Over the past three years, farmers have enjoyed elevated commodity prices and relatively strong profit margins. This financial cushion has allowed many farmers to relax when it comes to a rigorous examination of breakeven prices for corn and soybean production. However, the USDA cautions in their February 2024 Farm Report on Farm Business Income that farm income is forecast to fall about 27% relative to 2023 in non-inflation adjusted terms. Clearly, it’s time to dig into the specifics of your anticipated input costs. After all, input costs and revenue-driving price are the two historically biggest influencers of your breakeven. This is why it is crucial to fully understand those factors for decision-making in the short term and to ensure the longevity of your operation. Let’s look at where farm costs and revenues are headed DIRECTIONALLY and why this underscores how critical it is to take a more specific look at your costs.

 

Price

Unfortunately, the prices for corn and soybeans have been on a downward slide since the summer of 2022. Record U.S. agricultural exports to China in the 2022 marketing year eased in 2023 and are expected to retract further in 2024. As reported in the January 2024 WASDE, a record national corn yield in 2023 compounded the pressure on commodity prices, as front month corn and soybean futures traded down to their lowest levels since late 2020. As prices go against you, it’s crucial to make sure you have a firm grasp on your costs.

 

Input Costs

On the positive side, it looks like you can anticipate that some of your costs – unlike crop prices – may be flat or even headed in your favor. However, remember that a slight decrease in input costs cannot offset a large decrease in price. In addition, regardless of general cost trends, all input costs do not affect each farm equally. You need to consider which costs tend to fluctuate more locally or nationally to get a better handle on your personal cost structure.

 

Cash Rents: Generally, Your Biggest Input Cost

Land remains the biggest input cost that farmers need to account for in calculating your breakeven. If you own your land, your annual costs tend to be steady, and you likely understand that cost structure quite well. In contrast, rental costs are more variable in nature regarding their impact on breakeven. Take 2023, for instance. Last year, the National Agricultural Statistics Service August of 2023 farmer survey showed that 2023 cash rents moved higher compared to 2022, and the magnitude of that change is aligned closely with your location. If you lived in Illinois, for instance, the cost impact of land rents on your breakeven was greater than if you lived in another state. Indeed, according to a September 5 farmdocDaily report, nine of the ten most expensive cash rent counties in the U.S. were in Illinois, and the average cash rent reported for Illinois in 2023 was a record high $259 per acre, up $16 per acre from 2022.

What will be in the impact in 2024? This remains to be seen, and the impact will vary by area. On a consolidated basis, early results from outside surveys suggest cash rents may decline slightly in 2024, although results from this NASS survey will not be available until late in 2024. At an individual level, you will understand the direction rentals are headed in your area.

That leaves you to examine much more closely the costs that are more variable in nature every year. Let’s start with the second biggest cost for most farmers, fertilizer expenses.

 

Fertilizer: Generally, Your Second Biggest Input Cost

On a positive note, the USDA and the University of Illinois expect the average cost of growing an acre of corn to decline in 2024, mostly due to lower fertilizer expenses. As of late January, UAN 32% nitrogen fertilizer had an average price of $390 per ton according to sellers surveyed by DTN. In fact, the percentage cost of all fertilizers (except one) is lower by double digits compared to a year ago:

In terms of the per-acre impact, the same report estimates that fertilizer expenses for corn will continue the 2023 reduction in cost. More specifically, prices are anticipated to drop another 17% from the average cost of $189.55 in 2023 to $156.92 per acre. This reduction in fertilizer costs should help insulate farmers from some of the drop in corn prices.

 

Other Costs

Similar to fertilizer costs, fuel costs are expected to decline from 2023.  Pesticide costs are also expected to decline slightly from last year (according to the University of Illinois 2024 crop budget for an acre of corn on Highly Productive Farmland in Central Illinois). All other input costs are forecast to rise slightly or stay steady compared to 2023.

 

Building YOUR Breakeven

As you calculate your breakeven (that is, total anticipated costs/total anticipated bushels), it’s important that you take your unique situation into account. Add up all your costs (real and your best estimates of anticipated costs) and calculate your estimated bushels based on anticipated acres planted and yield based on historical yield. How does this compare to current prices? Does it make sense to lock in any prices? How does this information help you make decisions about investments in your operation? Bear in mind that, while many people like to include household expenses in their breakeven, we recommend using only farm-related costs. This will allow you to have a true metric of the financial situation of your operation alone, which will aid you in assessing the health of your operation vs. other operations.

With that in mind, here’s a starting point for your comparison to other farm breakevens.  The University of Illinois’ 2024 crop budgets suggest farmers on Highly Productive Farmland in Central Illinois selling corn near current fall of 2024 prices at $4.50 can anticipate a return on corn of -$154 per acre in 2024, a continued decrease from the 2023 forecast of -$100 per acre. With yields at trend level, breakeven prices are above $5.00 per bushel for corn. For soybean producers, the same crop budgets suggest that these same farmers selling soybeans near current fall of 2024 prices at $11.50 can anticipate a return on corn of -$52 per acre in 2024, versus the 2023 forecast of +$15 per acre. With yields at trend level, breakeven prices are above $12.00 per bushel for soybeans.

Let’s translate this into farm incomes. In 2021 and 2022, for instance, Illinois average farm income increased from a healthy $400,000 in 2021 to an even healthier $500,000 in 2022. Incomes are estimated to drop drastically for the 2023 and 2024 crop years back near the $100,000 level. This would be a similar net farm income seen from 2014 to 2019 when corn and soybean prices stayed in a relatively tight range with limited upside opportunities.

 

The Right Way to Use Your Breakeven (hint: not for marketing)

Knowing your cost of production will help you make the right decisions about investments and how to manage costs when you can. It can help you make the right determination about how to grow your business and how you can use your resources the most effectively. When it comes to marketing, however, remember that the market won’t always give you your breakeven. For those who choose to sit tight until they reach their breakeven, they may find that the market never gives them the opportunity to make that breakeven sale. Instead, waiting may force them to make a sale when price is the least advantageous.

Your job is to capitalize on the market when it offers the most opportunity and build a price in the market you’re given. We at Total Farm Marketing can help. Having an actionable marketing plan can be highly beneficial in times of tighter margins for grain operations. Talk to us about how we can help you make the most of any market environment.

 

Call us at 800.334.9779.

 

©March 2024. Total Farm Marketing. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices may have already factored in the seasonal aspects of supply and demand. The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Reproduction of this information without prior written permission is prohibited. Total Farm Marketing refers to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. Stewart-Peterson Inc. is a publishing company. SP Risk Services LLC is an insurance agency and an equal opportunity provider. A customer may have relationships with any or all three companies.