1. Grain Profitability Outlook Cash Rents Land Values Greg Halich Univ. of Kentucky 859-257-8841Greg.Halich@uky.edu

2. December 2015 Corn Futures

3. Corn Futures CME MonthSettle 2015 - Dec387'4 2016 - July409'2 2016 - Dec399'0 2017 - July421'0 2017 - Dec407'0 2018 - July426'6 2018 - Dec405'2 Settled on August 11, 2015

4. Soybean Futures CME MonthSettle 2015 - Nov971'4 2016 - July965'0 2016 - Nov925'4 2017 - July942'2 2017 - Nov919'6 2018 - July928'6 2018 - Nov912'4 Settled on August 11, 2015

5. Agricultural Economics 2016-2020 Prices Corn$4.00/bu Soybeans$9.00/bu

6. Budget Assumptions Machinery and Labor: Fuel, Repairs, Deprecation, Labor. Fuel, Repairs, Deprecation, Labor. Based on Custom Machinery Rates. Based on Custom Machinery Rates. → Increased 25%. Adjusted to $2.25 fuel price. Adjusted to $2.25 fuel price. Trucking – 25 miles (one-way). Trucking – 25 miles (one-way).

10. Budget Assumptions Base Scenario Fertilizer:$/ton$/unit Anhydrous (N)$725$.45 DAP (P 2 O 5 )$550$.40 Potash (K 2 O)$475$.40

11. Agricultural Economics Budget Assumptions Fertilizer Quantity (per acre) 175 bu corn: → 190 units N → 190 units N → 70 units P 2 O 5 → 61 units K 2 O → 61 units K 2 O 51.5 bu soybeans: → 36 units P 2 O 5 → 57 units K 2 O → 57 units K 2 O

12. Soil Productivity Levels Corn Yield Soybean Yield Corn/Soybean Yield Ratio 125 bu39.0 bu3.2 150 bu45.5 bu3.3 175 bu51.5 bu3.4 200 bu57.0 bu3.5

13. Projected 2016 Costs (per acre) Inputs: Corn (175 bu)Soybeans (51.5 bu) Seed $100$70 Nitrogen $86$0 P, K, and Lime $63$47 Pesticides $55$45 Total Inputs $303$162 Machinery and Labor $121$82 Other: Drying Grain $22$0 Crop Insurance $20$15 Misc. $20 Land Rent Variable Operating Interest $7$4 Total Other $69$39 Total Costs $494 + Land Rent$283 + Land Rent Note: 25 mile one-way trucking included in machinery and labor costs.

14. Machinery and Labor Costs Corn 150 bu Soybeans 45.5 bu Fuel and Lube$18$11 Repairs$30$21 Labor$23$16 Depreciation/Overhead$51$33 Total$121$82 Note: Assumes grain trucked directly to elevator (25 miles one-way) and not stored.

15. Summary Revenues/Costs (per acre) Yield and Price:CornSoybeans Expected Yield (rotation)17551.5 Expected Price$4.00$9.00 Grain Revenue700$464 Crop Insurance$35$25 Gov’t Payment$20$15 Total Revenue$755$503 Total Costs (Less Land Rent)$494$283 Gross Return (Less Land Rent)$261$220

16. Baseline Scenario 2016-20 (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.45-N; $.40-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$100$120$110 150 bu corn$181$171$176 175 bu corn$261$220$241 200 bu corn$342$266$304 Note: Subtract land rent to get Net Return.

17. Agricultural Economics Critical Budget Assumptions 17 1.Does not include land rent. 2.Includes “non-cash” costs (e.g. depreciation/overhead, unpaid labor). 3.P and K application at removal rate. 4.No-till planting 5.Machinery costs best-case scenario

18. Baseline Scenario 2016-20 (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.45-N; $.40-P; $.40-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$75$95$85 150 bu corn$156$146$151 175 bu corn$236$195$216 200 bu corn$317$241$279 Note: Subtract land rent to get Net Return.

19. December 2015 Corn Futures

20. Perceived Profits 2012-14 (per acre) $11.50 Soybeans (elevator) $5.00 Corn (elevator) $.55-N; $.45-P; $.50-K; $3.25/gal fuel Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$194$207$200 150 bu corn$296$274$285 175 bu corn$399$336$368 200 bu corn$502$396$449 Note: Subtract land rent to get Net Return.

