With prices received projected to drop more than costs of production, farmers in 2014 will have to be on top of all facets of management. Not only will they have to keep a lid on production costs, but also enhance production to achieve the highest economic yield.
Commodity prices for 2014 new crop prices while on a recent rise are on the whole less than 2013. Certainty there are some exceptions as cash prices during harvest of 2013 may have been lower than current forward price offerings.
For farm financial planning purposes with producers constructing either whole farm plans or examining partial budgets for cropping decisions, I have been using $11 - $11.50 for soybeans, $4 - $4.50 bushel corn, $6 - $6.50 bushel wheat, and $0.78 - $0.80 pound cotton (lint, seed & hauling from gin). With the exception of cotton, these prices are less than prices received for the 2013 crop and less than what prices can be booked for right now.
There have been times, after reading some market analysts projections for 2014, that I thought these prices may be optimistic for 2014. There are so many different factors that go into prices that it is impossible to accurately predict on a consistent basis where prices will end up.
We know that as it stands now, prices received in 2014 will most likely be less than 2013. Corn seems to take the biggest hit with it potentially down 15 percent-20 percent, followed by soybeans with a 7 percent-15 percent reduction, wheat reduced 5 percent-14 percent and cotton down 7 percent-12 percent. Weather as well as geopolitical issues could change these projections, but that is how it is trending.
How about cost of production?
Generally speaking, the trend has been that as prices producers receive have gone up, costs of production go up and somewhat vice versa that as prices come down, costs also come down. Usually costs are slow to come down and some expenses such as cash land rent lag a year or two coming down if at all. Cash land rent is one expenses that also lags a year or two when prices go up.
When comparing 2014 University of Tennessee Crop Budgets to 2013, we do see that costs of production will be less. The majority of the reduction in costs will be in fertilizer costs as seed and chemicals for the most part look to remain even with last year. There may be some changes due to changes in technology and/or changes in weed and insect pressure. Differences in seed, fertilizers, and chemical cost show a reduction of 13 percent in corn from 2013, an 11 percent decrease in cotton costs, a 7 percent drop in soybean costs, and a 6 percent reduction in wheat and double crop soybeans.
As I have mentioned in previous articles, this year projects to be tighter than the last few years. Producers will need to pay particular attention to the details of input costs as well as machinery costs. Watch nonfarm expenses– a reduction of family living expenses is never a popular subject, but when the financial situation is tight it sometimes becomes a necessity. Make informed decisions on your operation.
All producers need to develop farm financial plans on their operation. Farm plans can help determine the direction of the farm operation.