Last summer, the Federal Reserve Bank of Kansas City's top agriculture economist Nathan Kauffman said something that now seems prescient. While fertilizer prices were higher then, it was mostly because of the spring run-up, not the supply-side issues forcing prices to new heights.
"On a number of fronts, it's possible that some of those cost pressures do start to squeeze margins," driving up farmers' break-even costs, he said. "We might not think about $4 corn in the way that we would have thought about it five years ago if the cost structure is different."
It appears farmers' cost structure will be very different in the year ahead, so much so that it's going to force deep consideration this winter of what crops to plant and how to get the best yields with reduced or limited fertilizer and chemicals.
DTN Lead Analyst Todd Hultman crunched a few numbers using USDA's cost of production estimates, updated Dec. 17, 2021. For 2022, the agency forecast a farmer would spend $715.73 to grow an acre of corn. With a 180-bushel-per-acre (bpa) yield, that works out to about $3.98 per bushel.
To approximate one cost scenario for 2022, Hultman doubled USDA's estimates for fertilizer and chemical expenses and increased the fuel budget by 25%, resulting in increased per-acre costs of $194.40. That brings total costs to produce an acre of corn to $904.10. At 180 bpa, that's a breakeven of $5.02 a bushel. If a farmer averages 200 bpa, the cost drops to $4.52 per bushel. Actual costs for some farmers could be even higher.
It's important to remember that these are just averages, and every farm's balance sheet looks different. USDA's figures do include a line item for the opportunity cost of land or the rental rate. Whether a farmer owns the land outright or how his land costs compare to the average USDA uses in its computations will make a big difference in an individual farm's actual breakeven.
As of press time, December 2022 corn futures were trading near $5.46 a bushel. While the estimated profit margin is narrower than in 2021, Hultman said corn will still be a viable option for a lot of farmers.
"If they're near an ethanol plant, they may be more confident about demand versus competing with Brazil on trying to sell soybeans to China," he said.
Katie Dehlinger can be reached at firstname.lastname@example.org
Follow her on Twitter at @KatieD_DTN
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