​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.

​The monthly USDA World Supply and Demand Estimates (WASDE) report released on January 12 was viewed as “bullish” by most grain marketing analysts and had an immediate positive effect on corn and soybean prices. The January WASDE Report, which is often known as a “market mover”, showed some noteworthy adjustments to final 2022 corn and soybean production and supply number; however, the report also showed a slight decrease in corn and soybean demand for the coming year. The immediate market reaction following the release of the WASDE report for corn and soybean prices on the Chicago Board of Trade (CBOT) was quite positive.
 
CORN
The final National Ag Statistics Service (NASS) 2022 Crop Production Report was also released on January 12. The report estimated the final 2022 U.S. average corn yield at 173.3 bu./acre, which increased by one bushel per acre from the December estimate. The 2022 corn yield estimate compares to 176.7 bushels per acre in 2021 and 171.4 bushels per acre in 2020. Minnesota is estimated to have a final 2022 statewide average corn yield of 195 bushels, while Iowa is projected to have a final corn yield of 200 bushels per acre for 2022. Other estimated average corn yields for 2022 included Illinois at the record yield of 214 bushels per acre, Indiana at 190 bushels per acre, Ohio at 187 bushels per acre, Wisconsin at 180 bushels, and North Dakota at 131 bushels per acre. The drought-stricken States of Nebraska and South Dakota are projected to have final 2022 corn yields of 165 and 132 bushels per acre respectively.
 
The latest WASDE report showed a slight decrease in the total 2022 U.S. corn production, which is now estimated at 13.73 billion bushels. This is decrease of 200 million bushels from the December estimate and is over 1.3 billion bushels below 2021 corn production level. The latest USDA report also put the total demand for corn usage in 2022-23 at just over 13.9 billion bushels, which is a decrease of over 1 billion bushels from 2021-22 corn usage figures. Corn export levels are projected to decrease by 546 million bushels in 2022-23, along with a decrease in corn used for feed of 443 million bushels and a decrease of 51 million bushels in corn used for ethanol production in the coming year. The January USDA listed the total available supply of corn available at 15.157 billion bushels, which compares to 16.333 billion bushels in January of 2022.   
 
USDA is now estimating 2022-2023 U.S. corn ending stocks at 1.242 billion bushels, which is a decrease of 15 million bushels from the December WASDE report. USDA was projecting 2021-22 corn ending stocks at just over 1.5 billion bushels a year ago in the January WASDE report; however, the final 2021-22 ending stocks closed at an estimated 1.377 billion bushels on August 31, 2022. The U.S. corn stocks-to-use ratio is now estimated at 8.9 percent for 2021-22, which would just below the 9.2 percent ratio for 2021-22 and just above 8.3 percent in 2020-21. The recent ratios compare to 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 there could 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 2022-23 at $6.70 per bushel, which is at the same level as the December estimate. The projected 2022-23 market year average (MYA) corn price represents the highest WASDE estimated average corn price in nearly a decade. The 2022-23 USDA price estimates are the expected average farm-level prices for the 2022 crop from September 1, 2022, to August 31, 2023; however, they do not represent estimated prices for either the 2022 or 2023 calendar year. The current projected 2022-23 average price of $6.70 per bushel compares to national average corn prices of $6.00 per bushel in 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 and 2016-17.
SOYBEANS
The latest NASS report estimates the final 2022 U.S. average soybean yield at 49.5 bushels per acre, which is down from the final U.S. average yields of 51.7 bushels per acre in 2021 and 51 bushels per acre in 2020. Total U.S. soybean production for 2022 is now 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 a decline of 109 million bushels from 2021-22 soybean demand levels. Soybean crush levels are expected to increase by 41 million bushels in the current marketing year; however, soybean export levels are expected to decline by 168 million bushels during 2022-23.
 
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 10 million bushels from the December WASDE report. The projected 2022-23 soybean ending stocks are a decrease of 23 percent from the estimated 2021-22 carryout level of 274 million bushels. The projected 2022-23 soybean ending stocks compare to other recent year-end carryout levels of 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 4.8 percent, which would be the lowest level since 2.6 percent in 2013. The projected 2022-23 ratio compares to tight ratios of 6.1 percent for 2021-22 and 5.7 percent in 2020-21; however, the current ratio is considerably lower than soybean stocks-to-use ratios of 23 percent for 2018-19 and 13.3 percent for 2019-20. The expected rather tight soybean supply may offer some opportunities for continued strong cash soybean prices in the coming months, especially if weather issues develop in South America or with the 2023 U.S. soybean crop.
 
