before making rescue operations (nitrogen, herbicides, insecticides, fungicides, etc.)

The timeliness of these in-season crop input decisions will likely have a large impact on your final 2017 yields and overall farm profitability. Start with establishing a good recordkeeping system that will help you track both fixed and variable costs per crop, per acre and per bushel by farm field.

In summary, managing crop costs and making effective in-season input management decisions is critical to overall profitability. Expect a greater focus on using actual farm records and crop rotation cost efficiency with tight profit margins again in 2017.

More information to help you figure cost of production
Each year ISU Extension economists estimate the cost of production for corn and soybeans in Iowa. The publication is “Estimated Costs of Crop Production in Iowa, 2017” and the publication number is FM-1217 revised. The newly updated publication begins running online in late January as File A1-20 on the ISU Ag DecisionMaker website.

These ISU estimates represent typical costs for producing the crops and are only intended to be used as guidelines. Actual costs will vary considerably from farm to farm and can be entered in the column for “Your Estimates” in the publication. Electronic spreadsheets for developing your own crop production budgets are also available on the Ag DecisionMaker site.

Johnson is an Iowa State University Extension farm management specialist. Contact him at [email protected].

About the Author(s)

Steve Johnson

Steve Johnson is an Iowa State University Extension farm management specialist. Visit his website at extension.iastate.edu/polk/farm-management.

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