What is in this article?:
- As grain prices fall, growers need to develop crop budgets for 2014
- Rotation soybeans very attractive
• The expected drop in corn, soybean and wheat prices is having a large negative impact on market revenue and contribution margins.
• More positive is the expected continued decline in fertilizer costs.
Rotation soybeans very attractive
"Rotation soybeans are looking very attractive for 2014, so we could see more rotation soybeans than continuous corn," he said.
Right now, the per-acre contribution margin (revenue minus variable costs) for rotation soybeans on average land is an estimated $395, while continuous corn is $277. Those numbers could change, however, as the 2013 cropping season wraps up.
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Langemeier also pointed out the estimates in the guide won't directly apply to individual farms.
"This guide is not going to be directly applicable to any farm," he said. "This guide is specifically that — a guide. It gives a person an idea of how market revenue should be computed, and it gives an idea of how we did it, using current futures prices and trend yields.
"More importantly, it gives someone an idea of the important costs that need to be included and how you would calculate those costs for a specific farm, for a specific field and for a specific enterprise, such as rotation corn."
Included in the guide are illustrations of how to calculate variable costs — fertilizer, seed, fuel and chemicals — and overhead costs, such as machinery, operator labor and land rent.
The guide focuses very heavily on figuring out a farm's opportunity costs when calculating overhead. Opportunity costs include the loss of money from alternatives that aren't chosen. For example, if farmers own land and choose to farm it themselves, they give up potential rental income.
"We basically have two bottom lines in this guide," Langemeier said.
"The first one is called a contribution margin — that's market revenue minus variable costs. The second is earnings — the contribution margin minus overhead costs. The contribution margin should be positive because you have overhead costs you need to be able to cover.
“The earnings, we would expect over a long period of time, to be close to zero. Farmers need to include opportunity costs in a budget, such as the cost to own machinery, land rent and the fact that their labor is worth something."
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