Margin Industries--the Case of Corn

     Iowa State University for many years has produced enterprise budgets for the major crop and livestock produced in Iowa.  Enterprise budgets give the detailed expected costs for producing a single unit (in the case of corn, an acre) of the crop.

     The 2007 Corn budgets produced in January of this year can be found at http://www.extension.iastate.edu/agdm/crops/pdf/a1-20.pdf.

     If you take a look at the expected costs of corn production, they range from $463.94 per acre for Low-till Corn following Soybeans to $510.60 per acre for conventional tillage corn following corn (continuous corn).  The breakeven prices are $2.90 to $3.20/acre respectively.  Given that some are reporting that the variable costs of corn production are up 55% for 2008 and with corn acres now selling for $6,000 to $8,000/acre based on corn price expectations, it is easy to see how the margins for corn acres are rapidly returning to their pre-ethanol and demand enhanced levels.

     Soon it will take $4.25 corn to earn the same amount per acre that $1.90 corn did.  Cash rents in Iowa http://www.extension.iastate.edu/AgDM/wholefarm/pdf/FM18512007.pdf have risen from a statewide average of $128/acre to $150/acre between the years 2003 and 2007 and will no doubt continue to rise since the 2007 average rent was collectively negotiated before corn price increases were on the boards last October.  Using a very nice rental rate estimation worksheet provided at at hotlink here: http://www.extension.iastate.edu/agdm/wholefarm/html/c2-20.html, I put in $4.00 corn and $11.00 beans and without increasing the 2007 crop production costs, the average rental rate for land that produces corn shoots up to $218.49.  Of course with input prices rising dramatically, the net income expectations will eventually fall which will stabilize land rental rate increases.