USDA is now projecting the U.S. average farm-level soybean price for the 2022-2023 marketing year at $14.20 per bushel, which was an increase of $.20 per bushel from the December estimate. The estimated 2022-23 U.S. average soybean price would be the highest in nearly a decade. The 2022-23 soybean price estimate compares to other recent yearly 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, $8.48 per bushel for 2018-19, and $9.35 per bushel for 2017-18. 
 
Marketing Decisions
Many farm operators will tell you that grain marketing decisions are one of the hardest parts of farming, which is especially true during periods of highly volatile markets such as we have experienced the past two years. A year ago, December corn futures on the Chicago Board of Trade (CBOT) were below $5.60 per bushel for “new crop” 2022 corn, with a local 2022 Fall harvest prices in Southern Minnesota at just above $5.00 per bushel. By May, the futures price had risen to near $7.50 per bushel and the local harvest cash corn price to over $7.00 per bushel, with only a slight price decline for the balance of 2022. Similarly, CBOT November soybean futures for 2022 were just over $13.00 per bushel in January last year, with a local Southern Minnesota harvest price near $12.50 per bushel for the Fall of 2022. By June, the CBOT November futures price and some local cash soybean bids had risen above $15.00 per bushel, before declining slightly to just over $14.50 per bushel by year-end.
 
During 2021 and 2022 many farmers began selling their anticipated corn and soybean production quite aggressively early in the year, once the local cash price got into a profitable price range, thus missing higher potential prices that occurred later in the year. Given the scenarios that existed prior to planting in both years, these were not bad marketing decisions to sell some of the anticipated crop production at profitable levels, in order to reduce risk. Now producers are wondering what to do about protecting prices for the 2023 corn and soybean crop. Being able to “lock-in” local 2023 cash prices near $5.50 per bushel for corn and over $13.00 per bushel for soybeans offer some of the best pre-plant marketing opportunities that we have seen in many years.

