February 2, 2021
Breakeven prices are helpful when making crop decisions and marketing crops. They vary substantially by soil type and farm. Without breakeven price information, it is very difficult to gauge or evaluate market opportunities or make crop rotation decisions.
From a marketing perspective, you must take advantage of spikes in crop prices. In 2020, the nearby weekly corn futures price ranged from $3.07 in early May to $4.45 in late December, while the nearby weekly soybean futures price ranged from $8.33 in late April to $12.53 in late December.
We can 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. That’s the 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 in an enterprise budget. The bottom-line figure in the budget represents an economic profit.
Over a long period of time, because all inputs — including cash items, depreciation and opportunity costs — are being paid the market rate, economic profit is zero. If economic profit is positive, input prices will be bid up, like what happened to cash rents during the 2007-to-2014 period, and economic profit will migrate toward zero. Conversely, if profit is negative, input prices will decline, and economic profit will migrate toward zero.
Examine Purdue budgets
Using the Purdue University crop budgets, the estimated breakeven price to cover all costs for corn 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 ranges from $10.60 for average-productivity soil to $9.75 for high-productivity soil.
The Purdue budget uses average production costs. Production costs for individual farms may be 10% below or 10% above these costs.
At a minimum, it’s extremely important to compute production costs for individual farms. Ideally, you should compute breakeven costs for each farm unit or tract. These computations don’t make marketing decisions or crop rotation decisions easy, but they certainly provide important information.
Langemeier is a Purdue University Extension agricultural economist and associate director of the Purdue Center for Commercial Agriculture.
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