Still finalizing planting intentions? Focus on profit, not price
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EmailHow profits can determine a winner in corn vs. soybeans acres.
As spring weather begins to arrive, final planting intentions start to take shape on many farms. One key source of guidance that farmers often use for planting decisions is the corn/soybean ratio and its view of which crop offers a better price. However, the corn/soybean ratio can provide mixed signals. For example, based on the latest national price estimates (February 2026), corn is slightly more favorable with a ratio of 2.49, while average cash prices for Michigan suggest soybeans may be better with a ratio of 2.59. Recent market volatility and high operating costs only add to these mixed signals, which makes price alone as a deciding factor misleading. A better method is to consider your farm’s profit margins and ability to cover costs.
Profit margins are an important part of identifying potential profits and can be a strong guide for planting intentions. Crops are raised to be marketed at profitable prices. Profitable prices mean that operating costs are covered and the farm has money left over for its cash flow needs, such as debt payments. Of course, profits can also be used for non-farm expenses, such as any family living costs the farm will provide. Looking at profit margins on a per bushel basis helps to determine if market prices offer enough profit for these additional needs.
Identifying available profit margins
To estimate a crop’s profit margin per bushel, the first step is to have a good estimate of cost of production. What it takes to plant, raise and harvest a crop are baseline costs you need to know. The next step is to determine your yield projections for the season. Your farm’s historical or actual production history (APH) is ideal for estimating yield goals. Finally, you’ll need to know the available prices on the market. This includes the futures price, basis at your intended grain buyer, and the cash price being offered.
Table 1. Example of Calculating Available Profit Margin Per Bushel
| Profit Margin Calculation Steps | Soybeans | Corn |
|---|---|---|
| A) Futures price | $11.15 | $4.60 |
| B) Basis | -$0.40 | -$0.35 |
| C) Estimated cash price (A + B) | $10.75 | $4.25 |
| D) Yield estimate (bushels per acre) | 50 | 170 |
| E) Estimated gross revenue (C x D) | $537.50 | $722.50 |
| F) Estimated cost of production | $492.00 | $698.00 |
| G) Estimated net revenue (E - F) | $45.50 | $24.50 |
| H) Profit Margin per bushel (G ÷ D) | $0.91 | $0.14 |
| Profit Margin % of cash price (H ÷ C) | 8.47% | 3.39% |
In Table 1, calculating a profit margin for the example soybean crop starts with determining an estimated cash price. The Futures price of $11.15 plus a -$0.40 basis equals an estimated harvest cash price of $10.75 per bushel. Multiply the cash price of $10.75 by the yield estimate of 50 bushels per acre. The result is an estimated gross revenue of $537.50. Subtracting an estimated cost of production of $492.00 equals an estimated net revenue (or profit) of $45.50. To identify the profit margin per bushel, divide the estimated net revenue of $45.50 per acre by the estimated yield of 50 bushels acre. The result in this example is a profit margin of $0.91 per bushel or 8.47% of the cash price.
The same process for calculating a profit margin is used for corn as for soybeans (also in Table 1). The Futures price of $4.60 plus a -$0.35 basis equals an estimated harvest cash price of $4.25 per bushel. Multiply the cash price of $4.25 by the yield estimate of 170 bushels per acre. The result is an estimated gross revenue of $722.50. Subtracting an estimated cost of production of $698 equals an estimated net revenue (or profit) of $24.50. To identify the profit margin per bushel, divide the estimated net revenue of $24.50 by the estimated yield 170 bushels per acre. In the example, the available profit margin is $0.14 per bushel or 3.39% of the cash price.
With a $0.91 profit margin per bushel, soybeans are higher than $0.14 per bushel available from corn. Looking at these estimated profits on a per acre basis, soybeans show $45.50 compared to $24.50 for corn. If profitability above production costs is the farm’s sole determinate on planting intentions, the farm would want to plant more soybean acres than corn. However, the final step is to consider how shifting planting intentions can affect meeting the cash flow needs of the farm.
Additional considerations to margin goals and planting intentions
Cash flow can include debt and other expenses, such as family living or other non-farm expenses. To ensure cash flow needs are met, there are several questions that must be answered:
- What are the cash flow needs over the year?
- How much is each crop expected to cover?
- How do planting intentions and acres per crop affect covering cash flow needs?
- Are there minimum acres of crops that are needed?
Once total cash flow needs for each crop are calculated, a per bushel cost can be determined by dividing those expenses by the crop’s total production (yield x acres). The per bushel cost is often referred to as a margin goal. Margin goals illustrate the additional profit margin needed to cover cash flow needs or non-production costs.
Margin Goal = Total Non-Production Costs (Cash Flow Needs) ÷ Total Production
Using the scenario from Table 1, let’s say that a margin goal for soybeans is calculated at $0.90 per bushel. At the cash price of $10.75 per bushel, the current profit margin is $0.91 per bushel. Based on the comparison of profit margin to margin goal, soybeans can cover their portion of cash flow needs with $0.01 remaining ($0.91 - $0.90).
In the example scenario, an increase in soybean acres is not only profitable but also ensures enough profit margin exists to cover cash flow needs. However, additional needs may exist that limit how many acres can be shifted from one crop to another, such as soil fertility, crop rotation, pesticides used on previous crops, feed for livestock and more. Taking these factors into account when comparing profit margins also helps to ensure cash flow needs are met.
When finalizing planting intentions, expected profit margins are impacted by estimated market prices, yields and costs of production. Estimated numbers need to be based on a combination of historical data and reasonable forecasts. However, once acres are planted, the crops are set for the year, and all activities should focus on maximizing potential profits. Activities should include maximizing available market prices and meeting crop needs at the lowest possible cost.
To assist farms in calculating profit margins and comparing margin goals, Michigan State University Extension has created a Margin Goal Worksheet available for download. The worksheet and more information on marketing strategies are also available at Michigan State University Extension’s Commodity Marketing website. For more information on meeting crop needs, visit Michigan State University Extension’s Field Crops website.
