cancel
Showing results for 
Search instead for 
Did you mean: 
Senior Contributor

Idle curiosity question of a non farmer

Jump to solution

Hey BA (and any other farm bubbas or bubbettes who go out everyday in order to go do the voodoo that you do so well.), 

 

This is a somewhat complex business question, so maybe I am really looking less for an exact price than I am a price range. Okay, so here it goes: What is the price range of corn and/or beans/bushel that makes the entire farming endeavor worth doing?

 

Let’s assume we are talking about a successful veteran farmer with >10 years of running his own show. Let’s also assume he or she is farming >500-1000 acres of +80 CSR2 (i.e. Iowa) farmland.

 

Given your known land rental rates, your fuel/fertilizer/labor/machinery expenses, as well as your annual insurance and taxes; how low must the commodity market go on a given year’s crop of corn or beans before it begins to break the farmer’s business model? Is it $3.50 corn? $3.00 corn? $2.00 corn?

 

This is not a test and I am not expecting a specific answer, really only a price range SWAG. 

Spoiler
Spoiler
 

 

 

 

 

0 Kudos
10 Replies
Veteran Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

Sorry, but the magic depends on price AND yield, and yield isn't determinable until after essentially all of our decisions and most of our expenses are known, when harvested.

 

Based on that statement, if a guy says he needs $3.00 corn based on a yield of 180, then it follows that $540/acre gross covers him and a yield of 180 realistic. Staying with that logic, then if his price outlook drops to $2.50, then he needs a yield of 216, which might not be attainable, beyond his control.  Similarly, if his yield outlook drops to 150, then his desired price increases to $3.60, which might not be attainable, especially if he has already locked in a lower price based on his earlier projection.

0 Kudos
Highlighted
Honored Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

Like WCMO says, it can and is all over the board, for one thing "farm endeavor worth doing" has many definitions.  To some they might want to keep going, but the banker pulls the plug. My opinion is a medium sized Iowa farmer owning some of his land, reasonable rent on leased ground and small debt, they need $4 corn and $10 beans, without at some point having rent lowered , burning their equity, getting their wife a second or 3rd job   Smiley Happy   To keep their status quo they need that $4 and $10 either from the market or lower their standard of living or drastically cutting expenses, things that might not be in their best interest like cutting fertilizer, forgoing much needed repairs ect.   

 

We can go a while with $3 corn and $8 beans, but something would eventually have to give.   If nothing else a poor crop at those prices of no cushion would put you in a hole impossible to climb out of.   This is why I am a believer in producing your crop at market prices.  If the market is $3 corn, you probably can`t afford seedcorn caps with a winged ear of corn and you probably can`t farm every farm that you`ve farmed in the past, some will have to be culled on yield and rental rates.

0 Kudos
Senior Contributor

Re: Idle curiosity question of a non farmer

Jump to solution

Thanks again!

0 Kudos
Honored Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

You`re welcome Packard.  Always happy to have an excuse to put my 2 cents in   Smiley Happy

0 Kudos
Honored Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

Packard, we miss your not here as much as in years past....(assuming your not just named for a great contributor of the past)

 

BA,  is pretty close for US out in panhandle region..... Hobby and I have compared Iowa and Irrig. sw and it is similar  we get a basis bonus for location to feeders, but spend much more for water.... less for land, more for inputs...... it kind of washes out in the tumbler assuming your not using the new "grunt and rinse" washers.  

Our production advantage is higher yield in both beans and corn, but beans have bigger basis costs with buyers farther away. still comes out in the wash.

Water costs here ---land costs in iowa.

 

4 - 10 is kind of treading water until steel with a flashy coat of paint/technology goes down in price... and there is enough used equip around to make a few years more at that level

 

Packard,  This year more than any we have seen in years IMO-- has a lot of acres yet undecided.... a lot of nitrogen is not in the ground and it is april...... Lots of seed ordered...... and not delivered yet....   My farms are ordered to a plan are looking for a market to be convincing in terms of stability and demand... Were not getting much help on that.... FSA staffing out here appears we are headed for regional offices soon and lower #s of employees......Maybe their just still ticked off for the shutdown days off.  It appears they are not going to be relevant in market news.  There are some good signs on the demand side out here in flyover country but washington is still polar...Be nice if the good news is a slow build this year.... but not many signs of it so far.

 

0 Kudos
Veteran Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

If the farmer owns the land, he can go pretty low before real stress.  If the farmer is paying top rent, he has serious pressures on his required income.

 

Farming is still a commodity business and the end seems to always pressure to a zero-sum game.  There will always be winners and losers, consolidation and new paradigms, but all with the same old cycles.

 

My bet is we are in for a long, bitter period in farming unless some major black swan event occurs.

 

It's a buyers market.

0 Kudos
Veteran Contributor

Re: Idle curiosity question of a non farmer

Jump to solution
Jim do you see any way to make farming not a commodity business? It sounds like a silly question when I read it back. Specialty crops or contracts would be one way. Has the consolidation of the livestock sector which has led to the specialization of the farmer as a grain producer contributed to the situation? We are all wired to do the best we can and produce as many bushels as we can. If we were more like the OPEC nations and tried to cooperate to produce only what the market needs we would all be better of. But OPEC is only a dozen or so countries that need to agree. And OPEC production that is idled can be brought back online in a short time period where if a crop failure leads to needing more bushels farmers have to wait another year.
0 Kudos
Honored Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

Hey SW, if I was guaranteed "4 and 10" cash prices and inputs would remain flat I could farm forever and a day, and buy machinery too.   That would translate into $4.45 Dec corn and $10.70 Novi beans.  

 

I think if one really dug into it, equity has been burned (increased borrowing) in denial that "this" isn`t a multi-year event if not a new normal.   Some off farm (good money) has been thrown at the farm (bad money) question is how long do some want to shovel $100 bills into the furnace? 

0 Kudos
Veteran Advisor

Re: Idle curiosity question of a non farmer

Jump to solution

Nutlug,

 

The NFO tried restricting supply in the '50's and failed.  It seems to me that as along as we have a lot of little producers, they will cut each other's throats on the way to the bottom.  

 

It's scary to think that as each of us gets better at producing in order to get ahead, we increase the very supply mountain we're trying to avoid.

 

It's way above my mental skills but it's hard to be optimistic about agriculture as a business being other than a commodity.

 

Maybe someone could report on the big California guys - the vegetable giants, the tree coops and so forth.  I wonder if they have a way to survive?

0 Kudos