Strike a Balance Between Corn and Risk Management for 2014

Experts recommend trimming the fertilizer budget to cut production costs. A cash rent reduction should be on the way.

Published on: Jan 27, 2014

If land values soften, cash rent should back off a bit too, right?

Not so fast, says Dale Aupperle, president of the Heatland Ag Group in Decatur. Aupperle's experience tells him farmers generally don't request a cash rent reduction at the first sign of lower commodity prices.

"I think it really amounts to they don't want to ask that first year because they're afraid they may lose the ground," Aupperle notes.

However, if corn is still in the $4 range next harvest, he expects average cash rent will ratchet down across the state. Though, for the 2014 crop season, he put average cash rent for central Illinois farmland between $325 and $450 an acre.

Strike a Balance Between Corn and Risk Management for 2014
Strike a Balance Between Corn and Risk Management for 2014

Budgets favor corn
University of Illinois economist Gary Schnitkey agrees. He expects fertilizer may be the only significant place to save a little money for the 2014 growing season.

According to Schnitkey's statistics, which draw on data from Illinois Farm Business Farm Management, fertilizer costs hit a high in recent years in 2012 at $200/acre. For 2014, he expects that cost to fall to around $140/acre.

Even with an average selling price of $4.60/bushel, Schnitkey's analysis says gross revenues of $902/acre are possible with corn. In fact, his budget analysis anticipates corn will be more profitable than soybeans in 2014.

Schnitkey plugged in $4.60 for corn and $11 for soybeans. Operator and land return for corn-after-soybeans, corn-after-corn and soybeans-after-corn came out to $378/acre, $317/acre and $288/acre, respectively. He took into account a 10-bushel yield drag for corn-after-corn.

Consider prevented planting
As has lately been the case, Schnitkey warns farmers to keep power costs under control when going heavy on corn. Harvest and tillage costs are the two big places that tend to drain a corn-heavy budget. He warns extra tractors can be a severe drain on finances.

Also, he recommends purchasing more crop insurance when planting a heavy-corn rotation. Schnitkey notes a revenue protection plan at high coverage levels is probably the best bet. The drought year of 2012 proved just how important risk management is on those corn-on-corn acres.

Lastly, Schnitkey says more farmers may want to consider taking prevented planting insurance. In Illinois, the deadline for planting corn is June 5 with prevented planting. At 60% of the guarantee, Schnitkey says the numbers can pencil out favorably.

"When we do the economics of taking prevented planting versus planting, it comes out as an attractive alternative," he adds.

Of course, if only one farm in the county takes prevented planting, Schnitkey warns there could be additional scrutiny from the USDA's Risk Management Agency.

For help evaluating different crop insurance options, visit U of I's Farm Analysis Solution Tools website.