Review 2021 Corn and Soybean Returns

calculating crop insurance prices and crop returns

By Brent Gloy and David Widmar

Each spring, we find it helpful to consider the initial corn and soybean crop insurance prices and Purdue crop budget estimates to compare the budget outlook relative to past years. For this week’s article, we review a past AEI Premium article that takes a deep dive into the final crop insurance prices and provides an update on the returns for corn and soybeans in 2021. 

Record Contribution Margins

For many producers, the harvest price was likely higher than their initial crop budgets projected. Considering the crop insurance price data, corn was the big winner as the price increased by $0.79 (+17%) from $4.58 to $5.37 per bushel. Soybeans also increased but more modestly, rising from $11.87 to $12.30 ($0.43 or +3%).
This marked the second year in a row that prices have increased from spring to fall. Prior to 2020, corn had seen a streak of 7 years in a row where prices had fallen during this period. The increase for corn is the third-largest on record, behind 2010 and 2012.
To get a feel for how these price increases might affect the financial outlook, we plugged them into the crop budgets that we used at the start of the year. In this case, we relied on the Purdue crop budgets for average quality Indiana farmland. For 2021 this includes the November estimate of corn yields at 189 bushels per acre and soybeans at 57 bushels per acre.
Figure 1. Contribution Margin at Final Crop Insurance Prices and Yields, Average Quality Indiana.

Figure 1. Contribution Margin at Final Crop Insurance Prices and Yields, Average Quality Indiana.

Assuming costs didn’t change from budget and state average yields, the contribution margin for 2021 was the highest on record for both crops. While it is quite possible that costs inflated above the early Purdue budget estimates, we can still conclude that 2021 will be among the most lucrative ever recorded for these crops. In the case of corn, the contribution margin is just short of $600 per acre. For soybeans, it was $434 per acre. To put the corn number in perspective, it was nearly double last year’s (by no means the worst in the last 14 years) contribution margin.

As a reminder, the contribution margin is revenue less variable costs of production. Stated differently, the contribution margin gives us an idea of how much producers have to cover fixed production expenses (rent, equipment, labor, family living) and, if sufficient, generate a profit.

When considering the total profit situation, the returns for a 50/50 crop rotation were again very good, although it is unlikely to be record-setting. This is because of the higher cost associated with farmland rents and other fixed costs over time. For example, in 2008 – when rotation profits were the highest – the fixed cost structure was $274 per acre. In 2021, fixed costs were $403 per acre. Still, 2021 will go down as the third highest in this data series.

Wrapping It Up

It is pretty clear that 2021 will be memorable for good prices, generally decent yields, and a very favorable cost structure. This combination of events produced one of the most profitable years that many farmers have seen. It is also likely that these strong profits will be under pressure in 2022.

We have already begun to see significant upward pressure on costs. These are being led by fertilizer and land costs, both of which have seen spectacular increases already. We think it safe to conclude that the budget outlook for 2022 is not quite as favorable as what just occurred in the farm sector. It’s still good, just not as good as 2021.

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