Nov 8 2022
How Do Input Costs Impact Yield Potential and Change Mentalities?
Inflation has made its presence known. Rapidly rising food prices, paying more at the pump, higher housing costs - the list goes on and on, but consumers aren’t the only ones feeling the crunch. Farmers trying to balance productivity and profitability have been forced to adapt to the increasing costs associated with maintaining their businesses.
Inputs and overhead expenses dominate the minds of producers in high-cost environments. Farm input costs include land, seed, chemicals, fuel, fertilizer, equipment, interest, maintenance, taxes, services, and labor. Of these costs, chemicals, seed, and fertilizer are the majority of a yearly operating budget. Fertilizer is proving to be a huge hurdle, as UAN prices have increased nearly 200% in the last two years. 10-20% increases for majority expenses are expected for the coming growing season, which have already been purchased and locked in for a large number of producers. While this isn’t an uncommon practice in the agriculture industry, the market volatility, skyrocketing prices, and supply chain issues have farmers a bit worried about what the upcoming year will bring to their balance sheets.
In such times, producers look to revenue and return to set management decisions. Are farmers looking to push the envelope, maximizing yield and high-dollar inputs, or have mentalities shifted to profit-focused farmers willing to take a yield reduction if it means a lower bottom line?
Commodity prices, which serve as the driving force for profitability forecasts, suggest an average decrease yearly of 7.79% for corn as the economy and demand slow. While this decrease is minimal compared to what has happened in the last decade, the cause for concern is the global economy. Global growth is estimated to decrease to 2.7% in 2023 versus a 3.2% growth rate in 2022 due to ongoing issues, including the Ukraine-Russia war and Covid-19. Commodities across the globe have seen increases and decreases in demand in the last year, including China, as they continue to find their footing amid the pandemic.
All that considered, producers are expected to turn to corn acres in 2023. The USDA has projected corn acres to increase by 3.4 million in the upcoming year, driven by higher profitability margins. However, this could be mitigated by the nitrogen-demanding crop if the fertilizer does not see changes or stabilize. Wheat is also expected to increase by 1.8 million acres compared to 2022. After 2022, it is projected that farmers will be looking toward specialty crops on flex acres. On the other hand, soybeans are projected to fall by 500,000 acres.
Despite the changes in acreage, producers are focused on increasing revenue rather than minimizing inputs. The consensus is that, despite ongoing inflation, bushels will increase in the coming year. Mentalities may be more cost-aware, but that is not to be confused with cost-concerned. Farmers feel the heightened pressure of inflation, but their focus is on maximizing the income-expenses gap through higher productivity.