By NANCY VORIS
Indiana Correspondent

WEST LAFAYETTE, Ind. — “The message is, if you can get corn planted, plant it” – Purdue University ag economist Chris Hurt’s take on the USDA’s Prospective Plantings and Grain Stocks reports released last week.
“The market at this point is continuing to say, ‘Producers, we need more corn acres, please!’” he added.

Hurt and fellow Purdue ag economist Corinne Alexander provided an analysis of the reports hours after its release. For those interested, the Prospective Plantings Outlook report is archived and can be accessed online at www.ag.purdue.edu/agecon/Pages/default.aspx

“The world economy has started growing again; in particular, developing countries have seen increased growth,” Alexander said. “With the growth, we see a substantial increase in income, and with that, people tend to eat better, specifically meats which mean more feed grains.”

She also cited the weak dollar, which makes the grains less expensive for U.S. grain customers to purchase.

In charting the high demand for corn, Hurt said use for ethanol is a huge driver of new demands for corn. He looked at the number of acres required to meet that demand. In 2005, 7.4 million acres were required for ethanol (dried distillers grains were removed from that equation); in 2010, that rose to 21.8 million acres.

Soybean acreage has increased similarly because of China’s “voracious appetite” for soybeans, he said. In 2005, 8.3 million acres of beans were shipped to China, and last year 20 million acres were purchased.

When the two areas of growth are combined, “That 26 million acres (is) more demand than we had before,” Hurt said. He said that much growth has not been seen since the 1970s, when Russia led demand. “So large is the demand that the world is struggling to keep up. We’re tight on corn and beans are getting tight. Stocks are much lower than we expected.”

The economists then looked at what end users can pay for grains. With crude oil at $110 a barrel, ethanol producers will approach the shutdown point when they have to pay $9.78 a bushel for corn. Likewise, hog producers will be at a breakeven price at $8 a bushel.

Alexander led viewers through an estimated variable cost per acre of average quality of Indiana land producing 161 bushels of corn, 49 bushels of beans and 70 bushels of wheat. Variable costs included seed, chemicals, fertilizer and fuel. The estimated costs to produce one acre this year are $387 for corn, $194 for beans and $169 for wheat.

Based on the above yields and the market prices March 31, the return per acre above variable costs are $561 for corn, $464 for beans and $320 for wheat.
“If you take 50/50 corn-beans, that gives you a return of about $500 an acre over the variable costs,” Hurt said.

Expenses that were not included in the variable costs include machine depreciation, family living expenses and land. If $100-$110 were taken out for machinery and family living, $400 remains for land.

Hurt said, “Those are really impressive numbers that clearly continue to say, ‘Wow, look at those margins.’ This is a really unusually large opportunity.”