The University of Minnesota recently reported that the average net farm income for Southern Minnesota farmers in 2022 was $311,240, which was the highest average net farm income on record, surpassing the 2021 level of  $280,900. The very positive net farm income levels from 2020-2022 followed seven years (2013-2019) in a row of sup-par net farm income levels in the region. The 2021 and 2022 net farm income levels in Southern and West Central Minnesota have been enhanced by robust crop profits that resulted from average to above average crop yields and the highest grain market prices since 2012. Livestock profit margins in 2022 in Southern Minnesota were mixed and typical livestock profit levels were at much more modest levels than the crop profits.
   The Farm Business Management (FBM) Summary for Southern and West Central Minnesota is prepared by the Farm Business Management Instructors. This summary includes an analysis of the farm business records from farm businesses of all types and sizes in Southern and Western Minnesota. This annual farm business summary is probably one of the “best gauges” of the profitability and financial health of farm businesses in the region on an annual basis. Following are some of the key points from the data in the 2022 FBM Summary:
BACKGROUND  DATA
·       The “Net Farm Income” is the return to labor and management, after crop and livestock inventory adjustments, capital adjustments, depreciation, etc. have been accounted for. This is the amount that remains for family living, non-farm capital purchases, income tax payments, and for principal payments on farm real estate and term loans. The average net farm income in 2022 was +$311,240.
·       The “median” net farm income is the midpoint net farm income of all farm operations included in the FBM Summary, meaning that half of the farms have a higher net farm income and half have a lower net income. The average median net farm income in 2022 was +$177,614.
·       A total of 1,476 farms from throughout South Central, Southwest, Southeast, and West Central Minnesota were included in the 2022 FBM Summary. The average farm size was 683 acres. The top 20 percent net income farms averaged 1,667 acres, while the bottom 20 percent net income farms had 205 acres.
·       63 percent of the farm operations were cash crop farms, 12 percent were single entity livestock operations,
      and the balance are various combinations of crop, livestock, and other enterprises.                                                                    
·       352 farms (24%) were under $250,000 in gross farm sales in 2022; 274 farms (18%) were between $250,000 and $500,000 in gross sales; 361 farms (25%) were between $500,000 and $1 million in gross sales; and 489 farms (33%) were above $1 million in gross sales.
·       In 2022, the average farm business received $14,606 in government program payments, which includes CRP and conservation payments. This was down considerably from 2021 when the average was $58,196 in government payments which included many one-time payments related to the Covid pandemic and 2019 crop disaster payments. In addition, the average farm operation received $7,792 in crop insurance payments in 2022, which was considerably lower than the level of crop insurance payments from 2018-2020. The combination of farm program payments and crop insurance payments accounted for approximately 4.7 percent of the 2022 average net farm income. This compares to 2020, when government payments and crop insurance payments totaled over $126,000 and made up about 74 percent of the average net farm income.
·       The average family living expense in 2022 was $71,375, which increased slightly compared to recent years. The average non-farm income in 2022 was $45,240, which represents about 38 percent of total annual non-farm expenses ($121,163) by families for family living and other uses.
·       In 2022, the average farm business spent $1,281,210 for farm business operating expenses, capital purchases, and non-farm expenses. Most of these dollars were spent in local communities across the region, helping support the area’s overall economy.
FARM  FINANCIAL  ANALYSIS
·       The average net farm income for Southern and West Central Minnesota for 2022 was $311,240, while the median net farm income for the region was $177,614. This compares to median net farm income levels of $176,426 in 2021, $102,848 in 2020, $36,547 in 2019, and $20,655 in 2018.
·       As usual, there was large variation in median farm income in 2022, with top 20 percent profitability farms averaging a median net farm income of +$728,237, and the low 20 percent profitability farms with an average median net farm income of only +$13,238.
·       The variation in 2022 median net farm income also tracked very closely with the gross farm receipts of farms. Farms with $1 to $2 million in gross receipts had a median net farm income of +$433,787, compared to +$224,828 for farms with a gross of $500,000 to $1 million, +$125,428 for farms with a gross of $250,000 to $500,000, and +$56,528 for farms with a gross of $100,00 to $250,000. Interestingly, there was very little difference in the profit margin between the income groups. The $100,000 to $250,000 group was at 25.1% profit margin, the $250,000 to $500,000 group at 28.4% profit margin, the $500,000 to $1 million group at 27.4% profit margin, and the $1 to $2 million group at 27.6% profit margin.
·       The average farm business showed working capital of +$601,008 in 2022, which is three times higher than the average working capital three years ago in 2019. The current ratio (current assets divided by current expenses) for 2022 was 283%, which compares to 247% in 2022, 198% in 2020, and 156% in 2019. The working capital to gross revenue ratio for 2022 was 49.4%, which is more than double the level in 2018 and 2019. The working capital had declined to concerning levels for many farm operations prior to 2020, before showing significant improvement from 2020-2022.
·       Another measure of the “financial health” of a farm operation is the “term debt coverage ratio”, which measures the ability of farm operations to generate adequate net farm income to cover the principal and interest payments on existing real estate and term loans. If that ratio falls below 100%, it results in the farm business being required to use working capital or non-farm income sources to cover the difference. The average term debt coverage ratio for 2022 was at the healthy level of 372%, which compares to average ratios 389% in 2021, 274% in 2020, 148% in 2019, and 91% in 2018. However, the low 20 percent profitability farms had a term debt coverage ratio of only 85% in 2022.
·       Any additional cash flow dollars over and above the term debt principal and interest payments that are earned by farm operation are available for machinery replacement or other capital improvements. In 2022, the average farm had $224,856 available for those purposes, while high 20 percent profitability farms had $726,122 available. This helps explain the strong demand for new and used farm machinery, the planned grain system improvements, and other farm and non-farm upgrades that have occurred in recent months.
BOTTOM  LINE
Overall, net returns from crop operations in 2022 were among the best ever; however, livestock profitability was much more modest. As usual, there was a wide variation in farm profit levels from the top one-third of net farm income operations as compared to other farms. The overall average financial health of many farm businesses has improved significantly during the period from 2020-2022, after declining for several years due to low profit levels. Farm profit levels were quite favorable in 2022; however, there are some “caution flags” on the horizon. These include rapidly increasing input expenses and land costs, potential declines in grain and livestock market prices, and lower levels of government payments. Complete farm business management results are available through the University of Minnesota Center for Farm Management FINBIN Program at:  http://www.finbin.umn.edu/
Note - For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone - (507) 381-7960) 
E-mail - kent.thiesse@minnstarbank.com)  Web Site - http://www.minnstarbank.com/

