The upcoming crop year is expected to see higher input costs and lower revenue in Midwestern corn and soybeans, according to projected crop budgets published by agricultural economists at universities in Illinois, Indiana, and Iowa. As a result, lower farmer returns are expected in 2023 compared to last year.

The Russo-Ukrainian War elevated grain prices in 2022. Although the war tragically persists in the current year, the world has been disabused of the notion of a worldwide grain shortage resultant the conflict. Corn prices this year, accordingly, are anticipated to return to a level below that of 2021, a year when only late-pandemic supply chain issues hampered markets, according to University of Illinois economists.

Table 1: 2016-2023 Rotated Corn Revenues and Costs, High Productivity Farmland in Central Illinois

 

2016

2017

2018

2019

2020

2021

2022P1

2023P

2023

Yield per acre

228

227

237

208

214

221

225

227

0.89%

Price per bu

$3.49

$3.50

$3.71

$3.63

$4.34

$5.90

$6.40

$5.60

-12.50%

Crop revenue

$796

$795

$879

$755

$929

$1,304

$1,440

$1,271

-11.74%

ARC/PLC

$12

$1

$0

$10

$0

$0

$0

$0

 

Other gov't payments

$0

$0

$1

$110

$68

$0

$0

$0

 

Crop insurance proceeds

$2

$6

$2

$14

$9

$14

$0

$0

 

Gross revenue

$810

$802

$882

$889

$1,006

$1,318

$1,440

$1,271

-11.74%

Fertilizers

$154

$135

$131

$154

$143

$154

$210

$250

19.05%

Pesticides

$64

$73

$76

$76

$78

$90

$113

$123

8.85%

Seed

$116

$115

$115

$114

$112

$114

$120

$130

8.33%

Drying

$13

$16

$14

$22

$22

$20

$26

$34

30.77%

Storage

$11

$15

$15

$15

$10

$6

$6

$6

0.00%

Crop insurance

$22

$24

$22

$22

$21

$31

$39

$39

0.00%

Total direct costs

$380

$378

$373

$403

$386

$415

$514

$582

13.23%

Machine hire/lease

$12

$13

$14

$16

$16

$16

$18

$20

11.11%

Utilities

$5

$5

$5

$5

$5

$5

$6

$7

16.67%

Machine repair

$22

$24

$25

$26

$28

$32

$38

$41

7.89%

Fuel and oil

$14

$15

$18

$17

$15

$19

$29

$34

17.24%

Light vehicle

$1

$1

$2

$1

$2

$2

$2

$2

0.00%

Mach. depreciation

$65

$64

$64

$63

$65

$69

$75

$79

5.33%

Total power costs

$119

$122

$128

$128

$131

$143

$168

$183

8.93%

Hired labor

$17

$18

$19

$18

$20

$22

$23

$25

8.70%

Building repair and rent

$4

$5

$5

$6

$6

$6

$7

$8

14.29%

Building depreciation

$12

$12

$12

$11

$13

$12

$13

$14

7.69%

Insurance

$10

$10

$10

$9

$11

$11

$12

$13

8.33%

Misc

$8

$9

$10

$9

$10

$11

$12

$13

8.33%

Interest (non-land)

$13

$15

$17

$22

$17

$14

$12

$20

66.67%

Total overhead costs

$64

$69

$73

$75

$77

$76

$79

$93

17.72%

Total non-land costs

$563

$569

$574

$606

$594

$634

$761

$858

12.75%

Operator and land return

$247

$233

$308

$283

$412

$684

$679

$413

-39.18%

Land costs

$273

$267

$274

$275

$279

$311

$336

$341

1.49%

Farmer return

-$26

-$35

$34

$8

$133

$373

$343

$72

-79.01%

Source: University of Illinois Department of Agricultural and Consumer Economics
[1] 2022 and 2023 figures are projected. Costs and revenues through 2021 are determined by grain farms enrolled in Illinois Farm Business Farm Management. 

Total direct costs including pesticides, seed, drying, storage, and crop insurance are expected to see an aggregate increase in cost per acre of corn of over 13%: from $514 in 2022 to $582 in 2023. In fact, from power costs (fuel, machine leasing, utilities) to labor and overhead costs, every major input into Central Illinois corn on high productivity farmland is expected to be more expensive this year than last, according to the University of Illinois projected budget. Higher interest rates propel non-land interest costs up 66% per acre this year.

Figure 1: 2016-2023 Corn Costs by Type, High Productivity Farmland in Central Illinois

Although cost types increase across the board this year, the balance of costs shifts in 2023. Direct costs are expected to comprise a greater share of all farmer costs, while land costs are expected to comprise a smaller share of farmers’ budgets this year than in years past.

University of Illinois projections for costs and revenues in 2023 for various crops in Central Illinois demonstrate the relative benefit to crop rotation, with rotated corn and soybeans seeing greater returns than their unrotated counterparts. Wheat, which is seeing significantly lower prices than in 2022 while sustaining high input costs, is expected to see woefully low farmer return in Illinois this year.