As we head into 2023, many farm operations are coming off a fairly good profit year in 2022; however, some producers had much more modest profit levels last year. In all cases, all farm operators are facing much higher crop and livestock input expenses in 2023, as compared to 2020 or 2021 expense levels. During these changing farm financial times, it is good to plan ahead before meeting with an ag lender for renewal of a farm operating line of credit or for an annual review of the farm financial portfolio.
Following are some tips for farm operators to be more proactive, as they are preparing for an annual meeting with their ag lender ……
•    Prepare an up-to-date 2022 year-end farm balance sheet (as of 12-31-22 or 1-01-23) .
Preparation of an accurate and up-to-date year-end balance sheet is critical to the loan renewal process for any farm operation. Updating the previous year’s balance sheet with current year-end numbers can help expediate the process. If the farm operation is a sole proprietorship, most ag lenders will also want personal asset and liability data included. If it is a partnership or family corporation, most ag lenders will also require per-sonal balance sheets from all partners.
A good year-end balance sheet will include:
List of accounts receivable as of 12-31-22, which includes whom the money is due from, the dollar amount, and the date it will be received. This includes deferred payments for grain sold in 2022.
List of accounts payable as of 12-31-21, listing who the money is owed to, the dollar amount, and when payment will be due.
List of 2023 prepaid expenses for both crops and livestock as of 12-31-22, which details the input, amount of the input, and the amount that was prepaid. This for items where payment has occurred.
Grain and livestock inventory list as of 12-31-22. The grain inventory should include total bushels of each crop, bushels that are forward priced (date and price for each sale), and any sales plans for the remaining bushels. Livestock inventory should include the number, weight, and any sales information on market or feeder livestock. An updated list and estimated value of breeding livestock should be included as an intermediate asset rather than a current asset.
CCC loans on 2022 grain that were taken prior to 1-01-23, listing the bushel amount, CCC loan rate, CCC interest rate, CCC loan maturity date, and sales plans for the CCC grain.
Review the list of farm machinery and equipment, buildings and facilities, and other capital assets, removing any assets that have been sold or removed, and adding any assets that were purchased or acquired during 2022. Farm machinery is usually listed as an intermediate asset.
Add any land or other long-term assets that were added in 2022 and adjust asset values as necessary (may want to review this with an ag lender).
List of all other loans and creditors as of 12-31-22, listing the principal balance, interest rate, payment amount, and payment dates. Be sure to include short-term creditors for crop inputs, loans with family members, and CCC loans through FSA offices.
•    Prepare a 2022 year-end income and expense statement as of 12-31-22.
The year-end income statement from the previous year should be based on actual sales of grain and livestock during 2022, which will likely include both some 2021 inventory that existed at the beginning of the year, as well as any 2022 grain or livestock that was sold during the year. The 2022 expenses would include any accounts payable from the beginning of the year balance sheet that were paid in 2022 and any 2023 prepaid expenses that were paid in 2022, in addition to the other 2022 crop and livestock expenses. A preliminary 2022 federal tax return is a good resource to prepare an income statement.
•    Prepare a budget-to-actual summary for the previous year (as of 12-31-22).
Once the 2022 income and expense statement has been finalized, and accrual adjustments are made based on the year-end balance sheet, it always good to review the actual year-end financial analysis compared to the budgeted cash flow analysis that was prepared at the beginning of the year. Pay attention to the big differences that exist in crop and livestock income and the various expense items, as well as determine explanations for those differences. Analyze for any potential adjustments that are needed for 2023.
•    Prepare a preliminary 2023 budget and cash flow analysis.
Preparing an accurate and complete budget and cash flow analysis for 2023 is a very important part of the loan renewal process. A high-quality cash flow analysis will likely include:
A grain and livestock marketing plan that includes a list of the amount sold, the contracted price, and the date to be delivered, as well as plans for remaining unpriced grain and livestock inventories.
Planned crop and livestock production for the year, including acres of various crops, anticipated production levels, and any current or planned sales of the 2023 production.
A list of planned crop and livestock inputs for 2023, the contracted or planned price of the inputs, and when the expense will be incurred.
A detailed list of rented farm land for 2023, which includes the name of the farm owner, acres rented, amount of rent (including flexible lease details), and dates when rent payments are due.
Include income received for accounts receivable on the year-end balance sheet and account for the expenses of any accounts payable at the beginning of the year.
Provide details of planned 2023 crop insurance coverage, such as updated APH yields, percentage coverage, enterprise versus optional units, ad the addi-tion of hail or wind insurance. (Your ag lender may be a good resource for these decisions.)
Provide a copy of FSA farm program information listing the crop base acres and FSA program yield for each farm unit. Discuss the 2023 farm program choice with your ag lender.
Include any planned changes or adjustments in the farming operation for 2023 in the cash flow analysis, including farm machinery purchases or sales, adding or selling land or other assets, and any other changes to the farm business, as well as any changes in personal assets or liabilities.
   It is best to include all partners and family members that are part of the farm operation in the renewal process with an ag lender, so that all key players are “on the same page” with financial decisions affecting the farm business. It is very important to be trustworthy and honest in preparing and sharing financial information with an ag lender to help assure confidence in the accuracy of the financial data. View an ag lender as an informal partner in a farm business, as a good ag lender can be a valuable resource in making management decisions.
   Farm operators should expect their ag lenders to be well prepared, trustworthy and honest in financial dealings. It is important to remember that most local ag lenders also face a lot of pressure in the process of renewing farm operating loans. They need to do their “due-diligence” to complete the necessary requirements in the loan renewal process. The loan renewal process and documentation that is prepared will likely be reviewed by senior management at a financial institution, as well as being subject to review and audits by Federal and State bank examiners. Most ag lenders are part of the local community and want to see farmers have financial success, which is in the best interest of both the farm business and the ag lending institution.

