Improve Soybean Profitability by Reducing Input Costs Back »

Image courtesy of the Soybean Checkoff [CC BY 2.0] via Flickr.


In South Dakota, corn and soybeans are the top two crops with the largest acres planted and the highest sales values. Based on USDA/NASS data, the 2015 corn and soybean production values were $2.6 billion and $2.0 billion respectively. In 2016, the planted acres for corn and soybeans are projected to be 5.7 and 5.0 million acres respectively.

Soybean market price and production cost

Based on the soybean price received by producers in South Dakota (Figure 1), a peak price of $16.00/Bu was reached in August, 2012. In most recent years, however, soybean price has been on a continuous decline until most recently. According to USDA/NASS data, South Dakota Soybeans-price received in March, 2016 was $8.25/Bu, 10 cents up from the previous month. Since April 2016, U.S. Soybean future price has increased sharply, amid reports that abnormal rainfall conditions likely caused measurable reduction of the crop in some key soybean production areas such as Argentina and parts of Brazil (O’Brien, 2016). Based on the most recent World Agricultural Supply and Demand Estimates on May 10th (USDA, 2016), the forecasted 2016/17 U.S. season-average soybean price ranges from $8.35/Bu to $9.85/Bu, compared to $8.85/Bu in 2015/16.


Figure 1. South Dakota Soybeans-price received, measured in $/Bu
Source: USDA/NASS

Meanwhile, soybean production costs have been constantly increasing (Figure 2). Based on cash-rent farm enterprise analysis data for Minnesota, South Dakota and North Dakota (FINBIN), the five most expensive production cost categories in 2015 were land rent, seed, crop chemicals, repairs and fertilizers. Regarding percentage increases, fertilizer and crop chemicals costs have risen most rapidly, with 115% and 88% increases from 2010 to 2015 respectively. In terms of dollar amount increases, land rent has experienced the largest increase of $71/acre, from an average of $113/acre in 2010 to $184/acre in 2015. This was followed by crop chemicals, which averaged $21 per acre in 2010 and $39 per acre in 2015. The increase of $18/acre in chemical use was largely attributable to the emergence of herbicide resistant weeds in recent years (Edwards C.B. et al., 2014).


Figure 2. Four most expensive production cost categories after land rent for soybean production in Minnesota, North and South Dakota, 2010-2015, measured in $/acre. Source: FINBIN

Cost comparison of high- and low-profit producers

While declining prices and increasing costs will considerably reduce profit for soybean production, there are certain input costs that might be reduced. Based on the data analyses of 1,209 cash-rent farms from Minnesota in 2015, the net returns over direct expenses were $75/acre on average, $179/acre for the 20% most profitable producers, and $-13/acre for the 20% least profitable producers. After further deducting overhead expenses, the net returns were $7 on average, $122/acre for the 20% most profitable producers, and -$101 for the 20% least profitable producers. The vast difference between farms of different categories reveals a potential to increase profit for those farms in the less-profitable group.

To better understand the source of cost discrepancies, Table 1 provides a comparison of soybean production costs between the 20% most profitable producers and the 20% least profitable cash-rent soybean producers in 2015. In terms of the cost difference in dollars per acre, land rent ranks first among all the direct expense cost categories. Other main categories with the largest cost differences between the two groups include fertilizer, crop chemicals, seed and hired labor. Among these, fertilizer, crop chemicals and seed are also among the top four highest cost categories after land rent (Figure 2), suggesting managing those expenses may effectively reduce total costs. Ironically, even though higher costs were spent on land rent, fertilizer, crop chemicals, seed and hired labor by the 20% least profitable producers, they generated an average yield of 53 Bu/acre, which was 6 Bu/acre less than that of the 20% most profitable producers.

From a much smaller farm sample in South Dakota, as reported by MTI (2016) on 48 cash rent soybean producers, similar findings are observed. Compared to Minnesota farms (Table 1), South Dakota producers paid lower land rent on average, $138/acre and $89/acre respectively, by the 20% least profitable and 20% most profitable. The yield was generally lower too, as indicated by 46 Bu/acre and 54 Bu/acre for the 20% least profitable and 20% most profitable producers. Nevertheless, the least profitable producers from both states incurred higher input costs on fertilizer, crop chemicals and seed, but did not produce higher yields as a result. The reasons are likely to vary on an individual basis, but possible explanations could be choosing undesirable seed varieties, planting either too late or too early, failing to rotate crops, and applying the wrong fertilizer types that barely increase profit (Staton, 2016).

Table 1. Direct expense comparison between high 20% and low 20% cash-rent soybean producers, out of a total of 1209 farms from Minnesota in 2015. Unit: $/acre.

  20%
Least Profitable
20%
Most Profitable
$
difference
Land rent 223.95 155.58 68.37
Fertilizer 28.93 18.67 10.26
Crop chemicals 46.31 37.26 9.05
Seed 63.36 56.61 6.75
Hired labor 6.58 0.94 5.64
Repairs 27.61 22.63 4.98
Custom hire 9.67 5.2 4.47
Operating interest 9.16 5.59 3.57
Crop insurance 21.69 18.77 2.92
Fuel & oil 16.46 13.57 2.89
Machinery leases 2.84 1.31 1.53
Miscellaneous 2.5 1.6 0.9
Utilities 1.3 0.64 0.66
Storage 1.1 0.54 0.56
Hauling & trucking 1.08 0.97 0.11
Marketing 1.02 0.98 0.04
Source: FINBIN

To determine the potential to increase net profit from soybean production, individual soybean producers are encouraged to compare their own yields and input costs with these benchmark levels. Soybean experts from SDSU Extension can also help producers target the issue areas and increase profit accordingly.


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