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The 2019 sprinkler-irrigated corn competition shows that achieving high profitability takes a balanced effort.

January 29, 2020

4 Min Read
corn field with dark skies
BALANCED EFFORT: In the 2019 TAPS sprinkler-irrigated corn competition, Team 9 demonstrated that higher production costs and an aggressive marketing strategy can lead to high profits.

By Jessica Groskopf, Cory Waters and Matt Stockton

The University of Nebraska's Testing Ag Performance Solutions program is an interactive, real-life, real-time, farm management competition for profitability and input-use efficiency.

Contestants in the competition make decisions on a number of management options for their farm, including expenses and marketing. This article explores the differences in profitability among the 2019 sprinkler-irrigated corn competition teams. The results are amplified to represent 3,000 acres. The expected yield average for all farms is 225 bushels per acre.

Profitability is the difference between revenue and expenses. TAPS competitors must reduce costs without sacrificing yield and also have an effective marketing strategy. Therefore, multiple combinations of costs and marketing strategies can lead to different profit levels.

Table 1. Yield, costs, revenue and profitability results of 2019 sprinkler irrigated corn competition, ranked by profitability

Table 1 shows the yield per acre, cost per bushel, revenue per bushel and profit per bushel for each team. The top five teams in each column are highlighted in green, while the bottom five are highlighted in red. Costs per bushel in the 2019 competition ranged from $2.76 to $3.36 per bushel, while yields ranged from 192.2 to 236.8 bushels per acre. Revenue ranged from $4.25 to $3.38 per bushel.

Team 7 was the most profitable team in 2019. However, it ranked fifth in yield, fourth in cost of production and second in revenue per bushel. The result was $1.32 per bushel of profit.

This team used a combination of cash-forward contracts, futures contracts and cash sales at harvest, which can be seen in Table 2. The team cash-forward contracted 450,000 bushels of corn in late May (66% of expected production).

They then placed a December 2019 hedge on May 30 on 150,000 bushels, which they lifted in November, around harvest. The team sold its remaining 217,800 bushels across the scale at harvest at $3.436.

Table 2. Team 7's marketing strategy

Team 9 provided evidence that higher production costs, combined with an aggressive marketing strategy, can lead to high profits. This team had the third-highest costs, but more importantly, had the highest revenue (marketing) per bushel.

Team 9 faced some challenges when marketing its grain. The first hedge it placed was for 250,000 bushels on March 20. When the market rallied (moving against their position), the team lifted its hedge on May 20, costing them almost 10 cents per bushel.

On May 29, team members hedged 500,000 bushels (74% of expected production) and lifted it at harvest, benefiting 69 cents per bushel. The team also used a hedge-to-arrive contract on May 29, guaranteeing delivery of 150,000 bushels to a local elevator. Their remaining cash sales were made in November.

Table 3. Team 9's marketing strategy

Interestingly, the top five revenue farms also are the top five profit teams. However, the revenue rankings are different than the profit rankings. Not all top five revenue teams used just futures hedging to protect their price risk.

The fourth-most profitable team, Team 1, made a single cash-forward contract sale of 375,000 bushels on June 12 for $4.07 per bushel (55% of expected production) and sold its remaining 258,600 bushels at harvest.

The fifth-most profitable team, Team 19, cash-forward contracted 340,000 bushels (50% of expected production) by June 12. Team members also took advantage of a late fall rally in the market and contracted an additional 60,000 bushels on Oct. 25. Finally, they sold their remaining 139,600 at harvest.

This year’s competition results provide evidence that you do not need to be the lowest cost producer or the best marketer to survive. If fact, all of the teams were profitable. Three of the five lowest revenue teams did not preharvest market any of their crop during the growing season, selling all of their production at harvest.

Team 10 did not use a preharvest marketing strategy, but still placed 11th in profitability because of their low cost of production and high yields.

As we look forward to the 2020 growing season and TAPS competition, consider how cost of production and marketing work together to create profitability.

Examples from the 2019 sprinkler-irrigated corn competition show that focusing in only one area (yield, cost or revenue), does not necessarily lead to the greatest profitability. Achieving high profitability appears to require a balanced effort.

Groskopf is a Nebraska Extension educator for agricultural economics at the Panhandle Research and Extension Center; Walters is a Nebraska Extension grain economist and associate professor at the University of Nebraska-Lincoln's Department of Agricultural Economics; and Stockton is a Nebraska Extension agricultural economist and associate professor at the West Central Research and Extension Center.

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