​The USDA World Agricultural Supply and Demand Estimates (WASDE) Report released on May 12 projected record production levels in 2023 and a likely increase in corn and soybean ending stocks by the end the 2022-23 marketing year on August 31, 2024. U.S. wheat stocks are expected to show in slight decrease in the coming year. From a grain marketing standpoint, the initial reaction to the WASDE report was widely regarded as somewhat “bearish” for corn and soybeans and mainly neutral for wheat. USDA is projecting that the national average grain prices for both corn and soybeans will decline by nearly $2.00 per bushel for the 2023-24 marketing year, compared to 2022-23 price levels. Following are some highlights of the latest USDA WASDE Report:
 
Corn:
Based on the May 12 USDA WASDE Report, the projected corn ending stocks for the 2022-23 marketing year are estimated at 1.417 billion bushels, which is an increase of 75 million bushels from the April Report, due to an expected reduction in corn exports of 75 million bushels. The anticipated 2022-23 corn ending stocks are an increase from 1.377 billion bushels in 2021-22 and 1.235 billion bushels in 2020-21. USDA is projecting that total U.S. corn usage for 2022-2023 13.73 billion bushels for livestock feed, ethanol, exports, etc., which is a decrease of 1.23 billion bushels or almost 9 percent compared to the 2021-22 usage level. The much lower estimated corn usage was mainly due to a rather large decrease in the estimated amount of corn used for feed in 2022-23, as well as significantly lower corn export levels, compared to a year earlier. The 2022-23 corn stock-to-use ratio is now estimated at 10.3 percent, up from 9.2 percent in 2021-22; however, the ratio remains quite tight. 
 
The May WASDE Report also offered an initial USDA estimate for corn carryover levels in the 2023-24 marketing year, which ends on August 31, 2024. The corn ending stocks were estimated at 2.22 billion bushels, which would be an increase of 805 million bushels or 57 percent compared to the end of the 2022-23 marketing year. The 2023-24 stocks-to-use ratio is expected to increase to 15.3 percent.  The projected 2023-24 ending stocks were well above the average grain-trade estimates and the carryout level would be the highest since the end of the 2016-17 marketing year. USDA is estimating the total corn supply for 2023-24 to increase by 1.56 billion bushels to just over 16.7 billion bushels, while the total corn usage for the year is only expected to increase by 755 million bushels to just over 14.48 billion bushels. USDA is forecasting increased corn usage for livestock feed and higher U.S. corn export levels in 2023-24, as well as a slight increase in usage for ethanol production. 
 
USDA is estimating total U.S. corn production in 2023 at the record level of 15.265 billion bushels, which would be an increase of approximately 11.2 percent from the total 2022 U.S. corn production. The USDA Report expects an estimated 92 million acres of corn to be planted in the U.S. in 2023, which compares to 88.6 million acres in 2022 and 93.3 million acres in 2021.  USDA is projecting the average U.S. corn yield at 181.5 bushels per acre in 2023, which is up from the average yields of 173.3 bushels per acre in 2022 and 176.7 bushels per acre in 2021. The WASDE corn yield estimate is very close to the trendline corn yield forecast at the USDA Ag Outlook Conference in February this year. Corn planting progress in 2023 has been running ahead of normal in many areas of the central and southern Corn Belt of the U.S. but is behind normal in some areas of the northern Corn Belt.
 
As of May 12, USDA is estimating the average U.S “on-farm” corn price for the 2022-23 marketing at $6.60 per bushel, which was the same as the April estimate. The current USDA projected corn price compares to recent final national average prices of $6.00 per bushel for 2021-22, $4.53 per bushel for 2020-21, and $3.56 per bushel for 2019-20. USDA also released the first estimated average corn price for the 2023-24 marketing year at $4.80 per bushel, which would be $1.80 per bushel lower than the estimated 2022-23 average price and $1.20 per bushel below the final 2021-22 national average price.  
Soybeans:
According to the May 12 WASDE Report, the projected soybean ending stocks for 2022-23 are estimated at 215 million bushels, which is up by 5 million bushels from the April estimate and was very close to the average grain trade estimates. The projected 2022-23 U.S. soybean ending stocks remain very tight and compare to other recent soybean carryover levels of 274 million bushels in 2021-22, 257 million bushels in 2020-21, 525 million bushels in 2019-20, and a whopping 909 million bushels in 2018-19.
 