At the end of every year, various publications, websites, etc. have their “Top 10” or “Top 5” list for that year. In this issue of “FOCUS ON AG”, I am high-lighting my “Top 5 Ag Topics” for 2022, based on issues that were discussed in the columns throughout the year. Following are my “Top 5 Ag Topics” for 2022:
1. Strong U.S. Net Farm Income levels continue in 2022
Based on the data in the latest “2022 Farm Income Forecast” that was released by the USDA EconomicResearch Service (ERS) in early December, U.S. net farm income is expected to increase by $19.5 billion or 12.8 percent above 2021 levels, which followed an increase of over 40 percent in 2021 as com-pared to             2020 net farm income levels. The estimated 2022 net farm income is now estimated at $160.5 billion. In the recent farm income report, USDA estimated the total U.S. net cash income for 2022 at $187.9 billion, which is an increase of $39.7 billion or 26.7 percent from a year earlier. When adjusted for inflation, the 2022 net farm income is the highest since 1973, while net cash income would be at the highest level since USDA began tracking this data in 1929. Net cash income includes cash receipts from all farm-related income, including government payments, minus cash expenses for the year. Net farm income is accrual-based 2020 net farm income levels. The estimated 2022 net farm income is now estimated at $160.5 billion. In the recent farm income report, USDA estimated the total U.S. net cash income for 2022 at $187.9 billion,  which is an increase of $39.7 billion or 26.7 percent from a year earlier. Ehen adjusted for inflation, the 2022 net farm income is the highest since 1973, while net cash income would be at the highest level since USDA began tracking this data in 1929. Net cash income includes cash receipts from all farm-related income, including government payments, minus cash expenses for the year. Net farm income is accrual-based, which includes income adjustments for changes in inventories, depreciation, and rental income.
The very strong improvement in U.S. farm income levels that began in 2021 and continued through 2022 are considerably higher than farm income levels from 2014-2020. The improvement in 2021 and 2022 net farm income has largely been driven by continued strong commodity prices for crops and livestock, strong export markets, and better than expected crop yields in some areas. By comparison, the positive U.S. net farm income levels in 2019 and 2020 were largely driven by very high levels of government farm program payments, which included payments for trade-disruption and COVID-related payments, as well as some traditional farm program payments and disaster payments.

2. Inflation and rapidly increasing farm input costs.
Almost every input cost for crop and livestock production increased in 2022 compared to expense levels in 2021, and expenses are likely to increase again in 2023. Much of the focus has been in higher fertilizer costs for corn, which doubled for many producers in 2022, compared to aver-age 2021 fertilizer costs. Input costs in 2022 were also significantly higher for crop chemicals, diesel fuel, propane, repairs, custom work, and la-bor. In addition, the U.S. Federal Reserve Bank increased the prime interest rate from 3.25 percent at the beginning of 2022 to 7.5 percent by year-end in December, which will likely result in significantly higher interest costs for many farm operators in 2023. The cost of farm equipment and other capital improvements has also increased substantially in 2022 from a year earlier, which will likely increase depreciation and other overhead costs in the coming years. The combination of significantly higher crop input costs, along with increasing land rental rates, will likely put more pressure on crop breakeven price levels for 2023. Using typical crop input expenses, other direct costs, average overhead expenses, together with a land rental rate of $275 per acre and a targeted return to the farm operator of $50 per acre, the break-even price on cash rented acres to cover direct and overhead expenses for corn in the Upper Midwest for 2023 will likely be around $5.50 to $6.00 per bushel. This compares to corn break-even levels of $5.00 to $5.25 per bushel in 2022 and $3.75 to $4.00 per bushel in 2021. The break-even soybean price to cover the cost of production and $275 per acre land rent in 2023 will likely be about $12.00 to $13.00 per bushel, which compares to soybean break-even levels of $11.00-$11.50 per bushel in 2022 and $9.00-$9.50 per acre in 2021.
3. Strong grain prices continue in 2022
As in most years, where farmers were positioned in the grain market and the grain marketing decisions that were made by farm operators will have a big impact on the profit levels for their crop enterprise in 2022. Both corn and soybean markets have remained quite strong throughout most of 2022, due to increased demand both for domestic uses and for export markets, especially to China. The “basis” level between Chicago Board of Trade (CBOT) prices and local corn and soybean prices has remained extremely tight in many areas of the Upper Midwest due to strong local demand and tight grain supplies, which has also enhanced grain marketing opportunities during the year. “New crop” cash corn price bids in Southern Minnesota were near $5.25 per bushel early in 2022, before rising to near $7.00 per bushel by April and staying above $6.00 per bushel for the remainder of the year. The cash corn price was above $6.50 per bushel in mid-December. The 2022 “new crop” cash soybean bids in Southern Minnesota started the year at $12.50-$12.80 per bushel and rose to near $15.00 per bushel by late April, before finishing the year in the $13-$14 per bushel range from July to December. The cash soybean prices were above $14.25 per bushel in mid-December at many locations. USDA is currently estimating the average farm prices for the 2022-23 marketing year, which ends on September 30, 2023, at $6.70 per bushel for corn and $14.00 per bushel for soybeans. The current forward price bids being offered in many areas for the Fall of 2023 are near $5.50 per bushel for corn and $13.25 per bushel for soybeans.
4. Variable crop yields across the Midwest
Some crop farmers in Southern Minnesota and Northern Iowa would categorize 2022 crop yields as “better than expected”. Following a somewhat late planting season, favorable growing conditions for both corn and soybeans allowed crops in many areas to make rapid progress. Weather conditions turned very hot and dry from late May through July. Many portions of this region only received 50-75 percent of the normal growing season precipitation from May 1 through September 30, and much of that came in  mid-August or later. However, the combination, of excellent planting conditions, no-drown-out loss, timely rainfall, and above normal growing degree units resulted in average to above average corn and soybean yields for the year in some portions of the region.
On the other hand, “mother nature” was not kind to many producers in Nebraska, Kansas, South Dakota, and Western Iowa, as well as in portions of Western Minnesota, as producers in those areas experienced some of the worst drought conditions since 2012, and in some cases the worst drought since 1988. The drought in these areas resulted in corn and soybean yields that were 20-30 percent or more below APH yields. The drought also resulted in very low hay and pasture production, which lead to many cow/calf producers in the region being forced to liquidate a portion of their beef herd.

