Planning Budget Update due to COVID-19

By: Evan Gregory, Department of Agricultural Economics

Introduction

COVID-19 has had a tremendous impact on the U.S economy and agriculture has not been immune from the downturn. Given the current economic environment, the 2020 Row Crop Planning Budgets produced by the Agricultural Economics Department at Mississippi State University have been updated. These planning budgets are published each October and provided producers and lenders an estimate of input prices, commodity prices, and net returns for the upcoming crop year. In recent months commodity prices have been depressed due to COVID-19 and the overall uncertainty around markets. Lower prices will have a negative effect on producers, but producers will also see some lower input prices for items such as fuel and fertilizer. This article will present an update on price changes and net returns using the 2020 MSU Row Crop Planning Budgets.

Commodity Prices

            Given the current economic downturn, commodity prices used in the 2020 MSU Row Crop Planning budgets needed to be adjusted. Commodity prices are estimated by taking the harvest month futures contract price for a given commodity and accounting for the historic basis during the harvest month for the Greenville, MS location. Updated commodity prices will use the same historic basis as original estimates but will use the average harvest month futures price for the week of April 20^th-24^th. Updated prices can be found in Table 1.  Corn, soybean, and cotton prices are all adjusted down in the updated budgets. Corn has an updated price of $3.16 bushel, soybeans $8.44 bushel, and cotton $0.55 pound.

Fertilizer Prices

Fertilizer prices were collected from various dealers across Mississippi and recorded.  Prices are denoted as dollars per hundredweight ($/cwt).  Overall, revised prices show mixed trends when compared to the previous budget estimate.  Urea prices have increased slightly from $20.22 per hundredweight to $20.24 per hundredweight.  All other prices for fertilizer have decreased, with the biggest drop being in potash.  Previous estimates for potash were $27.50 per hundredweight, while revised estimates show a price of $16.72 per hundredweight.  A chart depicting previous and revised estimates for fertilizer prices can be seen in Table 2.

Fuel Prices

Fuel prices were collected from fueling stations in Mississippi, as well as data collected from internet sources. Given the economic slowdown caused by COVID-19, fuel prices have decreased dramatically.  Table 2 shows the change in fuel prices when compared to the original 2020 budget estimate.  Off-road diesel prices were collected from fuel vendors within Mississippi, and an average gasoline prices was collected from AAA’s website that analyzes statewide fuel prices daily.  The information can be seen at https://gasprices.aaa.com/.  Off-road diesel was $0.92 cheaper and gasoline was $0.68 cheaper at the time of retrieval noted in the figure when compared to the original budget estimate.

Net Returns

Net returns are income after all expenses from production have been deducted.  In the Row Crop Planning Budgets, net returns are denoted as “returns above total specified expenses.”  Total specified expenses include all variable and fixed costs associated with growing each particular crop. Variable costs are costs only incurred while growing crops, such as: fuel, seed, herbicide, fertilizer, etc. Fixed costs are incurred even if no crops grown, such as depreciation, interest, taxes, and insurance for machinery and equipment.

Changes in returns above total specified expenses are depicted in table 3. Returns are denoted in dollars per acre. Returns are averaged across all production practices considered in the Row Crop Planning Budgets. As can be seen, corn, cotton, and soybean returns are much lower than previous budget prices due to low futures contract prices.  The largest change in returns are in corn, with returns decreasing by $85.79 per acre.

Cotton and soybean returns are also significantly lower, with returns decreasing by $47.29 and $27.04 per acre, respectively. Even though cotton and soybeans have decreased less when compared to corn, cotton and soybean returns are, on average, now negative whereas corn returns are still positive. However, it should be noted that April planted soybeans across all seed types planted in non-Delta areas managed to have positive returns. For Roundup Ready, Roundup Ready XtendFlex, and Liberty Link soybeans, returns were $58.78, $62.37, and $33.58 per acre, respectively. All soybeans planted after wheat in a double crop production practice rendered very slight positive returns also. For cotton, four production practices only in the delta area rendered positive returns. Furrow irrigated, pivot irrigated, conservation tillage, and no-till cotton rendered returns of $70.25, $49.63, $10.03, and $40.09 per acre, respectively. All other production practices rendered negative returns. Rice prices have increased when compared to the original budget estimate, with returns increasing slightly by $34.43 per acre.  Even though rice returns have increased, be aware that estimated returns are still negative given current market prices.

Conclusion

This article is intended to inform producers of changes in various input prices and net returns given the significant impact that COVID-19 has had on the agricultural economy.  All prices given in this article are estimates, so prices and returns that you have may be different than those presented in this article.  For more information regarding the 2020 Row Crop Planning Budgets produced by the Department of Agricultural Economics at Mississippi State University, please visit https://www.agecon.msstate.edu/whatwedo/budgets.php.