Cost management critical for a profitable crop season
Farmers have more control over costs than crop prices, and winter provides an opportunity to evaluate production records from last year, finalize marketing plans for the old crop, and advance plans for the new crop. At this stage, farmers might have already purchased some inputs for production, but most farmers should still be able to sharpen their pencils to devise or update a cost management strategy for their next crop year. The latest report "Estimated Costs of Crop Production" by Iowa State University Extension and Outreach provides guidelines to help farmers calculate their production costs and projects average enterprise costs for Iowa farms in 2022.
Excluding land costs, all other costs to produce corn and soybean are expected to average $568 and $343 per acre in 2022, respectively. Those figures are $115 and $64 per acre higher than in 2021.
Total corn and soybean production costs (using last year’s cash rent average to measure land costs and excluding storage) would average $800 and $575 per acre in 2022, respectively, showing 19 and 15% increases from 2021 levels (Figure 1). Fertilizer prices are driving the projected increase in costs, followed by machinery costs, seed prices, higher projected crop insurance premiums, labor costs, and financing costs (interest rates).
The estimated cost of production for continuous corn is $4.68 per bushel for a target yield of 180 bushels per acre, while producing corn following soybeans would cost $3.96 for a target yield of 198 bushels per acre. These projections assume substantial adjustments in the fertilization rates as a response to the more than doubling of nitrogen prices between the fall of 2020 and the fall of 2021. In particular, the maximum return to nitrogen (MRTN) rates used for the 2022 corn budgets are about 15% lower than the ones used for last year’s budgets: 124 and 171 pounds of nitrogen per acre for corn following soybeans and continuous corn, respectively. Farmers should adjust their fertilization cost estimates to reflect their own fertilization needs when calculating break- even prices.
Cost of production estimates for herbicide tolerant soybeans amount to $10.09 per bushel for a target yields of 57 bushels per acre.
Fertilizer and lime became the second largest budget line after land costs in 2022 for corn and soybeans, surpassing machinery costs (Figure 2).
The reported cost estimates intend to be representative of average costs for farms in Iowa. Very large or small farms may have lower or higher fixed costs per acre. The full report is available online through the Ag Decision Maker website. The publication also includes budgets for alfalfa hay establishment with an oat companion crop and by direct seeding. Annual production costs for established alfalfa or alfalfa- grass hay as well as a budget for maintaining grass pastures are included. Actual costs can be entered in the column for "Your Estimates," or by using the electronic spreadsheet Decision Tools on the Ag Decision Maker website.
Profitability prospects for 2022
There is substantial uncertainty regarding crop prices in the coming season. The most recent USDA projections for 2022/23, published in October 2021, put the national average farm prices for corn and soybeans at $4.80 and $10.50. Assuming that those prices could be received by Iowa farmers for their 2022 crop, production of soybeans would be profitable for all target yields considered in the report. Average net returns per acre would amount to $24 for soybeans, $22 for continuous corn, and $166 for corn following soybeans. Not only would these projected net returns be about 90% smaller than last year’s net returns for soybeans and continuous corn and about 62% smaller for corn following soybeans, but changes in basis or relatively small changes in land or fertilizer costs can easily erase the projected profits. This is particularly concerning for tenant operators.Using Dr. Chad Hart’s most recent price projections based on futures markets for 2022-23 ($5.47 for corn and $12.53 for soybeans), crop profitability would be much stronger than under USDA projections. However, it is important to realize that futures prices are showing a declining trend over time, and farmers could benefit from pre-harvest marketing of some of the insured bushels to lock-in prices above cost of production.
Crop producers must have a strong grasp of their own production costs to make informed marketing decisions and generate profits. The annual report is intended to serve as a guideline for producers to help them estimate their own breakeven prices, and as a benchmark to trigger relevant questions on how to better manage enterprise costs.
Alejandro Plastina, extension economist, 515-294-6160, email@example.com