Table 2: 2023 Projected Revenues and Costs by Crop, High Productivity Farmland in Central Illinois

 

Corn- after- Soybeans

Corn- after- Corn

Soybeans-
after- Corn

Soybeans-
after- Soybeans

Wheat

Double-
Crop Soybeans

Yield per acre

227

217

72

70

85

46

Price per bu

$5.60

$5.60

$13.40

$13.40

$7.25

$13.40

LDP per bu

$0

$0

$0

$0

$0

$0

Crop revenue

$1,271

$1,215

$965

$938

$616

$616

ARC/PLC

$0

$0

$0

$0

$0

$0

Other gov't payments

$0

$0

$0

$0

$0

$0

Crop insurance proceeds

$0

$0

$0

$0

$0

$0

Gross revenue

$1,271

$1,215

$965

$938

$616

$616

Fertilizers

$250

$260

$95

$95

$154

$71

Pesticides

$123

$129

$74

$79

$27

$65

Seed

$130

$130

$84

$84

$50

$59

Drying

$34

$33

$4

$4

$1

$0

Storage

$6

$6

$5

$5

$1

$1

Crop insurance

$39

$39

$26

$26

$9

$7

Total direct costs

$582

$597

$288

$293

$242

$203

Machine hire/lease

$20

$20

$18

$18

$18

$22

Utilities

$7

$7

$7

$7

$7

$4

Machine repair

$41

$41

$37

$37

$33

$37

Fuel and oil

$34

$34

$26

$26

$20

$35

Light vehicle

$2

$2

$1

$1

$2

$2

Mach. depreciation

$79

$79

$70

$70

$49

$32

Total power costs

$183

$183

$159

$159

$129

$132

Hired labor

$25

$25

$22

$22

$23

$18

Building repair and rent

$8

$8

$7

$7

$6

$6

Building depreciation

$14

$14

$12

$12

$10

$5

Insurance

$13

$13

$13

$13

$5

$0

Misc

$13

$13

$13

$13

$11

$0

Interest (non-land)

$20

$20

$18

$18

$14

$12

Total overhead costs

$93

$93

$85

$85

$69

$41

Total non-land costs

$858

$873

$532

$537

$440

$376

Operator and land return

$413

$342

$433

$401

$176

$240

Land Cost

$341

$341

$341

$341

$341

 

Farmer return

$72

$1

$92

$60

-$165

$240

Breakeven price to cover:

Non-land costs

$4

$4

$7

$8

$5

$8

Non-land and land costs

$5

$6

$12

$13

$9

$8

Source: University of Illinois Department of Agricultural and Consumer Economics

The University of Illinois crop budget figures from 2023 are predictions, with a wide degree of variation anticipated as the year progresses. The University of Indiana publishes a similar crop cost and return guide, which also similarly shows both higher overall input costs and lower overall returns in 2023 compared to what it had projected for 2022. Iowa State University’s projected crop budget also similarly shows annual increases in input costs for the new crop year.

Although there is a rough consensus that input costs will be higher in 2023 than the year before and revenues lower, such projections are just that: projections. At the time the prior year’s projections had been made, the Russo-Ukrainian War had yet to send grain prices soaring, lightening the load of inflated input costs. Ultimately the Black Sea grain corridor agreement brokered between Moscow and Kyiv in July 2022 freed significant quantities of grain from Ukraine’s 2022 harvest, preventing the feared grain shortage. However, in recent weeks, Russia has been accused of causing undue burden in Black Sea freight and the future of the grain deal is uncertain. Even under a functional transit agreement, Ukraine, historically one of the world’s largest producers of wheat and corn, will sustain dampened production due to the competition that the war poses for labor and resources. It was estimated that Ukraine exported almost 30% less grain in 2022 than the year prior.

Estimates for 2023 input costs, revenue, and farmer returns will develop throughout the year. While many farmers lock in input costs early in the crop year, power, labor, and land costs respond to the economic climate of the moment. Crop prices, which are the primary input to revenue, also continually respond to market information. In particular, early-year USDA reports that shed light on the evolving new crop. Prospective Plantings, an annual report released on the last business day of March, proves particularly impactful. The report espouses farmers intentions for the upcoming crop year, providing a window into the coming year’s production of principal crops. In the June Acreage report, those intentions become a reality. Acreage reports the results of a nationwide survey of actual planted acreage. In between Prospective Plantings and Acreage is the May WASDE, which provides the first USDA’s first global supply and demand estimates for the new marketing year.

In addition to products such as Urea (Granular) FOB US Gulf and Henry Hub Natural Gas futures that allow participants to directly hedge input cost constituents, CME Group’s suite of agricultural products provide risk management tools tailored to new crop risk. Short- Dated New Crop options allow market participants to hedge new crop risk with shorter tenors and lower premia than conventional long-dated options. New Crop Weekly options, launched in early 2023, provide additional precision, perfect for hedging exposure or expressing a market view surrounding immediate-term market events such as USDA report releases and geopolitical news. Learn more about New Crop Weekly options


All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.

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