Total soybean usage for 2022-23 is estimated to be just over 4.35 billion bushels, which is down slightly from the total usage of 4.465 billion bushels in 2021-22. Soybean export levels for 2022-23 are projected to decrease slightly compared to a year earlier; however, soybean sales to China have remained strong. USDA projected a slight increase in bushels used for soybean processing in the U.S for 2022-23 compared to crush levels a year earlier. Some analysts feel that domestic soybean demand may increase in the next few years with several new or expanded soybean processing plants scheduled to come on board, focusing on the production of renewable diesel.
 
The May WASDE Report projects soybean ending stocks to increase by 120 million bushels to 335 million bushels by the end of the 2023-24 marketing year on August 31, 2024. USDA is estimating the total U.S. soybean supply to increase by 175 million bushels in 2023-24; however, the total soybean usage is only expected to increase by 56 million bushels compared to levels for 2022-23. The projected ending soybean stocks-to-use ratio for 2023-24 is estimated at 7.6 percent, which compares to 4.9 percent in 2022-23 and 6.1 percent in 2021-22.
 
Total U.S. soybean production in 2023 is estimated at the record level of 4.51 billion bushels, which would be an increase from the estimated U.S. soybean production of 4.276 billion bushels in 2022 and just over 4.46 billion bushels in 2021. Interestingly, a year ago in May USDA projected the 2022 U.S. soybean production at 4.64 billion bushels and the actual 2022 production was 364 million bushels less. Planted soybean acres for 2023 are projected at 87.5 million acres, which is the same as 2022 and just above 2021 soybean acreage. USDA is estimating a national average soybean yield of 52 bushels per acre in 2023, which compares to 49.5 bushels per acre in 2022 and 51.7 bushels per acre in 2021. The record U.S. soybean yield was 52.1 bushels per acre in 2016. 
 
USDA is estimating the U.S “on-farm” soybean average price at $12.10 per bushel for the 2023-24 marketing year, which runs from September 1, 2023 to August 31, 2024. The preliminary price estimate for the 2023-24 marketing year on May 1 would be a decline of $2.10 per bushel from the 2022-23 average price and $1.20 per bushel below the final 2021-22 average price. The projected final market year average price for 2022-23 is $14.20 per bushel soybean price, which compares to final average soybean prices of $13.30 per bushel for 2021-22, $10.80 per bushel for 2020-21, $8.57 per bushel for 2019-20, and $8.48 per bushel in 2018-19. Average soybean prices for 2023-24 will likely be highly dependent on 2023 soybean production in the U.S., as well as increases in soybean crush levels and the amount of U.S. soybean exports to China and other countries.
 
Wheat:
The May 12 WASDE Report projected U.S. wheat ending stocks to decline to 556 million bushels by the end of the 2023-24 marketing year on May 31, 2023. This compares to estimated ending stocks of 598 million bushels for 2022-23 and 698 million bushels in 2021-22. Wheat demand in 2023-24 is projected to decrease slightly from the current year demand, down to 1.837 million bushels, with the decline mainly due to lower export estimates. Wheat acreage in 2023 is expected to increase to 49.9 million acres and total U.S. wheat production is expected to increase slightly in 2023 to 1.66 billion bushels. Wheat acreage and production numbers could be adjusted downward in coming months, due to planting delays in the primary spring wheat production region. USDA is projecting the average “on-farm” wheat price at $8.85 per bushel for 2022-23 and $8.00 per bushel for 2023-24, which compares to final national average price of $7.63 per bushel in 2021-22 and $5.05 per bushel in 2020-21.

From 2021 until early 2023, nearby futures prices on the Chicago Board of Trade (CBOT) for both corn and soybeans have been at the highest sustained levels since the period a decade earlier from 2011 to 2013. This has allowed for some excellent profit margins for Midwest corn and soybean producers in the past two years, especially for farmers that had average or above average crop yields in 2021 and 2022. Now there are some indicators on the horizon that this prolonged period of robust crop prices might be changing later this year, which could result in profit margins becoming much tighter by the end of 2023.
 
Nearby CBOT May corn futures closed at $6.51 per bushel following the release of the World Supply and Demand (WASDE) report on April 11, which compared to a nearby futures price of $7.84 per bushel following the April WASDE report in 2022 and $5.77 per bushel in 2021. The nearby CBOT corn futures price has exceeded $5.00 per bushel since early 2021 and has been above $6.00 per bushel since early 2022, exceeding $7.00 per bushel from March until June in 2022. Prior to 2021, the nearby corn futures price had not been above $5.00 per bushel since late Summer of 2013. In fact, from 2015 through 2020, nearby corn futures were below $4.00 per bushel for a high percentage of the time.
 
