March 9, 2004
CROP COSTS ON ILLINOIS GRAIN FARMS
In this article, crop costs on
northern and central Illinois grain farms are examined. Crop costs,
which include fertilizer, pesticide, and seed costs, are related
to yields, profits and tillable acres. Results suggest that crop
costs are not highly correlated with yields, profits, or acres farmed.
Farms and Crop Costs
Data used in the analysis come from farms enrolled in Illinois
Farm Business Farm Management (FBFM). To be included in the analysis,
farms had to be located in northern and central Illinois and receive
the majority of their revenue from grain operations. Data for the
farms also had to be complete. Further, farms had to have average
soil productivity ratings above 80. This criterion limited the impacts
of soil productive on crop costs. A total of 1,179 farms were included
in the analysis.
Crop costs for these 1179 farms averaged $98 per acre in 2002.
Crop costs included fertilizer ($37 per acre), pesticides ($32 per
acre), and seed costs ($29 per acre). These costs are averaged over
crops grown on the farm. Most farms raise corn and soybeans. For
these farms, crops costs are averaged for corn and soybeans.
Variability of Crop Costs
While crop costs averaged $98 per acre, there was variability of
crop costs across the 1,179 farms. Fifty percent of the farms had
crop costs between $90 and $110 per acre (see Table 1). Four percent
of the farms had crop costs less than $70 per acre and eight percent
had crop costs greater than $120 per acre.
Variability existed across all cost categories that compose crop
costs. Fertilizer costs averaged $37 per acre. One-third of the
farms had fertilizer costs below $33 per acre and one-third had
costs higher than $41 per acre. Pesticide costs averaged $32 per
acre. One-third of the farms had pesticide costs below $27 per acre
and one-third had costs higher than $35 per acre. Seed costs averaged
$29 per acre. One-third of the farms had seed costs less than $26
per acre and one-third had costs greater than $31 per acre.
Crop Costs, Yields, Management Returns, and
Table 1 shows corn and soybean yields, management returns, and
tillable acres for different amounts spent on crop costs. For example,
farms that had less than $70 of crop costs had an average corn yield
of 151 bu. per acre, soybean yield of $49 per acre, management return
of $1 per acre, and tillable acres of 1,219.
There is a slight increase in yields as crop costs increase. All
crop cost categories greater than $90 per acre averaged corn yields
above 150 bu. per acre. Categories below $90 had averages near or
below 150 bu. Similarly, crop cost categories below $80 per acre
had average soybean yields below 50 bu. per acre while crop cost
categories above $80 averaged above 50 bu.
While yields increased slightly with higher crop costs, profits
did not increase. Management return is a measure of profit. This
return includes charges for operator and family labor and equity
capital. Net income does not include these charges. Hence, management
return always is below net income. Management return was the highest
for the "less than $70" crop cost category at $1 per acre
(see Table 1). For farms in the "greater than $120" crop
cost category, management return averaged -$51 per acre.
Tillable acres showed no discernable trend across crop cost categories.
All cost categories had close to 1,000 acre average, except for
the two lowest crop cost categories. The "less than $70"
category had average tillable acres of 1,219 while the "between
$70 and $80" category averaged 899 tillable acres (see Table
1). I attribute these differences to data anomalies.
Table 2 shows the relationships between crop costs and the other
variables using correlation coefficients. A correlation coefficients
range between 1 and -1 and measure how one variable changes with
another variable. A correlation coefficient of 1 means that an increase
in one variable always results in an increase in the other variable.
A correlation coefficient of -1 means that an increase in one variable
always leads to a decrease in the other variable. A correlation
coefficient of zero means that an increase in one variable does
not hold any information about the movement of the other variable.
In general, the correlation coefficients
between crop costs and the other variables are close to zero, indicating
that there is little predictive relationship between crop costs
and the other variables. The correlation coefficient between crop
costs and corn yields and soybean yields respectively are .12 and
.11, indicating that farms with higher crop costs tended to have
higher yields. The correlation coefficient between crop costs and
management returns is -.17, indicating that management returns were
lower for higher levels of crop costs. Again, however, these relationships
are not strong. Some farms, for example, with low crop costs also
will have higher yields. The correlation coefficient between crop
costs and tillable acres is .00.
Crop costs vary across farms and there is not a strong relationship
between crop costs and yields. Results do not suggest that farms
with higher crop costs had higher yields that warranted the higher
level of expenditures on crop related items. Results suggest that
controlling crop costs is one factor in maintaining profits.
The author would like to acknowledge that data used in this study
comes from the local Farm Business Farm Management (FBFM) Associations
across the State of Illinois. Without their cooperation, information
as comprehensive and accurate as this would not be available for
educational purposes. FBFM, which consists of 6,000 plus farmers
and 62 professional field staff, is a not-for-profit organization
available to all farm operators in Illinois. FBFM field staff provides
on-farm counsel with computerized recordkeeping, farm financial
management, business entity planning and income tax management.
For more information, please contact the State FBFM Office located
at the University of Illinois Department of Agricultural and Consumer
Economics at 217-333-5511 or visit the FBFM website at www.fbfm.org.
Issued by: Gary Schnitkey,
Department of Agricultural and Consumer Economics, University of
Illinois at Urbana-Champaign.