5. Sharp increases in land values
Iowa State University recently released the “2022 Farmland Survey” results, which showed that average farmland values in Iowa increased by 17 percent in 2022 as compared to 2021 farmland value. The rather large percentage increase in annual land values this year came one year after a 29 percent increase in 2021, which was the second highest on record, trailing only a 32.5 percent increase in 2013. The 2022 average farmland value in Iowa was $11,411 per acre, compared to $9,751 in 2021 and $7,559 per acre in 2020. The 2022 average is at the highest nominal land value since Iowa State began surveying land values in 1941. Recent U.S. Federal Reserve data reported year-over-year average annual land value increases in the third quarter of 2022 at 30 percent in North Dakota, 27 percent in Kansas, 24 percent in Minnesota, 22 percent in Iowa, 20 percent in Nebraska and Illinois, 13 percent in South Dakota, and 12 percent in Wisconsin. The higher land values were largely driven by high farm profit levels in 2021 and 2022.  

​Record grain prices, high farm profit levels, rapid increases in land values, large capital purchases on the farm, and strong optimism about the future of the farm economy. Sound familiar …… that was the situation in the late 1970’s; however, it also very similar to current farm economic situation in many areas of the United States. Of course, what followed in the 1980’s was the worst agriculture economy in the U.S since the Great Depression of the 1930’s, which resulted to extreme financial and mental stress for a large number of farm families, as well as leading to many forced farm sales and foreclosures. The farm stress of the 1980’s was caused by rapidly rising inflation and farm input costs, reduced commodity prices and poor farm profit levels, greatly reduced land values, and high interest rates, as well as by not adjusting to a changing farm economy. 
 