The last extended period of higher levels of CBOT corn futures prices occurred from late 2010 through 2013. Nearby corn futures rose above $5.00 per bushel in September of 2010, exceeding $6.00 per bushel by early 2011, and going over $7.00 per bushel by June of 2011. Corn futures stayed strong in 2012, only briefly dipping below $6.00 per bushel, before reaching the all-time high of $8.38 per bushel during the intense U.S. drought conditions in August of 2012. Nearby corn futures stayed above $7.00 per bushel for the balance of 2012 and remained above $6.00 per bushel for most of the first half of 2013, before dropping significantly in the second half of 2013, ending the year near $4.25 per bushel. By the Summer of 2014, nearby corn futures had dropped to near $3.50 per bushel and only briefly topped $4.00 per bushel during the next several years.
 
Nearby CBOT May soybean futures closed at $14.97 per bushel following the release of the WASDE report on April 11, which compared to $16.65 per bushel following the WASDE report in 2022 and $14.03 per bushel in 2021. Similar to corn, the nearby CBOT soybean futures price has exceeded $12.00 per bushel since late in 2020 and has been above $13.00 per bushel since early 2021, except for a few months in the Fall of 2021. Nearby soybean futures prices have exceeded $14.00 per bushel most of the time since early 2022, trading above $16.00 per bushel from late February to mid-June in 2022. On April 17, May CBOT soybean futures were trading at $15.10 per bushel for May, which drops to $14.79 per bushel for July and $13.43 per bushel for September.
 
Prior to late 2020, the nearby soybean futures price had not exceeded $12.00 per bushel since late Summer of 2014. During the last grain price “boom period” from late 2010 through 2013, the nearby soybean futures rose above $12.00 per bushel in October of 2010 and exceeded $13.00 per bushel the end of 2010. The nearby soybean futures stayed above $13.00 per bushel throughout the Summer of 2011, before falling back below $12.00 per bushel that Fall into early 2012. Soybean futures rebounded quickly in the drought year of 2012, exceeding $13.00 per bushel by March and $16.00 per bushel by July, reaching the all-time high of $17.68 per bushel in September of 2012. Nearby soybean futures remained above $14.00 per bushel until the Summer of 2013 and stayed near or above $13.00 per bushel for the balance of 2013. After spending the first half of 2014 above $13.00 per bushel, nearby soybean futures dropped to near $10.00 per bushel during most of the second half of 2014. From mid-2018 through mid-2020, nearby soybean futures traded below $9.00 per bushel a majority of the time, due to export market implications resulting from the U.S. trade war with China.
 
The current strength in both the CBOT prices and the local cash grain prices for corn and soybeans has been driven by a combination of fairly tight U.S. and World grain stocks and very strong domestic and export demand for both commodities, along with lower than anticipated U.S. corn and soybean production in 2020 and 2021. The commodity markets have gained further strength at certain times in past two years resulting from the impacts on World grain markets resulting from the Russian war in Ukraine, as well as some corn and soybean production issues due to drought conditions in South America during the past two years.
 
The “basis” level for local corn and soybean cash price bids has remained at fairly tight levels in 2022 and early 2023. The “basis” is the difference between the local cash price being offered in a given month and the closet CBOT futures price. Many processing plants and local elevators in the Corn Belt have offered cash prices with a positive basis at certain times during the past two years. The current basis level for cash corn in Southern Minnesota has remained near or above the nearby CBOT futures price in recent weeks. The soybean basis level in the region have at soybean processing plants have remained near the CBOT nearby futures price, while basis levels at local grain elevators have generally been $.20-$.40 below the CBOT futures prices. The tight basis levels have offered some very good grain marketing opportunities for 2022 grain inventories in recent months.
 
The corn basis level for the Fall of 2023 has widened out to approximately $.30 to $.50 per bushel under the CBOT December futures price at local ethanol plants and grain elevators in Southern Minnesota. The soybean basis for the Fall of 2023 has been near $.35 per bushel at soybean processing plants and $.50 to $.70 per bushel below the CBOT November futures price at grain elevators. This is more typical of Spring levels that existed prior to 2021 and 2022 for corn and soybeans. The basis levels at local grain elevators and processing plants are important to farm operators for determining pre-harvest market strategies for corn and soybeans in a given year.
 
Once farm operators reach planting season, they pay close attention to “new crop” December corn futures and cash prices for harvest season and beyond at local grain elevators and processing plants. December corn futures closed at $5.59 per bushel on April 11, which compares to $7.35 per bushel in mid-April a year ago and $5.77 per bushel in 2021. Cash bids for Fall delivery of the 2023 corn crop at local grain elevators and ethanol plants in Southern Minnesota on April 11 ranged from $5.00 to $5.30 per bushel at many locations, compared to $6.50 to $7.00 per bushel a year ago. In late Fall of 2012, local new crop corn prices for the Fall of 2013 were near $6.00 per bushel; however, by July of 2013 new crop bids had declined below $5.00 per bushel, with the 2013 cash corn price ending the year near $4.00 to $4.25 per bushel.
 
Prices for 2023 “new crop” CBOT November soybeans closed at $13.13 per bushel on April 11, which compares to just over $15.00 per bushel in mid-April of 2022 and $12.63 per bushel in 2021, Cash bids for 2023 “new crop” soybeans at grain elevators in Southern Minnesota on April 11 ranged from $12.00 to $12.50 per bushel, with forward prices near $12.75 per bushel at soybean processing plants. These prices are about $2.00 per bushel lower than Fall harvest soybean bids a year ago.  Cash soybean prices in Southern Minnesota were near $12.50 to $13.00 per bushel in the Fall of 2013; however, prices had declined to below $10.00 per bushel by the Fall of 2014.
 
