Written collaboratively by Lisa Elliott and Sumaiya Saleh.
An analysis of the potential profitability of crops for 2016 for Southeast South Dakota was performed. This study examined returns given modified South Dakota State University Extension crop budgets for central & east mid/high production areas that include estimates for both direct and fixed costs.1
This analysis also incorporates risk associated with yields, crop prices, and fertilizer prices. Distributions for the risk variables were developed to include in the model. For the crop yield distributions, the mean crop yield was based upon a trend yield model using historical (1999-2014) USDA-NASS Lincoln County, South Dakota crop yield data (when available).2 The standard deviation of the yield distributions were also based upon this historical yield data. In addition, price risk was incorporated using price distributions from historical SDSU (1999-2014) southeast cash price data. Price distribution means were derived for Southeast South Dakota in 2016/2017 by adjusting 2016/2017 crop price projections from the USDA Agricultural Projections report using an average difference between historical southeast cash prices and USDA-NASS national prices (1999-2014). Also, fertilizer price risk was incorporated by using historical regional fertilizer prices to develop a standard deviation around the fertilizer prices listed in the budget.
Table 1 shows the projected 2016/2017 mean yields and prices for Southeast South Dakota used in the analysis.
Table 1. Projected 2016/2017 Mean Yields and Prices for Southeast South Dakota
|Projected Mean Yield
|Projected Mean Price||$3.50
Figure 1 is a stoplight chart that shows the probabilities of returns of the different crops. Green indicates the probability that greater than $150 per acre return over direct and fixed costs, while yellow indicates probabilities of returns between $0 and $150 per acre. The red shows the probabilities of negative returns, or where returns do not cover fixed and direct costs. For example, the results show that there is a 1% chance that returns to direct and fixed costs for corn production in 2016 will be greater than $150 per acre, while there is a 15% chance of returns being between $0 and $150 per acre, and a 84% chance that returns will be less than $0 per acre.
Figure 1. Stoplight Chart for Probabilities of Returns to Direct & Fixed Costs Less Than $0 per acre and Greater than $150 per acre for Southeast South Dakota
Figure 2 shows the projected mean returns over direct & fixed costs per acre for Southeast South Dakota from the analysis. All crops show negative returns over direct and fixed costs for Southeast South Dakota. There is an absolute mean returns difference of around $11 per acre between corn and soybeans.
Figure 2. Projected Mean Returns to Direct & Fixed Costs ($/acre) for Southeast South Dakota
With this analysis being based upon SDSU Extension budgets, price projections, and yield projections, any change of these assumptions will alter the results. Producers should evaluate how close the yield and budget cost assumptions align with their own operations in order to evaluate the applicability of this analysis to their operation. This analysis does not incorporate any potential rotational benefits, which could also change the results. It is likely that farm yields will vary more than historical county level data, so variation in yields may be underestimated. Also, insurance mechanisms and farm programs have not been incorporated into the analysis, so revenue risk may be overstated for operations that utilize these risk-reducing mechanisms. In addition, if we see changes to ending stocks for any of these crops during the production year, we could see changes in the probabilities of price levels supported, which would alter the results.
2016 Potential Crop Profitability Series
Additional iGrow articles are available that examine the potential crop profitability of the following SD regions:
- The budgets were adjusted by not including crop insurance and management costs. However, a land charge (based upon the county chosen to base yields, according to the SDSU South Dakota Agricultural Land Market Trends 1991-2015 Report) and labor management costs were incorporated. East and Central Mid Production Budgets were utilized for the corn and wheat analysis, while the East and Central High Production Budget was used for soybeans.
- When county data was not available, more aggregate level data, such as regional or state data was utilized.
- Janssen, L., J. Davis, and S. Adams Inkoom. South Dakota State University. South Dakota Agricultural Land Market Trends 1991-2015. May 2015
- Long-Term Agricultural Projections. United Stated Department of Agriculture-Office of the Chief Economist. Web. 3 Feb. 2016.
- MU-FAPRI. U.S. Baseline Briefing Book- Projections for Agricultural and Biofuel Markets. Mar. 2015. Web. 2 Feb. 2016.
- Quick Stats 2.0. United Stated Department of Agriculture- National Agricultural Statistics Service. Web. 3 Feb. 2016.
Disclaimer: The information in this article is believed to be reliable and correct. However, no guarantee or warranty is provided for its accuracy or completeness. This information is provided exclusively for educational purposes and any action or inaction or decisions made as the result of reading this material is solely the responsibility of readers.