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09-30-2018 07:04 AM - edited 09-30-2018 07:05 AM
If you do, you`re probably lucky, because even the experts say rented land in 2019 won`t turn a profit. I think their budget is pretty much in line , maybe chemical is a little high. But their expected prices of $3.60 corn and $8.50 beans could be optimistic on the revenue side, considering here presently it`s $3 corn and $7.30 beans.
Land rent is $250 unless the landlord is your favorite uncle. I know northern Illinois may get those and better yields in the chart, but that ain`t average farm yields for SMN & NIA this year. Still quite a few around here haven`t totally closed their books on 2017 either, as it`s still being delivered.
09-30-2018 07:36 AM
If you wake up one morning and find that all of the Corn futures contracts for 2019 delivery were trading at $4 a bushel, what percentage of your total expected corn crop for 2019 would you sell in the futures market ?
What if the price was $3.80 instead of $4, how much would that percentage change ?
09-30-2018 08:31 AM
None! CZ9 futures are basically $4 now, depending on the time of day and knock 50 cents off for basis and you`re at $3.50 cash corn and in the 2019 budget, $3.60 corn is a loser. To lock in $3.40-$3.50 corn a year in advance when you`ll probably breakeven at $3.75 corn.
Oh I know, if cash corn is $2.50 a year from now I`ll be kicking myself for not have locked in a lower loss, but at this point in my life, I don`t even buy green bananas. But this locking in a loss and defending it with a dime option here and there and buying a call and paying for it with a put, I know enough to know, I don`t know. And farmers that follow the king of doing that, Jerry Guilke say "just traded money and ended up no better than just taking my licking".
CZ9 will have to be $4.40 before it gets my attention, then we have to ***** the factors that would get it to $4.40.
09-30-2018 10:34 AM
Maybe I am not reading that projected budget for 2019 correctly, but the way it appears to me is that the farmer who plants corn after corn is projected to sell his product at $360 per bushel for the season, and clear $167 per acre after expenses. Which calculates out based on the expenses shown so that he breaks even against expenses if corn drops as low as $2.84 per bushel.
So if $3.60 gets you a total net profit of $167,000 per 1000 acres, why would you not want to lock in that profit now ? And if if goes to $4 - an extra $84 per acre - why would you not want to secure that sale price, considering every time for the last few years that corn got over $4, if you went out for a cup of coffee and came back the price was back down under $4 ?
Okay, so let's say the budget shown is too optimistic, and expenses are really a lot higher as you say, and it takes a sales price of $3.75 to break even. If you could lock in at least a portion of your production at $4, which would be a 6% return on capital in a 3% world, why would that not be appealing considering the difficulty the market has had at the $4 price level for the last few years ?
I always read about how hard it is for the small farmer to make a decent living in today's world, and I believe its a difficult business. But at the same time I have to scratch my head and wonder, if its so hard to make money, why aren't the farmers taking advantage of the market extremes to lock in reasonable profits for at least some of their crop, instead of rolling the dice with all of it ?
09-30-2018 10:53 AM
Ray, that bottom line says "return to operator non land costs" so you have to deduct $250 rent or if you own land $30 land tax in Iowa or $60 in Minnesota or $100 in Nebraska. And to "lose that little" that`s not family living expense ….you went out and played in the dirt for fun and actually paid for the privilege to do it with $3.60 corn.....yeah, it really is that bad out here.
09-30-2018 11:16 AM - edited 09-30-2018 11:17 AM
I was assuming - based on the chart displayed and the fellow writing that his breakeven was $3.75 per bushel - that the budgets were for a farmer that owned his farm.
But even if you rent the farm, just because you pay rent on the land does not mean you can dictate the price for the product. The market does that, and if its projected that the average corn price is going to be $3.60 and you get a chance to sell at $4, why does it not make sense not to lock in some of that price over projection ? For if you roll the dice on the entire crop and the $3.60 is not achieved, then you have a bigger loss against projection than if you had ensured that at least some of your crop would yield a higher price than the expectation.
Frankly, the whole business model doesn't make sense if the breakeven costs are $3.75 plus you have to pay rent for the land, and the average price the product has sold for most of the last decade is under $4. You start off on day one having to hope against hope that the price rises to a level that hardly has been seen for a long time. Which takes me back to my original hunch...farmers are financial victims of their own success, at least in corn. There's too much supply, which is what keeps the price below the level that a renter farmer can breakeven much less break a profit. Its like going into a football game with a game plan that says the only way you can win is by throwing Hail Mary passes all game and hoping that your receivers are lucky enough to catch some of them.
Why do it ? I could see if you still were drawing a salary out of the operation, if it pays your bills but you don't have a capital gain, at least you get paid for your labor. But in that chart displayed, I only saw a line item for Hired Labor, not for business owner labor. So how the heck do you make any money for all the work you put into this enterprise ?