A Look at Corn and Soybean Seed Expense

seedby David A. Widmar

In a post from a year ago we took a look at how budgeted corn seed expenses had changed over time.  That post shed light on an interesting trend in corn seed expense and left us wondering how seed expenses would adjust in 2015. Mainly, we wondering if the record corn seed expense observed in 2014 would adjust lower with forecasted incomes for 2015.

In this week’s post are revisiting seed expense and take a look at corn and soybean seed expenses.

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Are Fixed Farm Expenses Coming Down Yet?

 

Fixed Expenses coming down. Photo by Johnny Klemme

by David A. Widmar

As production agriculture in the U.S. transitions out of the boom-era, producers face a margin squeeze resulting from declining output prices and stubbornly high input costs. In most cases, producers are facing 2015 and 2016 crop production budgets with negative returns.

We are often asked when things on the farm will improve. In an earlier post and paper, we outlined that in the long-run it is likely that a combination of three scenarios will take place to stabilize farm profitability: 1. variable costs moderate through eventual reduction in farmer demand for inputs 2. Fixed costs decline through reduction in fixed assets demands and values, and/or 3) output price may improve.

In this post, we take a look at fixed costs from the most recent data (2014) provided by the USDA and Kansas Farm Management Association (KFMA). Keep in mind that net farm incomes across the country were lower in 2014, but still well above average.

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Understanding the Margin Squeeze

Tractor

by Brent Gloy

Projected profit margins in agriculture are much tighter than they have been in some time. Michael Boehlje, David Widmar, and I recently published a paper that describes the margin squeeze facing agriculture and some strategies that farmers can use to manage in this environment. In this post we use the front-end of that paper to offer some perspective on the margin squeeze and why we feel it may take some time to resolve. Those interested in reading the full paper and strategies that farmers can use to manage through this downturn can find a copy here.

Current University budgets show the extent of the potential margin squeeze facing row-crop farmers. Purdue’s budgets project losses on average quality farmland from $114 to $277 per acre. Likewise, Illinois budgets project operator and land returns ranging from $200 to less than $100 per acre, values likely less than cash rental rates. Nebraska budgets project costs in the range of $4.70 per bushel for corn, well above current commodity prices. In short, the declines in crop prices have not been accompanied by cost reductions, setting up a potential margin squeeze.

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