Following are some factors to consider with today’s farm economy:
·      Nearby soybean futures on the Chicago Board of Trade (CBOT) have traded above $12.00 per bushel since the beginning of 2021 and above $14.00 per bushel for much of 2022, reaching a high of $16.00-$17.00 per bushel in the Spring of 2022. Soybean futures prices were below $9.00 per bushel as recently as the first half of 2020. The last time we had an extended period of high CBOT soybean futures prices of $13 to $16 per bushel was from 2011 through the first half of 2014, reaching a high of $17.68 per bushel in September of 2012. By the end of 2015, soybean futures prices had retreated to below $9.00 per bushel. 
·      Similarly, nearby CBOT corn futures have traded above $6.00 per bushel for most of 2022, which compares to $3.25-$3.50 per bushel in the first half of 2020. Similar to soybeans, the last extended period of strong corn prices was from 2011 through the first half of 2013, when CBOT nearby corn futures price also traded above $6.00 per bushel most of the time, reaching a high of over $8.00 per bushel in the fall of the drought year of 2012. By mid-year of 2014, corn futures prices had dropped below $4.00 per bushel.
·      According to the most recent USDA Economic Research Service (ERS) Farm Income Forecast on December 1, 2022, “net farm income” in the U.S. for 2022 is projected at $160.5 billion, which would be an increase of 12.8 percent or $19.5 billion from the $140.5 billion level in 2021. In the six previous years (2015-2020), the U.S. net farm income was below $100 billion.
·      The last period of very strong net farm income levels in the U.S, occurred from 2011 to 2013. The average annual U.S. net farm income over the past two decades (2002-2021) was $104 billion per year. The very strong U.S. farm income levels in the past two years has been driven by strong commodity prices, improved livestock profitability, and excellent export levels of farm products to China and other countries.
·      According to the latest ERS estimates, total farm expenditures in the U.S. are expected to increase by $69.9 billion or 18.8 percent, as compared to a year earlier, with fertilizer expenses leading the way with at a 47 percent increase year-over-year. The ERS also projects increased input costs for crop chemicals, diesel fuel, repairs, and farm labor, as well as livestock expenses. Farm input costs will likely be even higher in 2023.
·      The U.S. Federal Reserve has increased the prime interest rate to 7 percent in early November, with the potential for another increase before the end of the year, which compares to a rate of 3.25 percent in the first few months of 2022. Farm operators that are paying 4 percent interest for a one-year operating loan in 2022 could likely be paying an interest rate of 8 to 9 percent for 2023. For farmers that rely on short-term credit during the year, this could easily add $15,000 to $25,000 to their farm operating costs in 2023.
·      According to the USDA Land Value Summary Report, released in August of 2022, farmland values in the U.S. in 2022 averaged a record $3,800 per acre, which was an annual increase of 12 percent from mid-year of 2021. The $420 per acre increase nationally from 2021 to 2022 was the largest year-over-year increase ever recorded. The highest annual percentage increases in farmland values from 2021 to 2022 were 25 percent in Kansas, 21 percent in both Iowa and Nebraska, 19 percent in South Dakota, and 17 percent in Minnesota. Land values in many of those areas have continued to increase in recent months.
Many farmers and others in the agriculture industry remain very “bullish” on the future profitability in production agriculture and the overall U.S. agriculture economy. Until recently, it has been hard to find many people talking about a potential downturn in the agriculture economy anytime soon. Usually, when everyone is thinking one direction is when things change, and sometimes those changes can occur quite rapidly. In 1980, following some very robust farm income years, the U.S. Government implemented a grain embargo that caused a rapid decline in grain exports and resulted in much lower grain prices. This rapid drop in grain prices, along with lower farm profits, and much higher interest rates, led to the farm crisis of the 1980’s.
 
