Contribution Margin by Crop, 2012 Crops Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) Rotation Corn345490663 DC Wheat/Soybeans320424554 Continuous Corn280413571 Rotation Soybeans254364473 Wheat229267333
Contribution Margin by Rotation, 2012 1 Crops in Rotation Low Yield ($/acre) Average Yield ($/acre) High Yield ($/acre) Corn – Wheat/DC Beans333457608 Soybean – Corn – Corn315448600 Corn – Soybeans300427568 Corn – Corn280413571 1 Sum 2012 contribution margins for individual crops, then divide by years in rotation.
Total Costs Per Bushel 2010 – 2012 1 Rotation Low YieldAverage YieldHigh Yield $/Bushel 101112101112101112 Rotation Corn 4.314.675.193.894.194.723.543.804.28 Rotation Beans 10.5611.0512.389.409.7311.108.759.0310.32 1 Overhead costs based on corn–bean rotation on 3000 acre farm.
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.