Choose Profitable Crop Plans by Focusing on Margins Not Market Prices

By Andi Anderson

As spring approaches, many farmers begin making their final planting decisions. While price ratios, such as the corn-to-soybean ratio, are often used to guide these choices, relying on price alone can be misleading.

Recent market changes and rising operating costs make it more important to look beyond price signals and focus instead on a crop’s overall profit margin and ability to support the farm’s cash flow.

Profit margins show whether a crop can cover production expenses and still leave money available for the farm’s financial needs, including operating loans, debt payments and family living costs.

Calculating profit margins on a per‑bushel basis helps farmers compare crops fairly and understand which option is truly more profitable.

To determine a profit margin, farmers need three key estimates: the cost of production, expected yield and available market prices. These values come from futures prices, local basis, and the resulting cash price.

Using these numbers, farmers can calculate gross revenue, net revenue and profit per bushel. For example, soybeans may show a higher margin per bushel than corn if their production cost is lower and their net revenue per acre is stronger. This is why focusing only on price ratios may not reflect true profitability.

In the example calculations, soybeans showed an estimated profit of $45.50 per acre, compared to $24.50 for corn. When viewed on a per‑bushel basis, soybeans offered a profit margin of $0.91 per bushel, which was significantly higher than corn’s $0.14. If profit margin alone determined crop choice, soybeans would appear more favorable.

However, before shifting acres, farmers must consider how planting intentions affect cash flow. Cash flow needs may include non-production expenses such as family living costs, equipment payments or feed purchases.

Each crop must contribute enough revenue to meet these needs. By dividing total cash flow needs by expected production, farmers can determine a margin goal—an additional profit margin required to maintain cash flow throughout the year.

If a crop’s profit margin meets or exceeds its margin goal, it can successfully support the farm’s financial requirements. Other factors such as soil fertility, crop rotation and livestock needs should also be considered when making final planting decisions.

For support with these calculations, tools such as Michigan State University Extension’s Margin Goal Worksheet can help farmers evaluate crop choices and strengthen their marketing strategies.

Photo Credit: michigan-state-university-msu-extension