Make Every Bushel and Penny Count
USDA revised production estimates in January showing farmers rose to the occasion in 2023, despite challenging weather conditions. Record corn yields and strong soybean performance are now helping to whittle away at winter prices. That reduction in prices has ag economists, such as Nick Paulson and Gary Schnitkey at the University of Illinois, revising their 2024 crop budgets. In early January, projections for in-state farmers showed negative returns for both corn and soybeans on cash-rented land at average levels.
Based on projected 2024 prices of $4.50 per bushel for corn and $11.50 for soybeans and using historical trend-line yields, the economists predict farmers will lose $135 to $160 per acre of corn and $20 to $107 per acre of soybeans, depending on location. Of course, there are a lot of variables to consider, and this is based on averages in Illinois, but it paints a much different picture for farm income than a year ago.
What’s a farmer to think or do when news is a punch in the gut?
The University of Illinois break-even numbers can be used as a guide if you don’t run your own budget figures, says Jon Scheve, president of grain at Superior Feed Ingredients.
“It comes down to knowing what your average yield needs to be for every crop you grow, and that number changes every year,” Scheve says. “A 1-bu. change in soybean yield will change breakeven by almost 20¢. A 5-bu. change in corn yield will change breakeven by 10¢. I find that average-size operations can probably come in with breakevens a little lower than $4.50 per bushel for corn and $11.50 for soybeans, but not always.”
Breakeven or bust
One of the biggest determinants of breakeven is the cost of land. If your land is paid for, or if you're making payments with much lower interest rates than what the market currently offers, plug in the average cash rent value for similar land in your area. Scheve has found some farmers pay too much for rent given the average yield. As a result, each field should have its own budget to see if it pays for itself.
If you don’t know field-by-field expenses for the 2024 season, look back at the past five years of expenses, tally changes from year to year and assume the same level of change for this year. The one area that changes the most from year to year is fertilizer costs, Scheve says. If you have already bought fertilizer, plug in that number. If not, use the current price as a guide for budgets.
When it comes to equipment, don’t forget to figure in depreciation, repairs, fuel and labor. It’s not just about payments. If hiring someone else to do a job is less expensive than owning the equipment, then Scheve says make the switch to save money.
“Remember to always include cost of living in the break-even price,” Scheve adds. “You can’t expect to work for nothing.”
3 Reminders When Margins Are Tight
This year, more than ever, it’s critical to understand the environment in which you’re making decisions, as they will have long-lasting impacts. Shay Foulk, farm
business consultant with Ag View Solutions, shares these reminders:
1. Make a marketing plan.
If you make acreage plans based on input costs, you must align sales to protect your margin. When working on marketing plans, make them in conjunction with acreage, cash flow and budgets.
2. Spend money to make money.
The No. 1 way to lower your cost of production is to increase your bushels. Don’t miss the forest for the trees by abandoning good farming principles as they relate to fertility, lime and nitrogen management.
3. Talk with your crop insurance provider.
There are several options to address risks. Know them and understand them. If your insurance agent doesn’t reach out to you with options, find someone who will.
