I do remember some pretty cheap red paint back in the mid eightys after IH got bought out.
Pretty sure that was below cost of production.
I'm afaid your making assumptions that don't fit everyone.
Cop is a highly variable thing. Never 0 but very variable.
My cost of production is way less than my neighbor if my land costs are just 're taxes and insurance and he still has a mortgage and pmts. Or a rent pmt to come up with. If my machinery is paid for and his isn't, I have another advantage in cop.
I could very well still be in the black long after many others are screaming UNCLE. Under these real world differences why would I let up in production if it was still profitable? Sure it is not the buy a farm a year profitable it was @ $7 + corn. But still having to pay income tax profitable.
We may all be born naked but from then on the equality isn't so equal. JMHO
Since you can still sell this $3 corn you are scared of FOR OVER $4.50 with carry into spring 2015, and you can still sell 2015 for about the same, there is simply no reason to ever have to sell any $3 corn.
Profits in ag have ALWAYS been about selling price, not market price or even annual average price, and certainly seldom about yields. The long-term survivors will figure out how to not sell in the bottom 1/3 of the annual range. It really isn't that hard to do, just requires a plan and some discipline to implement it.
btw...you can still sell beans within a few dimes of the high for the year. Again no reason to take sub $10 when they are currently over $12.
Excellent post Hobby. In our peer groups COP by item varies significantly, even if you charge yourself a modest rent on the paid for owned land. Tougher times would be a good thing for many. Higher interest rates would actually drive down cash rents for example.
Why? Because the new conglomerate type farmer would actually have to pay interest on the $300 rent he pays in advance. Especially if he no longer has outsized taxable income to shield.
Most of the land valuation is the result of blindly making annual multi-Trillion dollar decisions to make the currency worthless. If you hold currency, anyone on the planet knows to get rid of it asap. If one studies the history of Europe you quickly realize that the price of land has virtually nothing to do with its earning potential. Since our policies are the same as Europe, a similar outcome is pretty well assured.
When the market finally overcomes the manipulation, and interest rates return to inflation + risk type returns, things will be different. Greece is a pretty good case study.
And while we are on business strategy, anyone who buys inputs at the same time he sells the outputs (as championed so loudly by Iowa State and others) needs to do a little research. The price of inputs (seed, chemicals, fertilizer, land) are all positively correlated with the price of corn. Positively correlated means that they are high at the same time and low at the same time. So, a better business plan is to buy the inputs when they are cheap and sell the corn when it is expensive, this is SELDOM at the same time. P & K especially because you can apply more than needed if it was cheap, and delay applications for a few years when it is expensive.
If corn becomes $3, "cash will be king" those that restrained from buying that "cheap" neighboring 80 for $14,000/acre and new paint will be in the catbird seat. If they needed to lower their taxes, spreading extra fertilzer (on owned land)may have been the wise choice, now they can withdraw from that bank.
Some farmers are going to loath that schedule 179 rapid depreciation, if there are payments that have to be made on that machinery using after tax $3 corn they are in for lean times. I think cutting out the snake oils like fungicide and "refuge in the bag" seed, all those conveniences that might make things easier or on a good year might make and extra 5 bushels will have to be cut. Yes the cornbore may take some, yes there may be a weed escape, but the economic threshold will have to be assessed.
BA -- If you cut - say your fungicide or the refuge in the bag - would you be taking a good chance at cutting your production ? I'm just saying - by maybe cutting production to save a buck - where would the savings be if you don't have it to sell ? - Sort of like a hog farmer that sells this sows to save money - where the's income with out them ?