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 The pandemic had trickle
down effects that impacted all sectors of the economy. During that
time, the supply chain was disrupted due to embargos on imports,
lack of labor for processing, and lack of transportation for
everything from toilet paper to fall harvested crops.
Prices soared on everything and the Consumer Price Index went up in
double digit rates and Cost of Living followed closely behind.
On the farm, producers found they had crops but limited resources
for delivering those crops to processors.
As the pains of the pandemic began to subside, producers saw some
excellent prices in 2021. Corn in central Illinois averaged $6.50
per bushel and soybeans were $14.05.
It is well known that supply and demand is a cyclical system where
that supply increases and demand decreases. In the ag sector, supply
was there but not deliverable. Therefore the demand increased and
the price increased. As issues leveled out and the country went back
to work, the supply was delivered, lessening the demand and causing
decreases in cash value.
In addition to the pandemic, the Russia and Ukraine conflict reduced
exports from that region. The demand for more exports of grains from
other countries increased and helped hold the prices slightly
higher. On the other side of the coin, the Ukraine region is a
source of fertilizers commonly used in grain production. The
inability to export those nutrients brought on an increased demand
for fertilizers from other sources and impacted the cost of those
goods.
Then came the threat of a rail strike. The inability to ship grain
by rail was a real concern and to a certain extent still is. While
President Biden stepped in with a temporary fix, the unions have not
all agreed to settle and the November deadline for a possible strike
is just around the corner.
All of these factors have contributed to first the increase in grain
value and then increase in input costs.
Over time, it will all level out and perhaps reverse but chances are
slim that once those input prices go up they will ever go back down
to what they were pre-pandemic.
The University of Illinois Farmdoc has put together a collection of
tables comparing 2016 through 2021 with actual figures at the end of
the season and projected figures for 2022 and 2023.
See Corn Table
at the bottom of the page
The projections for 2023 is that producers will spend more and make
less especially on corn. Some of the factors included in the tables
is the cost of fuel. Fuel prices have more than doubled since 2016
while the average grain price has increased by only about 45
percent. Fertilizer costs have increased by about $100 per acre and
pesticide costs have doubled. Utility costs are higher but not as
significantly as one would imagine and labor, if you can find it, is
also higher.
In 2021 the average corn yields were higher than the previous year
but will within the range of 225 bushel per acre, but the prices
soared to a whopping $6.50/bushel. Inputs were lagging behind so
costs were less, gross sales figures were more and higher
profitability was enjoyed by a lot of Illinois farms. Then inputs
began climbing and price per bushel began falling. Profit margins
narrowed in 2022 and will continue to narrow in 2023.
In 2021 when productions costs
were lagging behind, the average bottom line figure in Central
Illinois on corn was $506 per acre. The projected farmer return
under the same circumstance in 2023 is projected to be $8 per acre
because those input costs have caught up and event inflated at a
higher rate than the potential gross revenue.
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What does seem a little
off kilter in the tables is the average yield figures? The yield
reports are from participating farms throughout central Illinois.
Central Illinois is a wide region and also deep. In the southern
regions of the central sector soils are less productive than in the
Logan County region. Therefore, it is safe to assume that the
average on the tables included some low yielding farms that brought
down the figure. In Logan County many of the farms will see yields
well above the averages used in the table.
While local producers may see greater yields and possibly enjoy a
bit more than an $8 per acre net, the table indicates there will be
a definite narrowing of profitably in 2023.
But will the narrowing continue into future years? According to Gary
Schnitkey and Krista Swanson of the U of I, “Projections are for a
return to much lower profits in 2023, continuing a pattern of rising
and falling farm incomes. Periods of high net incomes are following
by less profitable periods which often persists for several years.”
Comments made by USDA Chief Economist Seth Meyer support the word of
Schnitkey and Swanson. He says that there is an increase in farm
income even with the tighter margins. But he says that doesn’t
relieve the anxiety of what the next year will hold for farmers.
There is going to be increases in inputs but a leveling off of
outcomes, bringing a squeeze on farm profitability. Meyer told
Brownfield Ag News that utilizing futures markets will be even more
important in 2023 for increasing farm profitability.
While it looks to be a few years of struggle for area farmers, that
is really just the same song second verse. Each year grain producers
face and overcome challenges from the markets to weather. The story
is not really as gloom and doom as it sounds, because there are
options for securing additional income. Producers according to the
experts should be looking more at the commodity markets, hedging
their bets with futures contracts, taking advantage of USDA
programs, and paying attention to the crop insurance annual
adjustments that will come in early 2023.
It may also be a good time to consider alternative crops and keep an
eye on the horizon for new opportunities for hemp production.
[Nila Smith]
Resources
USDA Economist expects volatility but strong farm economy in 2023 -
Brownfield Ag News
2023 Crop Budgets: Higher Costs and Lower Returns - farmdoc daily (illinois.edu)
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