2012 Crop Budgets: Corn, Soybeans, Wheat? Alan Miller and Craig Dobbins Purdue University is an Equal Opportunity/Equal Access institution.

Changes from Jan 2011 Corn price up $.36, beans down $.72, wheat down $1.31 Input prices & variable costs up significantly Cash rents up significantly

Variable Costs (Average Cropland) Crops 2010 $/acre 2011 $/acre 2012 $/acre % ∆ 11 to 12 Continuous Corn % Rotation Corn % Rotation Soybeans % Wheat % Double Crop Soybeans %

Variable Cost Changes Rotation Corn (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed % Pesticides3538+9% Drying fuel % Machine fuel % Machinery repairs % Hauling15 - Interest % Insurance, Misc %

Variable Cost Changes Rotation Soybeans (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed % Pesticides2729+7% Machine fuel % Machinery repairs % Hauling55- Interest67+17% Insurance, Misc %

Contribution Margins, 2010 – 2012 (Average Cropland) Crops 2010 $/acre 2011 $/acre 2012 $/acre % ∆ 11 to 12 Continuous Corn –3% Rotation Corn –1% Rotation Soybeans –18% Wheat –32% Double Crop Soybeans –25%

Contribution Margin by Crop, 2012 Crops Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) Rotation Corn DC Wheat/Soybeans Continuous Corn Rotation Soybeans Wheat

Contribution Margin by Rotation, Crops in Rotation Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) Corn – Wheat/DC Beans Soybean – Corn – Corn Corn – Soybeans Corn – Corn Sum 2012 contribution margins for individual crops, then divide by years in rotation.

Total Costs Per Bushel 2010 – Rotation Low YieldAverage YieldHigh Yield $/Bushel Rotation Corn Rotation Beans Overhead costs based on corn–bean rotation on 3000 acre farm.

Returns Above Total Costs Per Acre, Acres & Rotation Low YieldAverage YieldHigh Yield $/Acre acre corn-bean acre corn-bean

Projected Margins are Vulnerable to Yield or Price Declines Market revenue declines 10% for average yield crops Contribution margin for corn drops $95/acre (–19%) Contribution margin for beans drops $61/acre (-17%) Contribution margin for wheat drops $48/acre (-18%)

Earnings are Vulnerable to Yield/Price Declines & Cash Rent Increases If market revenue declines 10% for average yield crops, then earnings for 3000-acre corn-bean rotation on average land decline 54% Cash rent increases decrease earnings 10% rent increase decreases earnings 13% 20% rent increase decreases earnings 25% 30% rent increase decreases earnings 38%

How Far Down to Earnings Breakeven? A 19% drop in market revenue on average corn-bean rotationequates revenues and total costs A 23% increase in total costs on corn-bean rotation equates revenues and costs Note that the increase in projected total cost per acre from 2011 to 2012 is roughly14% A 10% increase in rent increases total cost 3%

Management Implications –Input prices will increase sending variable costs higher –Overhead costs will increase in response to strong contribution margins –Potential for economic profit in excess of $100 per acre for rotation corn and beans on average land in Indiana –Budget reflects very strong demand for corn which may influence rotation decisions –Risk of margin squeeze/margin decline likely will be significant

Questions, Comments Purdue University is an Equal Opportunity/Equal Access institution.

Variable Cost Changes Wheat (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed % Pesticides78+14% Machine fuel % Machinery repairs % Hauling66- Interest57+40%

Variable Cost Changes Double Crop Soybeans (Average Cropland) Cost Component 2011 $/acre 2012 $/acre % ∆ 11 to 12 Fertilizers % Seed % Pesticides2526+4% Dryer Fuel44- Machine fuel % Machinery repairs % Interest46+50%