Most farmers have been pondering over grain marketing decisions for the 2023 corn and soybean crop in recent weeks. Break-even levels to cover direct and overhead expenses on cash rented land in 2023 will likely be $5.00 to $5.50 per bushel for corn and over $11.00 per bushel for soybeans for many Midwest crop producers. In many years, the Spring and early Summer months tend to offer some of the best opportunities to forward price “new crop” corn and soybeans. On the other hand, farmer operators do not want to miss the opportunity for a grain price “run-up” later this year, such as occurred in the past couple of years when U.S. crop yields were lower than expected. If there is not a drought or other crop issues in the U.S. in 2023, corn and soybean prices are likely to follow a more typical seasonal price pattern as we progress toward harvest this year.

​The March 8 USDA World Supply and Demand Estimates (WASDE) report did not have many significant changes from the February WASDE report. The biggest change was a larger than anticipated reduction in expected 2022-23 corn export levels, along with a corresponding increase in estimated corn ending stocks at the end of the current marketing year. On the flip side, USDA projected a slight reduction in 2022-23 soybean ending stocks due to an anticipated increase in soybean export levels. All eyes will now be on the USDA 2023 Prospective Planting and Grain Stocks reports that will be released on March 31.
 
CORN
The latest WASDE report continued to show the total 2022 U.S. corn production at 13.7 billion bushels, which compares to production levels of just under 15.1 billion bushels in 2021 and 14.1 billion bushels in 2020. The recent USDA report also showed that the total demand for corn usage in 2022-23 at just over 13.8 billion bushels, which is down considerably from total corn usage levels of 14.9 billion bushels in 2021-22 and 14.8 billion bushels on 2020-21. Corn export levels were reduced by 75 million bushels in the March report due to sluggish export sales thus far in the 2022-23 marketing year. Corn export sales for the year are now estimated at 1.85 billion bushels, compared to 2.47 billion bushels in 2021-22 and 2.75 billion bushels on 2020-21. USDA estimated the total corn used for ethanol production in 2022-23 at 5.25 billion bushels and the total corn used for livestock feed at 5.69 billion bushels, both of which are down slightly from levels in the 2021-22 marketing year.   
 
USDA is now estimating 2021-2022 U.S. corn ending stocks at 1.342 billion bushels, which is an increase of 75 million bushels from the February WASDE report, representing the projected decrease in corn export levels. The 2022-23 corn ending stocks would still be at the second lowest level in the past nine years and would compare to a carry-out level of 1.377 bushels in 2021-22 The 2022-23 stocks-to-use ratio is estimated at 9.7 percent, which is almost identical to the 9.8 percent projection a year ago in March. The current stocks-to-use ratio remains quite tight compared to recent corn stocks-to-use ratios of 13.7 percent for 2019-20, 14.6 percent for 2018-19, and 14.5 percent in 2017-18. This means that there continues to be potential for short-term rallies in the cash corn market in the coming months, especially in areas of the U.S. with tight supplies and high local corn demand.
 
USDA is currently estimating the U.S average on-farm cash corn price for the 2022-2023 marketing year at $6.60 per bushel, which was decreased by $.10 per bushel from the February estimate. The projected 2021-22 market year average (MYA) corn price represents the highest estimated WASDE corn price since the 2013-14 marketing year. The current projected 2022-23 average price compares to recent national average corn prices of $6.00 per bushel for 2021-22, $4.53 per bushel in 2020-21, $3.57 per bushel for 2019-20, $3.61 per bushel for 2018-19, and $3.36 per bushel for both 2017-18. The 2022-23 WASDE price estimates are the expected average farm-level prices for corn and soybeans for the 2022 crop from September 1, 2022, through August 31, 2023; however, they do not represent the estimated prices for either the 2022 or 2023 calendar year.
 
SOYBEANS
The latest USDA report kept the final 2022 U.S. average soybean yield at 49.5 bushels per acre, which is 2.2 bushels per acre below the final U.S. average yield in 2021. Total U.S. soybean production for 2022 is estimated at 4.276 billion bushels, which is a decrease of 189 million bushels from final 2021 production levels. The recent WASDE report estimates total soybean demand at 4.355 billion bushels for the 2022-23 marketing year, which is an increase of 15 million bushels from the February WASDE report but would represent a decrease of 124 million bushels from 2021-22 soybean demand levels. Expected soybean export levels were increased by 25 million in the March report compared to a month earlier; however, export levels would be 109 million bushels below 2021-22 exports. Soybean crush levels are expected to increase slightly in the current marketing year.
 
The U.S. soybean ending stocks for the 2022-23 marketing year in the latest WASDE report are estimated at 210 million bushels, which was a decrease of 15 million bushels from the February WASDE report. The projected soybean ending stocks for the current year would be among the lowest soybean carryout levels in past decade. The projected 2022-23 soybean ending stocks compare to recent year-end carryout levels of 274 million bushels for 2021-22, 257 million bushels for 2020-21, 525 million bushels for 2019-20, 913 million bushels for 2018-19, and 438 million bushels for 2017-18.  
 
