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Gap Between Variable Costs and All Costs Is Wide

TAGS: Extension
Don't be fooled by large income per acre if you're not counting all costs.

If you read the article about showing meager profits after covering all costs through 2016 for corn, you may think you won't have the margins you're used to. However, Chris Hurt, Purdue University Extension ag economist, says it's all about what you are comparing against. If you're just worried about covering variable costs, which might get you by in the short run, if you or your spouse have off-farm income, then that's a whole different proposition that covering all costs, including land cost, family living and paying for machinery.

Purdue also figured variable costs for corn in a corn/soybean rotation on average land. Costs vary form $184 per acre in 2005 to $461 per acre in 2012, and a projected $4.62 per acre in 2013. The biggest increases are in fertilizer, from $66 per acre in 2005 to $175 in 2012, seed, from $34 per acre to $107 per acre in 2012, fuel, from $29 to $48, pesticides, from $19 to $38 and insurance, from $11 to $33. If you grow trend yield on this average ground in 2013, at 165 bushels per acre, then variable costs per bushel would be $2.80 per bushel. However, that does not include either a land charge if you own land or a cash rent charge.

In 2005, with an actual yield of 154 bushels per acre, it only took $1.22 per bushel to cover variable costs.

Looking at soybeans, the total variable cost has risen from $114 per acre in 2005 to $243 per acre in 2012. Again, the biggest increase is in fertilizer and seed. Insurance costs have tripled, but were low to begin with. Pesticide costs have nearly doubled, and may be one to watch. With more emphasis on controlling tough weeds, that is one area where costs may increase. Purdue has not yet accounted for that change in their budgets, and actually dropped pesticide costs for 2013 vs. 2012 from $29 to $24 per acre.

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