With plummeting crop prices, a proposed shake up of the Renewable Fuels Standard, and a grim outlook for corn and soybean profitability in the coming years, many are wondering how low prices can go. While crop producers have enjoyed unprecedented profits in the last couple of years, livestock producers have been burdened by the high feed costs. With these factors in mind, what is the ideal price for corn to maintain profitability in both the crop and livestock sectors?
Barry Ward, production business management leader for Ohio State University Extension, has calculated some average breakeven prices for corn and soybeans based on input costs for 2014.
“For 160-bushel corn, we are looking at a breakeven price right around $5 a bushel. A higher yield of 190 bushels is around $4.70 and for our poorer soils, it is around $5.50. When we compare that to the prices we are seeing next year, we see tighter margins and maybe negative margins,” Ward said. “For soybeans, we are looking at a breakeven price around $12.30 or $12.40 per bushel for trend line yields. For higher yields, it is around $11.50 and for lower yields around $13.85.”
Ward’s 2014 enterprise budgets are available at: http://aede.osu.edu/research/osu-farm-management/enterprise-budgets.
Here are some of the responses to the question: What is the perfect price for corn?
Carl Zulauf, Ohio State University agricultural economist
My first thought upon reading your question is that a perfect price implies to me that you are able to control either supply or demand or both. Neither is attainable in 21st Century agriculture. It may be attainable in the future as technology advances.
I look at the lack of control as favorable since a controlled process would likely mean that few of us would be involved in farming. If control existed, farming would likely involve a very few, very large operations that would be integrated fully both backward and forward in the input supply, production, and distribution chain. I would expect that crop and livestock farms would likely be an integrated operation in such a world.
Having noted the above, economics clearly implies that a perfect price provides incentives to adjust production up or down to reflect changes in the relative rates of growth in supply and demand. High prices occur because demand exceeds supply. Low prices occur because supply exceeds demand. Each occurs in agriculture for a variety of reasons, often related to weather, at least in part. In short, assessment of a perfect price does not allow one to look at price only from the perspective of the producer or from the perspective of the consumer, but it must be examined from the perspective of society and, moreover, a society that is in a constant state of change. Thus, as painful as it is, it is not reasonable to ask that price always covers the cost of production, whether you are a crop farmer or a livestock farmer.
In summary, historical experiences are abundantly clear that high prices and returns will encourage supply and discourage consumption, thus leading to lower prices. Likewise, low prices will encourage consumption and reduce supply, thus leading to higher prices. It is a balancing act with a clear message: be careful what you wish for because you may get it and experience the bad that goes with the good. Hence, there is the need to manage the risk of changes in prices and returns for both crop farms and livestock farms.
Glen Feichtner, Crawford County cattle and crop producer
To pick a certain number for an ideal price for corn isn’t easy. I would say anywhere from the $4.50 to $5 range would be about right. Everyone’s answer will be slightly different, depending on a producer’s breakeven cost. Hopefully producers carefully watch both sides of the equation and use this opportunity of lower corn prices to grow their livestock herds. There’s definitely room from growth and we have to grow the cow herd — that is all there is to it.
Doug Tenney, Leist Mercantile
The perfect price for corn would entail satisfying the majority of users and growers. That is going to be a difficult task at best. Those who grow and sell corn every year obviously are looking to maximize profits. They want to sell corn at the highest possible price. The past few years many have been able to sell corn for $5 to $7 or even higher. Those producers desire for that trend to continue. That does not look to be in the cards with the present situation.
End users want to buy corn as cheaply as possible. They would like to see prices at the $3 to $4 level in order to return to the profit levels seen in the past. With high corn prices, especially in the past year, they have often turned to other sources for protein. Those high prices have been very detrimental to profits of livestock operators. Many have seen negative margins in the past two years.
Often forgotten is an agricultural market reality not seen elsewhere. Farmers buy inputs at retail prices with prices set by much larger entities. They are able to shop for inputs as they desire the best price and service for what they purchase, but there is not a limitless source for their inputs. At the same time, the prices they receive are wholesale. They compete with many others in their area that can sell the same product. Expectations of acceptable prices can be vastly different for producers in the same region.
“Perfect” is not achievable with so many different buyers and sellers at any time. The present entrepreneurial environment in the U.S. can be both positive and negative. It does not guarantee a profit and that you will be in business from one year to the next.
Matt Aultman, Grain Buyer for Keller Grain in Darke County
From deliberation on this subject, it is hard for me to come to a “perfect” corn price. I deal with farmers each day and have found out that nothing is ever perfect in their eyes. For me, I would consider a perfect corn price would be enough for me to pay my bills and make the farm payment. To me, that would be $4.50.
As we all know, it is all dependent upon other markets or what each person’s perspective of what a “perfect” price is. If we had the ability to freeze all the inputs and the price of livestock products, most farmers should be able to show a profit on both the producer and user side between $4.50 and $5.00 price. At this level, the ability to make a profit is there, but the fact is that everyone is at different stages of financial investment on their farming operations.
I see us in a current scenario of a clock pendulum swinging too far one way and then too far the other and once it levels out it — something like it not raining for 6 weeks or raining through planting season will just knock the clock completely off the wall — and who knows where the market will take us.
Matt Roberts, Ohio State University agricultural economist
High 3s or low 4s is perfect for now. At these prices, those who’ve managed well and made good decisions over the last few years will still be in the black, but it will force those who’ve been reckless to face the consequences of their actions. At the same time, these prices will provide solid profitability to end-users.
Jack Irvin, Ohio Corn and Wheat Growers Association
The corn price will ideally be high enough allow for sustained economic viability on the farm without being too high that the market begins to curtail demand.