While economic conditions in the U.S. today are much different than in the late 1970’s and early 1980’s, there are some “yellow caution flags” to think about with today’s agriculture economy:
·      The cost of production for corn and soybeans, including feed, fertilizer, chemicals, seed, fuel, and other expenses is expected to increase again for 2023 and will be nearly double the cost of production a few years ago. The increased cost of production, combined with the increased land rental rates and higher interest rates means that the break-even price in 2023 for corn production for many farm operators in the Midwest will likely be $5.50 to $6.00 per bushel for corn, and over $12.00 per bushel for soybeans, after being below $4.00 per bushel for corn and below $9.00 per bushel for soybeans as recently as 2020.
·      If the high inflation rates continue into 2023 and beyond, it could impact consumer buying habits for some food items, such as high-end meat and dairy products, which could greatly affect livestock profit margins.
·      There is growing concern regarding the future level on ag exports, given the continuing Russian war in Ukraine, growing U.S. trade tensions with China, and other worldwide political issues.
·      The renewable fuel industry is kind of at a crossroads …… there is optimism surrounding the potential for higher blends of ethanol, increased production of renewable biodiesel, and development of sustainable aviation fuel. On the other hand, the “green energy” movement toward a rapid increase in electric vehicles and less use of traditional fuels could lower future demand for ethanol and traditional soybean diesel.
·      Land values dropped by 40 to 60 percent in many areas during the 1980’s following their peak values in the late 1970’s. More recently, Iowa average farmland values dropped by 16 percent from 2014 to 2018 after the last peak in land values in 2013. Many analysts expect land values to plateau and possibly decline again in the coming years beyond 2023, following the current rapid rise in land values in 2021 and 2022.
·      In 2020, we experienced the serious economic impact that a major human disease pandemic such as COVID can cause on the U.S. and worldwide economy, including the ag economy, How well are we prepare to withstand future pandemics, terrorist attacks, and other factors beyond a farmers control that could impact the financial well-being of individual farm businesses and the overall U.S. ag economy ?
·      During recent events such as COVID, the trade war with China, and natural disasters, the Federal government has provided significant financial aide to farm operators to help offset reduced income. Many analysts wonder if the next Farm Bill and other government programs will offer that continued strong financial “safety net” for farm operators in the future.
         
The overall farm economy is quite strong right now and will likely remain at positive levels into 2023; however, as was pointed out there are some reasons to be concerned about farm profit levels in the future. One of the best hedges for farm operators against reduced farm profits in the coming years is to keep the “current position” (cash available) segment of the farm business strong. It may be better to use current excess cash revenues from the farm operation to pay down short-term farm operating debt, rather than using the cash to purchase expensive land and other capital assets, or for excessive spending for non-farm expenditures. Farmers need to continue to look for ways to optimize production costs and to “fine-tune” grain and livestock marketing plans based on the “cost of production” in their farm operation. Even though we could face “strong headwinds” in the coming years, we do not necessarily need to repeat the ag financial crisis of the 1980’s.

​Many farm operators provide some type of custom work or use of farm machinery to other farmers during the growing season, and payment is usually made following the completion of the harvest season. Sometimes, it can be difficult to arrive a fair custom rate for the certain farming practices, or for the use of various pieces of machinery. This could be the case in a year such as 2022, when the cost of machinery operation for diesel fuel, repairs, and labor have increased substantially from the beginning of the year until year-end.
 
Due to the high cost of investment in farm machinery, an ever-increasing number of farm operators are hiring other farm operators to provide some or all of the needed machinery resources for their farm operation. This is especially true with new and younger farm operators, as well as with children that decide to start farming with their parents. In addition, some land investors are choosing to operate a farm themselves rather than cash renting the land another farm operator, and thus they are hiring a farm operator under a custom farming agreement.
 
One of the best resources for average custom rates is the annual “Iowa Farm Custom Rate Survey” that is coordinated and analyzed by Iowa State University. Each year in January, custom operators and farm managers are sampled regarding the expected farm custom rates for various farm operations. The custom rate summary, which is usually released in late February, lists the average custom rate, as well as a range in custom rates, for various tillage, planting, fertilizer and chemical application, grain harvesting, and forage harvesting functions on the farm. The Iowa Custom Rate Survey, which also includes many miscellaneous farming practices and a formula for calculating rental rates. is probably the most widely used custom rate information that is available in the Upper Midwest. The complete 2022 “Iowa Farm Custom Rate Survey” for all farming practices is available on-line at the following Iowa State University web site: https://www.extension.iastate.edu/agdm/crops/html/a3-10.html
 
The average custom rates for farm operations in most areas of the Upper Midwest tend to be very close to the average Iowa custom rates. All listed custom rates in the Iowa survey results include fuel and labor, unless listed as rental rates or otherwise specified. These average rates are only meant to be a guide for custom rates, as actual custom rates charged may vary depending on increases in fuel costs, availability of custom operators, timeliness, field size, etc. In a year such as 2022 that has featured significant increases in operation costs for farm machinery, it may be justified and necessary to adjust some of those custom rates above the median or average rates.
 
