Production costs for both corn and soybeans will be higher this year than in 2009, but budget projections indicate a better revenue stream from corn than beans, says David Asbridge.
“By the time we get into the spring season, I think we’re going to see soybean prices fall relative to corn prices,” he said at the Mississippi Farm Bureau Federation Winter Commodity Conference.
“I think corn prices will go lower, but soybean prices will fall even faster. By the time we get into the 2010 marketing year, we’re going to see a lower gross revenue for soybeans, with about a $30 to $35 per acre decline in the net margins for production in the U.S. We’re projecting $251 for returns over operating costs in 2010, a 12.2 percent drop from $286 in 2009.”
Asbridge, who is president and senior economist for NPK Advisory Service, Inc., says, “I think we’re going to see a higher revenue stream from corn, with a projected 4.2 percent return over operating costs.
“For soybeans, we’re looking at about a $13 per acre average increase in total operating costs —$132 per acre versus $119 last year.”
That breaks down to $22 per acre for fertilizer (up 22.2 percent), $57 for seed (up 11.8 percent), $15 for fuel (up 15.4 percent), $16 for chemicals (down 5.9 percent), and $22 for other variable costs (up 10 percent).
On average in the U.S. last couple of years, U.S. producers have had a little better return on variable costs from growing soybeans than corn, he notes. Last year, total operating costs for corn were $253, for soybeans, $119, with returns over operating costs of $264 for corn and $286 for soybeans, a difference of $22 in favor of beans.
“We’re going to see an increase in corn seed costs this year, and an increase in fuel costs,” Asbridge says.
The breakdown for the 2010 corn budget is $110 for fertilizer (up 7.8 percent), $76 for seed (up 10.1 percent), $30 for fuel (up 7.1 percent), $25 for chemicals (down 7.4 percent), and $28 for other variable costs (up 3.7 percent).
Gross revenue from corn is projected at $269 per acre, compared to $253 last year (up 5.2 percent), and returns over operating costs are $275 per acre, compared to $264 last year (up 4.2 percent).
Average seed corn cost was relatively flat for several years, Asbridge says, with slow increases over time, and “then it really started to take off, which relates directly to what was going on with GMO technology. There has been a real explosion in the use of biotech seeds in the U.S.
“Seed technology has become much, much better, particularly for corn; it has made the corn plant much more efficient. We’ve seen yields really jump over the past four or five years, compared to the 10 or 15 years before that.
“I think we’ll see use of biotech seed continue to increase in 2010. This technology is going to continue to make corn plants better and more efficient users of fertilizer and moisture, particularly in drought situations.”
There is new corn seed technology this year, Asbridge notes. “Monsanto has announced it’s going to have about 4 million acres of SmartStax corn, which is the top of the line right now.
“A significant advantage is the refuge requirement for SmartStax. What they’re basically doing is calling it ‘refuge in a bag.’ They’re putting the non-GMO seed in the bag with the GMO corn; you plant it and it becomes a part of your field; you don’t have to set aside refuge acres outside the GMO field.
“Some of you may get a chance to plant some of it this year, but I think in 2011-2012 it’s really going to be hot in the market.”
Companies are working to try and develop a seed that has several desirable biotech traits in it — “maybe 10 different traits in the same seed. If you’re in an area where you can only take advantage of three of those traits, or five, you’ll pay for just the number that you can use.”
Soybean seed prices, which were relatively flat for several years, have been going up along with improved technology, Asbridge says.
“While soybean yields haven’t grown as impressively as those for corn, they are getting better. Yields for the U.S. have been averaging in the low 40s, which is pretty good considering the crazy weather we’ve had in recent years.
“I think you’ll be paying more for your soybean seed this year, due mostly to new technology like Roundup Ready II, but higher yields of 5 percent to 7 percent should help offset those costs.”
While advances in biotechnology will continue to push up seed costs, Asbridge says, “some of that increase is being offset by lower chemical costs, which have gone down, on average, across the U.S.
“There was a bump upward last year when China, because of the Olympics, shut down some of the plants that produce generic glyphosate. This year, though, I think you’ll see a decline in your average chemical costs because those Chinese plants are in production again and you should be able to buy glyphosate more cheaply — in some instances much more cheaply.
“Overall, I think we’ll see chemical costs come down this year; in corn, we’re projecting $25 per acre for and $16 for soybeans.
“So, the higher seed costs will be offset some by lower chemical costs and higher yield from the new technologies.”
Although petroleum prices are up from a year ago, and farmers will be paying more this year than in 2009, Asbridge notes, “We’re way down from where we were at the peak of $148 per barrel in 2008.”
In looking at some of the factors affecting markets, he says commodity trading funds “have had a lot bigger impact on prices than the value of the dollar, particularly in the short term.”
As an example, “These funds sold off over a billion bushels of corn on the Chicago Board of Trade starting in June 2008, and continuing for the next three or four months — a huge amount of corn dumped on the market in a short period of time.”