By Greg Roth
A couple good discussions came up over lunch at last week’s Crop Diagnostic Clinic. One question was the corn market and if any recovery was in order. No good answers were found for that one. The second was the crop prices to use on input decision-making. Many folks use the current cash price in estimating potential returns to an input but fail to account for other additional costs in getting the grain to the market.
For example if we estimate the current fall corn price at $4.00 per bushel in our expected returns to an input, that is ignoring the potential hauling cost (0.30/bu), drying cost (0.04/bu/pt. * 7 pts. or 0.28/bu) plus any storage and handling charge (0.10/bu). Considering those costs takes the value in the grain bin on the combine from $4.00 to $3.22 or lower if the corn is wetter than 21-22% or the hauling distance is significant.
Using a value of $3.22/bu makes it more difficult to pencil out positive returns to inputs than at $4.00/bu. The sobering point is that as a percentage of total revenue these post-harvest costs are much higher at lower crop prices than higher prices. And, they tend not to go down with declining crop prices.
This issue will likely have some impacts on corn production this fall and in the future unless we get some kind of recovery. I suspect many growers will likely opt to let corn dry in the field longer this fall to help manage the drying costs. On the bright side we have a positive basis due to our good markets here. We also have some alternative markets for silage and high moisture corn that can help manage these costs with a few acres. The bottom line is that we should be thinking of the value of the crop in the combine when trying to make estimates on returns to inputs and that may vary from the price at the market.
Source:psu.edu