What’s Your Contribution Margin?

• October 8, 2010
• Paul Neiffer

The University of Purdue and other universities do a good job of providing estimated crop costs and return guides for each major crop grown in their area.  I decided to take their 2010 Crop Cost and Return Guide and update with three ranges of prices for the five different crop rotations shown.  I am using a low, average and high price for these crops based solely on an educated guess by me as to what prices might be over the next twelve months.  Based on 2008, almost all of these numbers were hit, so I think we stand a good chance of hitting most of these numbers on at least the average and hopefully the high side.

The table is as follows: 

							DC Beans
		Cont	Rot	Rot		DC	With
		Corn	Corn	Beans	Wheat	Beans	Wheat
	Yield	180	191	59	84	35
Low	Price	4.50	4.50	9.00	6.00	9.00
Average	Price	6.00	6.00	12.00	7.00	12.00
High	Price	7.50	7.50	15.00	8.00	15.00
Low	Revenues	$            810	$            860	$            531	$            504	$            315	$            819
Average	Revenues	$         1,080	$         1,146	$            708	$            588	$            420	$         1,008
High	Revenues	$         1,350	$         1,433	$            885	$            672	$            525	$         1,197
	Variable costs	$            380	$            367	$            206	$            172	$            170	$            342
Low	Contrib. Margin	$            430	$            493	$            325	$            332	$            145	$            477
Average	Contrib. Margin	$            700	$            779	$            502	$            416	$            250	$            666
High	Contrib. Margin	$            970	$         1,066	$            679	$            500	$            355	$            855

As you can see, in most cases, corn will generate the highest amount of contribution margin to the farm operation, however, this is based upon input costs using 2010 numbers.  I believe that costs for 2011 for fertilizer and fuel will most likely be higher than 2010, therefore, you will need to update with the pricing levels that you expect for these input costs.  Also, double cropping wheat with beans is very competitive with corn and since most of the winter wheat has already been planted in a lot areas, these acres will not be available for corn.

This is a fairly easy spreadsheet to work up.  You just need to determine your total variable farm costs by crop and then plug in your yield and estimated pricing.  Every farmer should prepare and update these spreadsheets before making any planting decisions.

, Ag Policy, Farm Industry Trends, Farm Leadership, Farm Operations | Comments Off on What’s Your Contribution Margin?