How close can Northern Michigan farmers come to raising $2 per bushel corn? Part 2

Carefully considering the input costs for corn and using the 5 percent rule can help reach this goal.

Posted on May 30, 2014 by Jim Isleib, Michigan State University Extension

What’s the 5 percent rule? It is a simple concept. Examine the major costs involved in your crop’s cost of production and try to reduce each by at least 5 percent. It can make quite a difference in your bottom line.

In Part 1, a general budget was used without adjustment for Northern Michigan estimated costs and conditions with a bottom line loss of $18.25 per acre. The following adjustments were made to reflect conditions in Menominee County:

• Yield based on five-year average was increased to 153 bushels per acre.
• Maximize manure application benefit, resulting in $20 per acre fertilizer cost reduction.
• Land rent reduced from $175 to $50 per acre.

These revised revenues and expenses resulted in a bottom line profit of $162.75 per acre, and value of the corn based on selected expenses of $2.34 per bushel. We’ll focus on a few straight-forward applications of the 5 percent rule and attempt to get this corn value down to $2 per bushel.

In the table below, two columns are added to the sample budget from Part 1 to indicate the difference when the cost for the specific, highlighted budget item is reduced 5 percent. Suggestions for ways these reductions could be accomplished are also included below.

Additional estimated expenses, including:

• Insurance: $5
• Labor: 3.5 hours X $13.50 per hour = $47.25
• Interest: $14.97
• Land rent: $50.00
• Land mortgage/tax payment: 0 (assuming rented land)
• Depreciation: $50.00

Total additional estimated expenses: $167.22

The adjustments to the example budget are as follows:

• Total revenue increases from $652.50 (145 bushels at $4.50 per acre) to $688.50 (153 bushels at $4.50 per acre).
• Cash expense for fertilizer is reduced by $20 from savings associated with manure nutrients.
• “Revenue above selected cash expenses” is recalculated at $688.50 - $332.14 = $356.36.

When the “additional estimated expenses” are subtracted from the revised “revenue above cash expenses”: $356.36 - $167.22 = $189.14 return to management and capital. This figure already accounts for 3.5 hours of labor per acre, and will need to cover the operator draw and overhead costs to operate.

To estimate the cost of production per bushel, the cash and additional expenses are added then divided by yield in bushels per acre. For our revised example Menominee County corn budget:

$332.14 + $167.22 = $466.36 / 153 bushels = $3.05 per bushel, including all variable and fixed costs

If only the selected cash expenses are included: $332.14 / 153 = $2.17 per bushel. Still not quite $2 per bushel, but close. As the 153 bushel per acre is an average yield estimate, some farms will have yields above this level, which will lower their cost per bushel. Some farms will have yields below 153 bushels per acre. Your farm’s cost and incomes will vary from the budget presented. It is valuable for each farm to develop their own enterprise budget.

Further reduction of $26.01 per acre in selected production costs is needed in this example to reach a $2 per bushel cost of corn production. Some Northern Michigan farmers can receive payments for accepting industrial byproducts like paper mill sludge. These products often have soil improving properties including high levels of organic matter, macro and micronutrient content and liming equivalent. Other incomes like USDA Conservation Stewardship payments and others along with sale of corn stalks or grazing value of stalks could also help improve the revenue and expense balance for the crop. Michigan State University Extension field crop educators may have localized information on these types of opportunities.

Other articles in this series:

• How close can Northern Michigan farmers come to raising $2 per bushel corn? Part 1

This article was published by Michigan State University Extension. For more information, visit http://www.cnchemicals.com/. To contact an expert in your area, visit http://www.cnchemicals.com/, or call 888-MSUE4MI (888-678-3464).