The cost of growing corn and soybeans has significantly increased in recent years. Data published by the Iowa State University Extension details that total corn production costs from 2008 to 2013 jumped from $573 to $777 per acre, a 36% surge. Go back to 2000, and the average per-acre production cost of $351 is a whopping 221% less.
The cost of seed corn alone has increased 47% since 2008, while fertilizer and lime costs are up 29%.
Regardless of the price tag, seed costs still represent a good value, and investing in quality seed traits is generally a good return on investment.
We use the financial analysis below when helping clients compile an operating plan and determine the gross dollars per acre needed to meet all obligations, including profit. It is standard practice for us to view profit as the cost of staying in business and capitalizing your growth.
The only difference in the two sets of data is that one reflects seed corn without traits and the other with several of the available traits. I added $30 per acre for trait costs ($130 per acre versus $100).
Based on client averages, I increased the yield figure with seed traits by 12 bu. per acre.
Pay special attention to the difference in return on equity (18.3% and 20.2%). There are likely some savings that can be realized in reduced insecticide, herbicide and/or fungicide use, which could make the difference in return on equity more significant. I didn’t take into consideration the potential cost reductions, however, because some might argue with my 12 bu. yield increase assumption.
The $15 per-acre increase in profit doesn’t seem like much at the end of one year. The numbers start adding up when you compound $15 over five years and the $1,558,000 net worth grows to $3,609,000 at an 18.3% increase each year. At 20.2%, net worth totals $3,909,000. The $300,000 difference realized from using traited seed is real money.
Moe Russell is president of Russell Consulting Group in Panora, Iowa. He provides risk management advice to clients in 34 states and Canada. For additional risk management tips, visit www.russellconsultinggroup.net. To submit questions, call (877) 333-6135 or e-mail firstname.lastname@example.org.