The soybean stocks-to-use ratio for 2022-23 is now estimated at only 4.8 percent, which is a decline from the low ratios of 6.1 percent in 2021-22 and 5.7 percent in 2020-21. The projected 2022-23 ratio is considerably lower than other recent soybean stocks-to-use ratios of 23 percent for 2018-19 and 13.3 percent for 2019-20. The lowest soybean stocks-to-use level in recent times at 2.6 percent in 2013. The expected rather tight soybean supply may offer some opportunities for continued strong cash soybean prices in the coming months, especially if the projected lower soybean production levels in Argentina become reality and soybean export levels remain strong.
 
USDA is now projecting the U.S. average farm-level soybean price for the 2022-2023 marketing year at $14.30 per bushel, which is unchanged the February estimate. The estimated 2022-23 market year average soybean price would be the highest since the 2013-14 marketing year. The 2022-23 price estimate compares to other recent yearly average soybean prices of $13.30 per bushel in 2021-22, $10.80 per bushel in 2020-21, $8.57 per bushel for 2019-20, $8.48 per bushel for 2018-19, and $9.35 per bushel for 2017-18. 
 
WHEAT
Not much has changed in dynamics of the global wheat market or the WASDE report for wheat in the past year. A year ago, grain marketing analysts had their eyes on Eastern Europe following the Russian invasion of Ukraine. A year later, the Russian war in Ukraine continues and the rest of the World seems to have somewhat adjusted to this scenario as it relates to the global wheat market. Ukraine and Russia accounted for nearly 30 percent of global wheat exports prior to the initiation of the war in early 2022. The ongoing war will likely continue to greatly reduce wheat production in Ukraine and will continue to impact grain trade in Eastern Europe. Depending on 2023 wheat production in other areas of the World, the continued war in Ukraine may offer some wheat export opportunities for the U.S. in the coming months. However, USDA is projecting a slight decrease in U.S. wheat exports for the 2022-23 marketing year in the latest WASDE report.
 
The March 8 WASDE report estimated the total 2022-23 wheat supply at just under 2.47 billion bushels, which compares to over 2.59 billion bushels a year ago. The total projected wheat usage for 2022-23 is 1.9 billion bushels, which is nearly the same as 2020-21 usage levels. The report estimated the wheat ending stocks for 2022-23 at 568 million bushels, compared to 698 million bushels in 2021-22 and 845 million bushels in 2020-21. The 2022-23 farm-level average wheat price is now projected at $9.00 per bushel, which is unchanged from the February estimated priced. The 2022-23 wheat price estimate compares to other recent MYA price levels of $7.63 per bushel in 2021-22, $5.05 per bushel in 2020-21, $4.58 per bushel in 2019-20, $5.16 per bushel in 2018-19, and $4.72 per bushel in 2017-18. The MYA price for wheat and other small grains is the average farm-level price in the U.S. from June 1 until May 31 each year.

