The 2020 Purdue Crop Cost and Return Guide, which is available for free download from the Center for Commercial Agriculture website (here), gives estimated costs for planting, growing and harvesting a variety of crops, as well as estimated contribution margins and earnings. The guide is updated frequently as grain futures prices change and the costs of inputs, such as seed, fertilizer, pesticides and fuel, fluctuate. This article discusses estimates made in late November.

The guide presents cost and return information for low, average, and high productivity soils. The discussion in this article will focus on the estimates for average productivity soil. Table 1 presents crop budget information for continuous corn, rotation corn, rotation soybeans, wheat, and double-crop soybeans for average productivity soil. Double-crop soybeans are typically planted after wheat so it is typical to combine the contribution margin for these two crops when comparing to continuous corn, rotation corn, and rotation soybeans. It is important to note that crop yields have been modified in this year’s guide. The current yield estimates reflect trend yields for Indiana for each crop. The contribution margin, obtained by subtracting total variable cost from market revenue, ranges from $178 per acre for continuous corn to $315 per acre for wheat/ double-crop soybeans. The contribution margins for rotation corn and rotation soybeans on average productivity soil are $234 and $258 per acre, respectively. It is important to note that the contribution margin is used to cover overhead costs such as machinery costs, family and hired labor, and cash rent. Failure to adequately cover these overhead costs typically puts downward pressure on cash rent and land values.

Table 1. 2020 Purdue Crop Budget for Average Productivity Soil.
See ID-166-W for more detail, November 2019 Estimates.

From 2007 to 2013, the contribution margin for rotation corn was higher than the contribution margin for rotation soybeans. The average difference in the contribution margin was $38 per acre during the 2007 to 2013 period. The situation was considerably different from 2014 to 2018. The average difference in the contribution margin during this period was an approximate advantage for soybeans of $81 per acre. The difference in contribution margins between corn and soybeans since 2018 has been relatively small.

Figure 1 illustrates the trends in fertilizer, seed, pesticide, and cash rent costs for rotation corn on average productivity soil from 2010 to 2020. Fertilizer cost peaked in 2013 at $176 per acre ($1.08 per bushel). In 2020, fertilizer cost per acre is projected to be $116 per acre ($0.66 per bushel). Cash rent per acre peaked in 2014 at $232 per acre ($1.42 per bushel). At $208 per acre ($1.18 per bushel), projected cash rent is $24 per acre ($0.24 per bushel) lower than it was at the peak in 2014. Partially due to resistant weed problems, pesticide cost per acre in 2020 is expected to be higher than its level in 2013 and 2014, the peak cost years for fertilizer cost and cash rent.

Figure 1. Fertilizer, Seed, Pesticide, and Cash Rent Cost per Acre, Rotation Corn in Indiana.

Gross revenue (market revenue plus government payments), variable cost, and overhead cost per acre for rotation corn on average productivity soil is illustrated in Figure 2. Variable cost per acre peaked in 2013 at $462 per acre ($2.83 per bushel), and is projected to be $417 per acre ($2.37 per bushel) in 2020. Fixed cost (overhead cost) per acre peaked in 2015 at $375, and is projected to be $327 per acre in 2020. The breakeven price needed to cover variable and fixed costs varied from $4.77 to $4.98 per bushel from 2012 to 2015. In 2016 and 2017, the breakeven price declined to approximately $4.55 per bush- el. The breakeven price in 2018 and 2019 was approximately $4.45 per bushel. The projected breakeven price for 2020 is $4.25 per bushel. Gross revenue for rotation corn has declined from $945 per acre in 2013 to $651 per acre in 2020. The expected loss per acre for rotation corn in 2020 is $79 per acre.

Figure 2. Variable Cost, Overhead Cost, and Gross Revenue per Acre, Rotation Corn in Indiana.

Figure 3. Fertilizer, Seed, Pesticide, and Cash Rent Cost per Acre, Rotation Soybeans in Indiana.

Figure 3 illustrates the trends in fertilizer, seed, pesticide, and cash rent costs for rotation soybeans from 2010 to 2020. Fertilizer cost and cash rent have declined since their peaks in 2013 and 2014. Resistant weed problems have put upward pressure on pesticide cost for rotation soybeans.

Gross revenue (market revenue plus government payments), variable cost, and overhead cost per acre for rotation soybeans on average productivity level is illustrated in figure 4. Primarily due to higher herbicide cost, variable cost per acre in 2020 is projected to be $239 per acre ($4.43 per bushel), which is similar to the variable cost in 2013. Like corn, fixed cost per acre peaked in 2015 at $375, and is projected to be $327 per acre in 2020. The breakeven price needed to cover variable and fixed costs declined from $11.94 per bushel in 2015 to $11.08 in 2018. In 2019 and 2020, the breakeven price for soybeans is expected to be $10.65 and 10.50, respectively. Gross revenue for rotation soybeans has declined from $670 per acre in 2013 to $497 per acre in 2020. The expected loss in 2020 for rotation soybeans is $69 per acre.

Figure 4. Variable Cost, Overhead Cost, and Gross Revenue per Acre, Rotation Soybeans in Indiana.

The breakeven prices for rotation corn and rotation soybeans discussed above were for average productivity land. For high productivity land, the breakeven prices for rotation corn and rotation soybeans are expected to be $3.84 and $9.63 per bushel, respectively. The breakeven prices for low productivity land are expected to be $4.65 and $11.50 per bushel for corn and soybeans, respectively. Thus, unless prices rise above $3.84 per bushel for corn and $9.63 per bushel for soybeans, earnings per acre will be negative for low, average, and high productivity levels.

In summary, margins will be tight again in 2020. This increases the importance of carefully scrutinizing input and crop decisions. Producers are encouraged to create crop budgets and in general improve their record keeping. Lower crop margins will adversely impact a farm’s liquidity position and financial performance.