indiana Prairie Farmer Logo

Farm Business: Calculate your breakeven prices to help with decision-making.

July 21, 2016

2 Min Read

Breakeven prices are helpful when making cropping decisions and when marketing crops. Breakeven prices vary substantially by soil type and farm. Without breakeven price information, it is very difficult to gauge or evaluate market opportunities as crop prices change. 

breakeven_price_corn_soybeans_1_636047168324576116.jpg

As in previous years, we’ve seen wide swings in corn and soybean prices since planting. For example, the December futures contract for corn ranged from $3.50 to $4.50 per bushel from early May to early July. Similarly, the November futures contract for soybeans varied from $10 to $11.75 per bushel during the same time period. This article uses enterprise budget information in the Purdue University Crop Cost and Return Guide to estimate breakeven prices for corn and soybeans by major soil-type categories.

Economic costs

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 was 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, which is earnings and losses, represents an economic profit. Over a long period of time, due to the fact that 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, similar to what happened to cash rents during the last decade. Economic profit will migrate toward zero. Conversely, if profit is negative, inputs prices will decline, and economic profit will migrate toward zero.

Purdue budget breakeven numbers

Using the Purdue crop budgets, the estimated breakeven price to cover all costs for corn ranged from $4.02 for high-productivity soil to $4.80 for low-productivity soil, and was $4.39 for average-productivity soil.

For full-season soybeans, breakeven price to cover all costs ranged from $9.88 for high-productivity soil to $11.70 for low-productivity soil, and was $10.56 for average-productivity soil.

It’s important to note that the Purdue budget uses average production costs. It’s not uncommon for production costs for individual farms to be 10% below or 10% above the production costs reported in the budgets. Thus, at a minimum, it’s extremely important to compute production costs for individual farms. 

Ideally, you should calculate breakeven costs for each farm unit or tract. These calculations don’t make marketing decisions easy, but they certainly provide important information that can be used when making marketing decisions.

Langemeier is associate director of Purdue University's Center for Commercial Agriculture.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like