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Spotlight on Economics: Swinging for the Fences

The 2016 North Dakota corn crop makes a great case for the upside of corn, as record yields resulted in profits that allowed many farms to plant another day.

By David Ripplinger, Assistant Professor NDSU Agribusiness and Applied Economics Department

Low commodity prices have many farmers sharpening their pencils as they make production plans for 2017. Economic theory helps us understand what to expect.

While there also are important agronomic and operational issues to consider, prices provide signals to farmers of what crops the market wants them to grow and how to grow them.

Looking at the NDSU Extension Service crop budgets prepared by Andy Swenson, NDSU Extension farm management specialist, one can quickly identify crops that are expected to be profitable in 2017.

As NDSU Extension’s bioenergy economics specialist, I have a particular interest in corn given its dominant role as a feedstock for U.S. ethanol production, as well as its role as a predictor for the fortunes of American farmers (including those who don’t grow the crop).

A few caveats about crop budgets should be understood before using them. The most important is that crop budgets are like husbands: They are almost certainly wrong, but they can be useful.

My colleague Andy puts in a lot of effort to determine input rates, expected yields and prices. However, the perfect alignment of his numbers with your final numbers is unlikely. However, using the crop budgeting framework and adjusting or comparing regional numbers to your own make crop budgets practical farm management planning tools.

Depending on the region, NDSU Extension crop budgets show varying levels of profitability for corn in 2017. While 2017 production costs reasonably can be estimated today, yield and price are much more uncertain. Not many farmers price a crop that hasn’t been harvested, let alone planted. This is the case even if farmers could lock in profits, which some North Dakota farmers could have done with recent crop corn bids.

The 2016 North Dakota corn crop makes a great case for the upside of corn, as record yields resulted in profits that allowed many farms to plant another day.

My colleague Frayne Olson, NDSU Extension crops marketing specialist, has estimated the distribution of crop profitability for soybeans, wheat and corn based on yields and crop prices. Not surprisingly soybeans have the highest expected profit, followed by corn, then wheat.

But expected profits don’t foretell the full profit story as a bumper crop or $7 prices give corn an upside no other crop can match. This ability to knock profits out of the park make corn production more appealing than would otherwise be the case.

If Babe Ruth were a farmer today, he’d plant corn from fence row to fence row.

NDSU Agriculture Communication - Feb. 27, 2017

Source:David Ripplinger, 701- 231-5265, david.ripplinger@ndsu.edu
Editor:Kelli Armbruster, 701-231-6136, kelli.armbruster@ndsu.edu
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