A look at USDA’s crop budgets for 2013
Doane Advisory Services, 02/04/2013
USDA has updated crop budgets for 2013. USDA updates cost of production estimates for major crops twice a year, once in December and again in June. These are national average estimates and can vary considerably by region, soil types, etc. The USDA budgets also show estimated fixed costs, but since these don’t vary depending on what crops are planted we look primarily at the net returns over variable costs. These are the economics farmers use, among other factors, to make decisions about what crops to plant.
Revenues are based on new crop prices and trend yields. To calculate implied revenue we use spot futures for 2012 and new crop futures for 2013 without attempting to make any basis adjustments. That varies so widely from region to region the best approach for these purposes is to look at futures revenue only. As for yield assumptions, we use the current actual yield estimates for 2012 crops and “trendline” yield assumptions for 2013.
Corn net returns are well above those for soybeans. The analysis shows strong net returns for corn. Fig. 4 shows corn net returns $189 per acre ahead of soybeans at trendline yields, well ahead of the $126 per acre edge it has at last year’s yields and current spot futures prices. However the economics can change. Just three weeks ago corn had a $272 edge over soybeans.
Rising cotton prices could support 2013 acreage. Despite enormous global stocks, cotton buyers are realizing that China holds a huge portion of those in reserve, effectively keeping them off of the market. Cotton prices have been rising, but net returns are still very low compared to most alternative crops. However, cotton acreage could be above some current forecasts if prices continue to rise or if it stays dry in some key growing areas. Cotton tends to withstand dry conditions better than some of the alternative crops across the South.