During the next few weeks, farm operators will be finalizing their crop insurance decisions for the 2023 crop year. March 15th is the deadline to purchase crop insurance for the 2023 crop year. The 2023 Spring prices for corn and soybean are likely to be similar to the base price levels last year, which should result in some favorable crop insurance guarantees again, and premium costs for 2023 should be comparable to a year ago for similar crop insurance products. Producers have several crop insurance policy options to choose from, including yield-only (YP) and revenue protection (RP and RPE) policies, SCO and  ECO policies, and other private insurance options.
In recent years, most farm operators have chosen revenue protection (RP) insurance options, which provide a guaranteed minimum dollars of gross revenue per acre (yield x price). This guarantee is based on yield  history (APH) on a farm unit times the Spring (base) price, which is the average of the CBOT prices during the month of February for December corn futures and November soybean futures. As of February 6, the 2023 crop insurance Spring prices in the Upper Midwest for YP, RP, and RPE policies were estimated at $5.96 per bushel for corn and $13.60 per bushel for soybeans. The 2023 Spring prices will be finalized on March 1. The current 2023 base price estimates compare to 2022 base prices of $5.90 per bushel for corn and $14.33 per bushel for soybeans. The final 2023 crop revenue will be the actual fam yield times the crop insurance harvest price, which is the average CBOT prices during October for December corn futures and November soybean futures.
Another insurance option that is a lower premium than a typical RP policy with harvest price protection is a RPE (harvest price exclusion) policy, which functions similarly to a standard RP policy except that the guarantees on RPE policies are fixed at the base price level and are not affected by harvest prices that exceed the base price. The revenue guarantee for standard RP policies is increased for final insurance calculations, if average CBOT prices during the month of October are higher than the February CBOT prices, which is what occurred for corn and soybeans in both 2020 and 2021, as well as for corn in 2022. Producers may purchase RP and RPE insurance coverage levels from 50% to 85%, and losses are paid if the final crop revenue falls below the revenue guarantee.
   An analysis for the past sixteen years (2007-2022) shows that the final crop insurance harvest price for corn has been lower than the Spring base price in ten of the sixteen years, including from 2013-2019. That trend has been reversed in the past three years (2020-2022) when the harvest price for corn has risen above the Spring price by +$.11 per bushel in 2020 +$.79 in 2021, and by +$.96 in 2022 (from $5.90/Bu. to $6.86/Bu.). The only other years that saw an increase in the harvest price were 2010, 2011 and 2012. The range has been from an increase in the harvest price of +$1.82 per bushel in 2012 to declines of ($1.26) and ($1.27) per bushel in 2013 and 2008.
For soybeans, the harvest price has increased in seven years (2007, 2009, 2010, 2012, 2016, 2020 and 2021) and decreased in eight years (2008, 2011, 2014-2019, and 2022), while staying the same in 2013. The range has been from an increase of +$2.84 per bushel in 2012 to a decline of ($3.00) per bushel in 2008. In 2022, the harvest price was $13.81 per bushel, which was a decrease of ($.52) per bushel from the Spring price of $14.33 per bushel.
SCO and ECO Insurance Coverage
The Supplemental Coverage Option (SCO) coverage is only available to producers that choose the Price Loss Coverage (PLC) farm program option for the 2023 crop year. The farm program and crop insurance enrollment deadlines are both March 15, 2023, which means that farm operators will need to consider both choices during the same time period. SCO allows producers to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. For example, a producer that purchases an 80% RP policy could purchase an additional 6% SCO coverage. The federal government subsidizes 65% of the premium for SCO coverage, so premiums are quite reasonable, making SCO a viable option for some producers.
The Enhanced Coverage Option (ECO) provides area-based insurance coverage from 86 percent up to 95 percent coverage, with producers having a choice between 90 or 95 percent ECO coverage. Unlike SCO coverage, the purchase of ECO coverage is available with selection of either the PLC or ARC-CO farm program choice for 2023. Producers can utilize both ECO and SCO together, in addition to their underlying RP, RPE, or YP insurance policy. SCO and ECO are county revenue-based insurance products that utilize the same crop insurance base prices and harvest prices as RP insurance policies; however, the biggest difference is that SCO and ECO utilize county level average yields, rather than the farm-level APH yields. As a result, the SCO and ECO insurance policies may achieve different results than the underlying RP policy. Interested producers should check with their crop insurance agent for details on SCO and ECO insurance coverage and premiums for 2023, as well as to compare SCO and ECO with other buy-up insurance products that utilize farm-level APH yields.
“Enterprise Units” and “Optional Units”
“Enterprise units” combine all acres of a crop in a given county into one crop insurance unit, while “optional units” allow producers to insure crops separately in each individual township section. “Enterprise units” usually have considerably lower premium costs (approx. $8.00-$12.00 per acre) compared to “optional units”, for comparable RP and RPE policies. Producers should be aware that “enterprise units” are based on larger coverage areas, and do not necessarily cover losses from isolated storms or crop damage that affect individual farm units, such as damage from hail, wind, or heavy rains. Many times, producers automatically opt for “enterprise units” every year, due to the lower premium cost per acre for similar coverage, and probably not totally understanding the differences in coverage between “enterprise units” and “optional units”. It is important to understand the difference in insurance coverage and to analyze the yield risk on each individual farm unit, when determining if paying the extra premium for insurance coverage with “optional units” makes sense.
“Bottom-Line” on Crop Insurance Decisions
   Given the strong crop insurance Spring base prices for both corn and soybeans, most producers should be able to provide a very desirable level of risk protection for corn and soybean production in 2023. At current Spring price levels, many producers will be able to guarantee near $800.00 to over $1,000.00 per acre for corn, and near $550.00 to over $750.00 per acre for soybeans by utilizing 85% RP insurance coverage level in 2023. Producers can further enhance their revenue guarantees through “buy-up” crop insurance coverage that is offered by private insurance companies, as well as with “wind” and “hail” endorsements, or through the purchase of SCO or ECO insurance coverage. Crop insurance remains one of the best risk management tools that is available for farm operators to protect their annual investment in crop production.
A reputable crop insurance agent is the best source of information to find out more details about the various crop insurance products that are offered, to get premium quotes, and to help finalize 2023 crop insurance decisions. To receive a free copy of an information sheet titled: “2023 Crop Insurance Decisions”, written by Kent Thiesse, Farm Management Analyst, please forward an e-mail to: kent.thiesse@minnstarbank.com.
Following are some very good web sites with crop insurance information:
USDA Risk Management Agency (RMA) :    http://www.rma.usda.gov/
University of Illinois FarmDoc :   http://www.farmdoc.illinois.edu/cropins/index.asp
Kansas State University Ag Manager:   https://agmanager.info/crop-insurance
Iowa State University Ag Decision Maker:  https://www.extension.iastate.edu/agdm/​

Note - For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN.  (Phone - (507) 381-7960)

Projected crop production profit margins for many producers in 2023 are likely to be much tighter as compared to 2022 margins. Commodity prices and gross revenue per acre for corn and soybean production increased considerably during the 2022 crop year and are likely to continue at solid levels in 2023. However, expenses for crop inputs, such as fertilizer, chemicals, seed, fuel, repairs, and labor are likely to be substantially higher in 2023, as compared to 2022 expense levels. The profit margins in the livestock sector also improved in 2022 but are also likely to narrow somewhat in 2023 due to increased production costs. Credit availability for agriculture should remain good for farm businesses that are on a solid financial base. However, both short-term and long-term interest rates nearly doubled in in 2022 as compared to a year earlier and could rise even further in 2023.
 
