Economic Tidbits

Mea Culpa—A Reprise of When 50 Cents Turns Into $1 Billion

Every so often a topic discussed in Tidbits will strike a chord with readers. Last week was such an occasion. Several readers wrote to comment on the story, “When 50 Cents Turns Into $1 Billion.” The story discussed the potential impacts to Nebraska’s economy of the 50-cent increase in the estimated farm price of corn in the June World Supply and Demand Estimates (WASDE).

One astute reader caught an error with the corn production estimates in the story. Based on the assumption that 9.4 million acres of corn would be planted in Nebraska, with an average yield of 181 bushels per acre, the story said that an estimated 1.77 billion bushels of corn would be produced. Nope. Not correct. Not even close. The correct estimate is 1.63 billion bushels. At this level of production, the potential value of the crop would be $6.2 billion using the June WASDE price of $3.80 per bushel. So, the 50-cent increase in the price of corn between the May and June WASDE reports results in an additional $816 million in value to Nebraska’s corn crop, not the $886 million cited in last week’s story. Still, when combined with the additional labor income generated by the increased farm revenue, the $816 billion could mean a boost of nearly $1 billion in total output for the state’s economy. Lesson learned? Always make sure formulas are copied correctly in spreadsheets!

The same reader also asked how the revenue estimates above would differ from the revenue that could have been generated if the 9.7 million acres intended to be planted to corn in Nebraska were planted, but the average price remained at $3.30 per bushel. Assuming an average yield of 181 bushels per acre, planting 9.7 million acres of corn would result in 1.69 billion bushels of corn produced. For context, last year’s corn crop was 1.78 billion bushels. A corn crop of 1.69 billion bushels, priced at $3.30 per bushel, results in revenue of $5.57 billion, or $178 million less than the projected scenario above.

Other readers commented on the potential impacts the increase in the price of corn might have on the state’s livestock feeding and ethanol sectors. The increase in the corn price will mean higher production costs for these sectors reducing their profitability. And, higher corn prices will likely mean less corn consumed by these sectors. These changes will work to counter to the positive impacts emanating from the crop sector. The net impacts of all these changes to Nebraska’s economy can only be known in hindsight. Again, Nebraska is not an island unto itself regarding corn production and consumption. Production and usage in other states and countries, trade relations, and marketing will all play a role in shaping the ultimate outcome. Thanks to readers for the feedback and input. This mental exercise and feedback received demonstrate the complex, interwoven, dynamic nature of the Nebraska agricultural economy.

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