Low-cost producer?Corn is increasingly popular with farmers in North Dakota and northwest Minnesota. One of the reasons is the fact that land costs are lower than those in the Corn Belt, the nation's key corn producing area.
By: Jonathan Knutson, Agweek
Corn’s popularity is soaring in parts of the Northern Plains where the crop once was rare. High corn prices and new, improved varieties receive most of the credit.
But another often-overlooked factor is in play, too, experts say.
Relatively low land costs give Upper Midwest farmers a financial leg-up over their counterparts in Iowa and other traditional corn-producing states. Though corn generally doesn’t yield as well in North Dakota, western South Dakota and northwest Minnesota as it does in Iowa and other traditional corn-producing states, the lower yields appear to be offset by lower land costs.
Have the Northern Plains become America’s low-cost corn producer?
“I think that probably applies,” says Bart Schott, a Kulm, N.D., corn farmer and a past president of the National Corn Growers Association. “Our costs are probably as low as anywhere in the nation.”
Schott also notes that raising corn generally is riskier on the Northern Plains than in the heart of the Corn Belt. Lower land costs on the Northern Plains reflect that greater risk, he says.
Iowa farmers, for their part, aren’t losing any sleep over corn’s rising popularity in parts of North Dakota, South Dakota and northwest Minnesota, says Roger Duffy, an Iowa State University Extension economist.
But he also says that land costs, generally lower on the Northern Plains than in Iowa and other Corn Belt states, are a factor in U.S. corn production.
“That’s a valid point,” says Duffy, who works with crop production costs in Iowa, the nation’s leading corn producer.
“You need to consider land costs,” he says.
A look at the numbers
Attaching reliable numbers to the cost of raising corn is difficult, especially at a time of drought and soaring land costs.
Drought reduces the amount of corn produced per acre, which pushes up the average “per-unit” production cost, or the cost of raising one bushel of corn. Higher land costs push up expenses, also swelling the average cost of raising one bushel of corn.
But estimates by the North Dakota State University and Iowa State University extension services indicate that per-unit production costs of corn are close in the two states.
“It’s the cost per unit that’s most relevant, not the cost per acre,” Duffy says.
In Iowa, the statewide cost of producing one bushel of corn on medium-quality land is pegged at $4.31. The assump-
tion is that corn was planted the year after soybeans.
In east-central North Dakota, an area where corn production is rising rapidly, the average cost of producing one bushel of corn was pegged at $4.02 per bushel.
A closer look at the estimates show lower land costs in east-central North Dakota offset higher yields in Iowa.
The North Dakota estimate uses an average yield of 113 bushels per acre and an average land cost of $61.70 per acre.
The Iowa estimate uses an average yield of 180 bushels per acre and an average land cost of $276 per acre.
Put differently, the Iowa land produces more corn per acre, but the Iowa land’s higher cost eats up the value of those additional bushels.
“It’s very interesting how close they (the North Dakota and Iowa per-unit costs) are,” says Andy Swenson, an NDSU Extension Service farm management specialist who worked on the NDSU estimate.
“It’s pretty close,” Duffy says of the estimates.
Take the estimates with several grains of salt. Yields and land costs can vary widely in both states, which can drastically alter per-unit production costs.
Farming practices, including whether corn is planted on a field the year after soybeans or whether corn is planted on the same field two or more years in a row, also affect the estimates.
In addition, the estimates use different methods of compensating farmers for the labor and expertise required to grow corn.
Still, as Swenson notes, the estimates provide an intriguing look at how costs compare.
One more thing to consider: some experts note that the local cash price for grain available to farmers on the Northern Plains often is lower than the local cash price available to farmers in the Corn Belt. Receiving less money when the crop is sold can offset the benefit of spending less to produce it.
Northern Plains and corn
Corn acreage in North Dakota, Minnesota and South Dakota has soared in recent years.
Farmers in the three states accounted for nearly half of the nationwide increase in corn acres from 2010 to 2012.
