Winter Budgeting Could Determine Profitability In 2014

University of Illinois economists expect corn prices to average $4.60 a bushel for the foreseeable future.

Published on: Oct 29, 2013

Sharpen those pencils and get ready for 2014.

This winter planning period could affect profitability more than any production decisions. Market analysts expect corn prices to average well below $5/bushel in 2014. Input purchases and marketing decisions will determine profitability for the coming season.

University of Illinois ag economist Gary Schnitkey predicts an average of $4.60 for corn and $11 for soybeans in 2014.

At $4 per bushel, Bryce Knorr, Farm Futures senior editor, is more bearish on corn prices. But, he's more bullish on soybeans.

"The 2013 soybean crop is looking smaller than original estimates indicated," Knorr adds.

He expects 2014 futures could rally to $13. Of course, Brazil's soybean crop is the wildcard.

Winter Budgeting Could Determine Profitability In 2014
Winter Budgeting Could Determine Profitability In 2014

Find the deals

The rubber meets the road when farmers start booking inputs and signing cash rent leases.

Using $300 cash rent and $581 for non-land (input) costs, Schnitkey says the break-even price on a 195-bushel corn crop is $4.52. On soybeans, the break-even is $11.46 per bushel, with a 57-bushel average and $353 in non-land costs (plus the same $300/acre cash rent).

Knorr says the biggest place farmers can save money in 2014 is on their fertilizer budget. At press time, anhydrous ammonia had dropped $250/ton – a serious savings for the fall-applied crowd.

But, the potash market is looking even better with the recent breakup of the Russian cartel, Knorr adds.

"If you're going to hold off on anything, I'd wait on potash," he says.

Knorr also recommends some serious comparison shopping when booking fertilizer for the 2014 crop. He says deals are out there; farmers need to be willing to put in the legwork to find them.

"It's like this: why pay $5 for a gallon of gas when you can drive to a different gas station and buy it for $3.50," Knorr adds.

Come out ahead
If there's one overarching theme for 2014, it's "proceed with extreme caution." Knorr and Schnitkey have several tips for when folks sit down to put together budgets.

First, don't forget to lock in 2014 crop sales to match fertilizer purchases. Knorr stresses that farmers do everything possible to lock in profit now. Break-even prices are not a given for next year.

When pre-selling the 2014 crop, Knorr recommends selling corn. The potential for a soybean rally is much greater than a corn rally.

Both analysts expect cash rent to stay steady or soften slightly. "Anyone who pays higher cash rent for 2014 is taking on a huge risk," Knorr adds.

Lastly, ratchet down capital purchases to match reduced income.

"In the 1980s, revenues fell, but capital purchases stayed high," Schnitkey explains. "The key is reducing capital purchases as income falls."

And lower incomes are almost a certainty. Despite the worst drought in decades, most farmers saw healthy incomes last year.

Schnitkey notes Farm Business Farm Management data indicate Illinois farmers brought in an average income of $295,000 in 2012. Don't expect a repeat.

"I expect annual incomes for 2013 will be in the $140,000 to $150,000 range," Schnitkey notes.

Lowered expectations and effective planning will determine who comes out ahead in 2014.