Projected Margins and Breakeven Prices for Corn05/13/2016
A recent farmdoc daily article (April 29, 2016) examines the relationship between farm corn price and the stocks-to-use ratio. Using the authors’ reciprocal model, the forecast of 2016-17 U.S. average farm corn price was $3.70 per bushel. How does this price forecast relate to corn breakeven prices? The answer depends on a farm’s cost structure, which is related to land productivity and farm efficiency. Both of these factors can vary substantially among farms. The impact of land productivity on breakeven prices is well known. However, the impact of cost structure on breakeven prices, though of obvious importance, is less well known. Cost structure and differences in per unit production costs among farms, can have a large impact on farm efficiency and breakeven prices. For example, a study by Yeager and Langemeier (2009) that examined the sustained competitive advantage of a sample of farms found overall or cost efficiency, which varies from 0 to 1 with 1 being the most efficient farm, to be 11% higher for the above average performance group and 14% lower for the below average performance group than it was for the average performance group. This article uses an enterprise budget and different cost structure assumptions to examine earnings per acre and breakeven prices for corn in Indiana.