Now that we have the final yields for 2014 and a somewhat guess on average market prices, how did producers in Tennessee do in 2014?
The Jan. 12 USDA Crop Production Annual Summary confirmed 2014 was a big crop for grains in Tennessee. A record yield of 168 bushels per acre was produced for corn and 46 bushels per acre yield was produced for soybeans. The soybean yield is just 0.5 bushels per acre behind the record 2013 crop, and although USDA does not distinguish between full-season and double-crop soybean, I am assuming the same yield for both.
Wheat production was 66 bushels per acre and cotton came in above average at 875 pounds per acre. Grain sorghum yields due to low acreage in Tennessee is not reported, but is assumed to be above average at 100 bushels per acre.
Prices most likely were mixed among producers, depending on when the crops were marketed. In analyzing the 2014 crop, I have been using average market prices of $3.80 bushel corn, $10.20 bushel soybeans, $4.10 bushel grain sorghum, and 67 cents per pound for cotton. The cotton price includes not only lint price but also seed and hauling rebates. For wheat, I have used $4.89 per bushel for which I am incorporating test weight discounts many producers received on their 2014 wheat crop.
Table 1 below gives a summary of revenues, expenses, returns and breakeven prices for the 2014 crop. Expenses for 2014 were taken from the 2014 University of Tennessee Crop Budgets and tweaked as necessary as changes occurred during the year.
Yield bobble can lead to negative margins
In analyzing crop returns, I take in account land costs which I use a 25 percent of revenue minus a 25 percent cost of crop insurance. There are many different types of lands costs in place including cash land rent, land payments and different type of share arrangements, but this does give me a method of comparison.
Fixed costs include depreciation and interest on equipment and a $15 per acre return to management. Using Tennessee average yields and approximate average prices, the grain crop generates positive returns. However, it is the double-crop soybeans in the wheat and soybean combination that floats their positive returns. This is due to the discounted prices that producers received on their low test weight wheat. Wheat producers who did not receive much discounts, would have fared much better.
The cotton crop at average production and the lower end of prices really took it on the chin with a negative return of $147 per acre and a breakeven price needed of 82 cents. Early in the year before the crop was planted that price or at least close to that breakeven was achievable.
Full season soybeans and corn both returned $17 per acre with grain sorghum estimated at $18 per acre. Breakeven prices at the average yield was $9.52 bushel for soybeans, $3.75 bushel, for corn, and $3.92 bushel for grain sorghum. The highest return is estimated to be $38 per acre from the wheat and double crop soybean combination with a breakeven price on average production of $6.03 per bushel for wheat and $7.57 for soybeans. As mentioned earlier, wheat lost money, but the double-crop soybeans made it up.
A previous article mentioned that with this high yielding crop, many producers still had a negative cash flow. Looking at these returns, it is not much of a stretch to see how that is possible as the slightest bobble with yields, lower market prices, or higher expenses and producers are in the negative margins. While most producers or farmers farm as a way of life that they enjoy doing, they also have bills to pay or family living that comes out of their returns. Most likely when those costs are accounted for the margins tighten and or go negative.
Tight returns from 2014 puts the 2015 crop in the crosshairs as a crop year that cannot have any miscues and one where build up capital reserves may need to be tapped to make it through the year. Producers will have to constantly review their farm financial plans as to whether they are on budget and be willing to make changes to adapt.
Area farm management specialists are available across the state to work with producers in farm financial management. Information on the Tennessee MANAGE program can be found online at http://economics.ag.utk.edu/mang.html. Check with your county Extension office in your state for similar programs.