Financial volatility remains quite high in farming today. Following are some financial strategies for farm businesses to consider during these highly volatile times in the farming business:
·      Keep the “Current Position” (cash available) segment of the farm business strong.
• Pay attention to the level of “Working Capital” and the “Current Ratio” on your Farm Financial Statement. During these times of improved profit margins is probably a good time to re-build Working Capital in a farm business that may have been depleted in recent years.
• It is usually a better option to use excess cash revenues from the farm operation to pay down short-term farm operating debt, rather than to make significant extra payment on term loans.
• If there are any excess crop revenues from 2022 grain sales beyond repayment of the 2022 Farm Operating Loan, it may be best to prepay some 2023 or 2024 crop expenses.
• Remember to account for CCC grain loans, financing with crop input suppliers, short-term loans from family members, etc. when analyzing the Working Capital for the farm operation.
 
·      Look at ways to manage production costs and other expenses.
• Try to be a “optimum-cost” producer …… thoroughly analyze seed, fertilizer, chemical, etc. crop expense decisions for 2023 crop production and look for ways to manage those input costs.
• Be cautious when making reductions in crop production costs, so not to significantly impact yield potential …… optimizing crop yields is still very important to the “bottom-line” for farm profits.
• Be cautious about paying excessive cash rental rates on rented land and make sure that rental rates are still profitable. Also try to negotiate reasonable rental rates with existing landlords.
• Negotiate “flexible lease” contracts with agreeable landlords that sets a manageable base rental rate, with the opportunity for a bonus rental payment if final crop prices and/or yields increase.
• Review other direct and overhead expenses in the farm operation and look for any adjustments.
 
·      Review other ways to manage financial risk.
• “Fine-tune” the farm’s grain marketing plan, based on the “cost of production” that is updated regularly, which includes set price targets and deadline dates as part of the marketing plan.
• Don’t get caught up in the “market hype or chatter” …… pay attention to how changes in the corn and soybean market prices affect your own farm business. Don’t miss the profit opportunities.
• Look for positive profit margin opportunities in livestock production and take advantage to “lock-in” both cash expenses and market prices when those margins exist.
• Take time to analyze the best farm program options and crop insurance strategies for your farm operation …… these decisions can be a key to having a sound risk management strategy.
• Excessive spending for family living and non-farm expenditures can be a “hidden expense” in the farm business. Include the non-farm expenses and other family living expenditures that are reliant on farm income in the farm cash flow planning process.
 
·      Pay attention to the repayment ability on Term Debt Loans.
• In addition to declining Working Capital, a low “Term Debt Coverage Ratio” is a key ratio in analyzing the financial strength of a farm business. This ratio is the cash available for debt repayment divided by the total principal and interest due on all intermediate and long-term loans.
• Make wise decisions on the use of available cash for farm machinery and capital improvement investments, and make sure that the investments are needed for the farm operation.
• Term loans that are set up to finance machinery purchases and capital improvements may require payments for several years, which need to be factored into cash flow budgets for 2023 and beyond.
Ø  Look for opportunities to sell any farm assets that are no longer needed in the farm business and use funds for capital purchases, added working capital, or to repay some term debt.
 
·      Carefully analyze decisions to purchase farmland.
• There is likely to be a lot of farm real estate for sale in the coming year and some farm operators are likely to have some extra cash available. Be cautious not to get caught up in the hype of: “Buy now, because they don’t make any more farmland”. Make sure that any land purchases are financially sound for the long-term future of the farm business.
• Shop around before settling on a high dollar purchase of farmland, as there may be opportunities to find comparable farmland, as far as land quality and production capability, for less money.
• Compare the cost of owning the farmland to the likely annual land rental rates over the next few years to secure increased crop acreage.
• Compare the cost and potential return of the cash investment to purchase additional farmland to the cash investment and return of improving existing farmland with upgraded drainage, etc.
• Be sure to include the required annual real estate loan principal and interest payments, along with real estate taxes, into future annual cash flow planning for the farm business.
• In addition, do a “stress test” on the real estate purchases to make that those real estate loan payments still have a positive cash flow with a 10 percent decline in net farm income, a 10 percent increase in farm expenses, and higher interest rates.
 
·      Communicate with family members, farm partners, and ag lenders.
• When financial matters and farm profitability in the farm operation improve, such as in the current situation, it is easy to revert back to bad management habits. It is still very important to discuss and properly analyze farm financial strategies with family members, partners, ag lenders, and other consultants in the farm operation.
• Meet with your ag lender early to discuss your farm operating credit needs for 2023, and to consider possible capital or real estate purchases and adjustments for the coming year.
• Utilize farm business management advisors, crop insurance agents, marketing and crop consultants, and other professionals to assist with farm management decisions. View your Ag Lender and other professionals as consultants to assist with key financial and business management strategies in the farm operation.
• Discuss planned machinery and equipment purchases and potential land purchases, as well as the projected cash flow impacts on the farm business, prior to finalizing those decisions.
• Discuss grain and livestock marketing plans and analyze the impact that marketing decisions could have on cash flow projections.
• Discuss any financial concerns early, either farm-related or non-farm concerns, while there is still time to make any needed financial adjustments.