21. http://www2.ca.uky.edu/cmspubsclass/files/ ghalich/2013LandValueSurvey.pdf

22. Agricultural Economics Kentucky Rents $5/bu Corn $11.50/bu Soybeans Competitive Areas: 175 bu $275-350/acre rents 175 bu $275-350/acre rents 150 bu $225-300/acre rents 150 bu $225-300/acre rents

23. Baseline Scenario 2016-20 (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.45-N; $.40-P; $.40-K Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$100$120$110 150 bu corn$181$171$176 175 bu corn$261$220$241 200 bu corn$342$266$304 Note: Subtract land rent to get Net Return.

24. Agricultural Economics Why Farmers Will Pay Rents that will Guarantee Losses?

25. Baseline Scenario 2016-20 (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.45-N; $.40-P; $.40-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$75$95$85 150 bu corn$156$146$151 175 bu corn$236$195$216 200 bu corn$317$241$279 Note: Subtract land rent to get Net Return.

26. Kentucky Rents $4/bu Corn $9/bu Soybeans Short-run: 175 bu $200-275/acre rents 175 bu $200-275/acre rents 150 bu $150-225/acre rents 150 bu $150-225/acre rents Long-run: 175 bu $175/acre rent 175 bu $175/acre rent 150 bu $125/acre rent 150 bu $125/acre rent

27. Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$500 5.0% 4.0% 3.0% 2.0%

28. Baseline Scenario 2013-14 (per acre) $11.50 Soybeans (elevator) $5.00 Corn (elevator) $.55-N; $.45-P; $.50-K; $3.25/gal fuel Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$194$207$200 150 bu corn$296$274$285 175 bu corn$399$336$368 200 bu corn$502$396$449 Note: Subtract land rent to get Net Return.

29. Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$500 5.0% $2,000$4,000$6,000$8,000$10,000 4.0% $2,500$5,000$7,500$10,000$12,500 3.0% $3,333$6,667$10,000$13,333$16,667 2.0% $5,000$10,000$15,000$20,000$25,000

30. Agricultural Economics Kentucky Cropland Values $5/bu Corn $11.50/bu Soybeans Competitive Areas: 175 bu $8-12K /acre 175 bu $8-12K /acre 150 bu $6-9K /acre 150 bu $6-9K /acre

31. Baseline Scenario 2016-20 (per acre) $9.00 Soybeans (elevator) $4.00 Corn (elevator) $.45-N; $.40-P; $.40-K +$25 Increase Fixed Costs Gross Return Corn Gross Return Soybeans Gross Return Rotation 125 bu corn$75$95$85 150 bu corn$156$146$151 175 bu corn$236$195$216 200 bu corn$317$241$279 Note: Subtract land rent to get Net Return.

32. Cropland Value ($/acre) at Various Yearly Profitability and Capitalization Rates Capital- ization Rate Expected Profitability ($/acre/year) $100$200$300$400$500 5.0% $2,000$4,000$6,000$8,000$10,000 4.0% $2,500$5,000$7,500$10,000$12,500 3.0% $3,333$6,667$10,000$13,333$16,667 2.0% $5,000$10,000$15,000$20,000$25,000

33. Agricultural Economics Long-run KY Cropland Values $4/bu Corn $9/bu Soybeans Competitive Areas: 175 bu $4-7K /acre 175 bu $4-7K /acre 150 bu $3-5K /acre 150 bu $3-5K /acre

34. Agricultural Economics KY Cropland Values Comparison Competitive Areas Estimated Price per acre $5/bu Corn $4/bu Corn $5/bu Corn $4/bu Corn 175 bu $8-12K $4-7K 175 bu $8-12K $4-7K 150 bu $6-9K $3-5K 150 bu $6-9K $3-5K

35. Agricultural Economics Lowest Long-Term Price? Marginal ground drops out production 125 bu corn ground 125 bu corn ground Assume no gov’t payments Assume no gov’t payments

36. Agricultural Economics 125 bu Corn Ground $4.00 corn → $68/acre gross return $3.50 corn → $17/acre gross return Lowest long-term price ≈ $3.75/bu corn and $8.50/bu soybeans