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Corn farmers should prepare for an even tighter squeeze on their profit margins in 2024.

University of Illinois ag finance professor Nick Paulson says farmers had phenomenal incomes and per-acre returns from 2020 to 2022.

"What always comes with that is rising production costs," he says, adding that those price increases typically occur with a lag. "We continue to see rising costs even after returns stop increasing or even start decreasing for a year or two."

For 2024, the profit-margin math gets tough.

Even though fertilizer expenses are expected to decline by about $70 per acre, expectations for corn prices are much lower, with University of Illinois economists penciling an average cash price of $4.80 per bushel into their budgets.

"We're in what looks like the second year of a multiyear price decline from the very high prices we saw in 2022," he explains. "It looks like we could be heading into another 2014-type period, and so we want to be prepared for multiple years at those lower margins."

For next year's corn crop, Paulson's group anticipates a second year of negative farmer returns, averaging about minus $81 per acre on high-productivity Illinois soil. Soybeans look to be the more profitable crop next year, earning an estimated $42 per acre. Its price hasn't fallen back as dramatically as corn.

Steve Nicholson, Rabobank global strategies for grains and oilseeds, says the economic environment will be tighter in 2024 and 2025. "But keep in mind, producers are coming into this situation much differently than they did back in 2012, '13 and '14."

In those years, demand was undergoing structural change as the ethanol market reached maturity and China shifted its strategy to procuring its soybean needs from the global market. Cash rents climbed, and input prices rose, but not as fast as commodity prices. Then, the 2012 drought tightened supplies and sent prices soaring.

Farmers responded by raising big crops, paving the way for a prolonged period of lower prices. Profitability became a factor of producing as many bushels as possible, not price.

This time, Nicholson says farmers have more working capital on the balance sheet.

"Farmers were much more judicious about their spending" in the past few years, he says, investing in things that made their businesses more efficient. "They made operational changes as far as optimizing that yield. We didn't see all of the boats, jet skis, vacation homes, condominiums bought that we saw back in the late 2000s and early 2010s.

"We're certainly going to see some of that working capital go away just because margins get squeezed a little bit, but we do think they're going to have good working capital going forward," he adds.

The tightening profit outlook for farmers' favorite crop is one of the reasons we decided to make "Fortify Your Financial Foundation" the theme of this year's DTN Ag Summit. On Dec. 5 through 6, we'll discuss trends in the land market, interest rates, global economics, grain markets, weather forecasts and more so you can set up the best possible plan for 2024. For more information on how to register or watch the replay, visit https://www.dtn.com/…

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