In North Dakota, the number of corn acres rose 385 percent from 1995 to 2012 and 250 percent from 2005 to 2012.
In South Dakota, the number of corn acres has doubled since 1995 and risen 38 percent since 2005.
In Minnesota, where the crop was already established in 1995, the number of corn acres has risen 30 percent in the past 28 years. Corn acreage in the state has risen 19 percent since 2005.
Many of the additional Minnesota corn acres have come in the northwest part of the state, an area where corn traditionally wasn’t grown.
By some estimates, roughly four acres of corn will be planted in some northwest Minnesota counties this spring for every one acre planted there just two or three years ago.
One sign of corn’s rising popularity in northwest Minnesota: at least half a dozen county soybean grower associations in the area soon will become, or are working to become, joint corn and soybean grower associations.
Many factors are responsible for that growing popularity, says Bill Zurn, a Callaway, Minn., farmer who raises corn.
The list includes new and improved corn varieties and upgraded ability to store and transport corn, he says. Relatively attractive land prices also are a factor, he says.
“Our land costs are a little more reasonable here, that’s true,” Zurn says.
He and others note that prices for farmland on the Northern Plains have risen sharply in recent years.
For instance, farmland in Minnesota’s Polk County sold for an average of $555 per acre in 2003 and $1,593 in 2011, the last year for which statistics are available, according to the website of Minnesota Land Economics, which uses reports from county auditors.
Of course, the price of farmland in the Corn Belt continues to increase, too, despite the drought. The average price of Iowa farmland rose 7.7 percent from March to September last year, according to a survey by the Iowa Farm and Land Chapter #2 Realtors Land Institute.
Medium-quality farmland in the state sold for an average of $7,877 in September, up from $7,344 in March, the survey found.
Corn, drought and acres
Every ag commodity raised in the United States has its own niche and importance.
Even so, corn is by far America’s most valuable ag commodity. In 2011, its total value was $76 billion, compared with $36 billion for second-place soybeans and $14 billion for third-place wheat.
U.S. corn is fed to livestock, converted to ethanol and dried distillers grains, used for cereal and exported, among other uses.
In drought-plagued 2012, the United States produced an estimated 10.8 billion bushels of corn, down from 12.4 billion bushels the previous year.
Drought reduced the nation’s average 2012 corn yield to 123.4 bushels per acre, down 23.8 bushels per acre from the previous year.
Iowa raised 1.9 billion bushels in 2012, down from 2.3 billion in 2011. Drought reduced the state’s average corn yield in 2012 to 141 bushels per acre from 172 bushels per acre in 2011.
Farmers in North Dakota and Minnesota generally dodged the 2012 drought and enjoyed strong corn crops.
North Dakota 2012 corn production soared to 422 million bushels, nearly double the amount produced in 2011.
The state’s average yield in 2012 was 122 bushels per acre, 17 bushels per acre more than in 2011.
Note that even with the drought in Iowa, the state’s average corn yield exceeded North Dakota’s by 19 bushels per acre last year.
Minnesota farmers raised a record 1.37 billion bushels in 2012, up from 1.2 billion bushels a year earlier.
The state’s average yield in 2012 was 165 bushels per acre, up from 156 bushels per acre in 2011.
South Dakota, where many farmers where hurt badly by drought, produced 535 million bushels of corn in 2012, 18 percent fewer than the previous year.
Average 2012 corn yields in the state fell to 101 bushels per acre, 31 bushels per acre fewer than in 2011.
Drought remains a major concern in Iowa, and farmers there are understandably nervous going into the 2013 growing season, Duffy says.
Still, Iowa’s farmers are fully committed to the crop, he says.
Schott and others think corn acres in North Dakota and northwest Minnesota will continue to rise in 2013.
Corn’s projected profitability relative to most other crops makes it attractive, Schott says.
“Interest (in growing corn) isn’t going to slow down,” he says.