Corn Production Costs in the Northern Great Plains
July 28, 2015
Supply and demand regulates US agricultural and non-agricultural markets all the time. Prices increase when scarcity of a certain item is anticipated. Similarly, prices drop if the market is saturated because of oversupply (i.e. an exceptional harvest season) or there is a reduced demand for the product (i.e. slowing of export markets for a commodity). Crop farmers are aware of this happening with corn grain almost every season with price variations recently in excess of 100% from one year to the next. Between the mid-1800’s and 1940’s corn production in the U.S. became stagnant oscillating between 20 and 30 bushels per acre. In the 1930s’, just as the Great Depression began, new varieties were developed and started to become commercially available. At the time, scientists concentrated on breeding corn hybrids with bigger ears that could bunch more closely together in the field. Industrial fertilizers and specific field machinery were also developed which helped boost productivity. From then on corn yields per acre have been increasing on average by almost 50% per year.
Costs of Producing Corn in the Northern Great Plains (NGP)
In 2014 the average corn production for the NGP was 134 bushels per acre almost 30% less than the US average (170 bushels). Total cost of production can be divided into operating costs (basically yearly out-of-pocket expenses) and overhead costs. The 2014 operating cost of production for NGP crop farmers was roughly $2.4 per bushel (U.S. average $2.1). Once the operating costs were subtracted the value of production per acre was $245 and $93 for the U.S. and the NGP, respectively. Seed and fertilizer were the two single cost items with the largest impact on the cost of producing corn (Table 1).
Many variables can ultimately affect corn yield and thus cost per bushel, some of which (i.e. weather) we cannot control. Fertilizer is the highest single cost of corn production in the U.S. Farmers in the NGP paid 8% less for fertilizer compared with their counterparts in the rest of the U.S. This is likely affected by the use of manure fertilizer in this region. Of all the crop acres that use manure as a fertilizer in the US, corn, with more than 9 million acres constitutes nearly 60% (USDA ERS). Of the total corn acreage in the US nearly 12% is fertilized with manure, the majority (62%) coming from dairies. Applying fertilizer only as needed makes perfect sense from an environmental standpoint. However, it should not be dismissed from an economic perspective. Every time the NGP crop farmers reduced the fertilizer costs per acre by $10 in 2014 without negatively affecting yields, their income over operating costs increased by 7.5 cents per bushel.
Seed was the second highest individual cost item at 30.3% of total costs. It was 7% higher for this region compared to the US overall (Table 1). However, although this cost item weighs in at almost 1/3 of the total cost of production, it would be too risky to try to skimp money on it. It wouldn’t make sense to add another variable, when seed selection is precisely one there can be moderate success at controlling. Trying to save $10 per acre in seed will also save the farmer 7.5 cents per bushel; however, a reduction in yield of just 2.5 bushels will wipe-out this apparent saving. All the rest of the costs combined amount for nearly 31% of the total and the degree of control upon some of them will depend on the individual farm.
The selection of the right corn variety is critical to maximize yields and make sure it performs well under certain climate and soil conditions. There is one saying that must be remembered: … It is more environmentally and economically sustainable to adapt the plant genetics to a given environment than to modify the latter to fit the requirements of the former…
Source: Alvaro Garcia, South Dakota State University