Based on the Iowa State data, average custom rates for tillage, planting, and harvest operations in 2022 were expected to increase by about 7 percent, compared to the rates for similar operations in 2021. The cost for new and used machinery increased rapidly in the past 12 months, which together with increasing fuel costs and higher labor charges, accounts for the increases in 2022 custom rates. It should be noted that many of these factors have continued to increase during 2022, which may result in custom operators increasing their final custom rates to even higher levels by year-end to fully cover the increasing expenses for custom operations. Good communications between the custom operators and farmer are very important in finalizing custom rates. 
 
All listed custom rates in the Iowa Survey results include fuel, labor, repairs, depreciation, insurance, and interest, unless listed as rental rates or otherwise specified. The average price for diesel fuel in the survey was assumed to be $3.33 per gallon; however current prices for diesel fuel are considerably higher than that price. A fuel price increase of $.50 per gallon would cause most custom rates to increase by approximately five percent. These average rates are only meant to be a guide for custom rates, as actual custom rates charged may vary depending on continued increase in fuel costs, availability of custom operators, timeliness, field size, etc. and could be adjusted later in the year due to changes in economic factors.
Custom Farming Agreements
Some farm operators hire custom work for specific farm operations with another farm operator, such as planting or combining, while other operators hire the typical crop field work through a custom farming agreement. The Iowa State Custom Rate Survey includes the average custom farming rates for corn, soybeans, and small grain. Custom farming agreements usually include tillage, planting, some weed control, harvesting, and delivering grain to a specified location. Usually, any other additional or necessary farm practices that are performed during the year are paid outside of the custom farming agreement. Many farm operators negotiate these types of custom farming arrangements in the Spring of the year, while others wait until harvest is completed.
 
Although the concept of a custom farming agreement seems simple, close communication between the custom operator and the landowner is essential to a solid plan. It is recommended that a custom farming agreement include a written contract that specifies the typical cropping practices to be performed and the amount of payment per acre to be paid to the custom operator by the landowner, and all other pertinent details for the custom farming arrangement. The custom farming rates for corn and soybean production were expected to increase by about 1.5 percent compared to a year earlier; however, similar to the other custom rates, larger increases may be justified to cover increased costs of fuel, labor, etc. For more details on custom farming agreements, please refer to the Iowa State University “Ag Decision Maker” Web Site at:  http://www.extension.iastate.edu/agdm/
 
Calculating Farm Machinery Costs
The University of Minnesota periodically releases a publication titled: “Machinery Cost Estimates”, which was last updated in April of 2022. This summary looks at the use-related (operating) cost of farm machinery, as well as the overhead (ownership) costs of the machinery. The use-related expenses include fuel, repairs and maintenance, labor, and depreciation. Overhead costs include interest, insurance, and housing, which are calculated based on pre-set formulas. This publication can help serve as a good guide to help farm operators estimate their “true cost” of farm machinery ownership.
 
The U of M machinery cost publication and other resources available on the costs of farm machinery ownership are available at: https://wlazarus.cfans.umn.edu/william-f-lazarus-farm-machinery-management. Another good resource for estimating the costs of farm machinery ownership is a publication from Iowa State University titled: “Estimating Farm Machinery Costs”, which includes a worksheet to calculate farm machinery costs. This publication is available at: https://www.extension.iastate.edu/agdm/crops/pdf/a3-29.pdf
 
Check Grain Bins
Most corn and soybean producers across the Midwest completed the 2022 harvest season quite early and may now need to pay close attention to grain that is stored in on-farm grain bins for potential storage problems. Due to deferred grain sales and the potential for higher corn and soybean prices in the coming months, a large amount of corn and soybeans is likely being stored on the farm following harvest in 2022. Most of the crop was placed into grain bins at a variety of outside temperatures, some grain at fairly warm temperatures and other grain at much cooler temperatures. This grain temperature difference, along with fluctuations in recent outside temperatures, can result in wide temperature variations in the final grain temperature within grain bins. This can lead to moisture migration in the bin, which could potentially result in significant grain spoilage if the situation is not properly addressed. There have already been reports of grain going out of condition in some areas.
 
Farm operators should run aeration fans periodically to equalize the grain bin temperatures, which will help prevent this situation from occurring. It is also very important to check grain bins on a regular basis for any potential storage issues, and to address those issues promptly. Otherwise, there can be considerable damage to grain that is in storage, which can result in a significant financial loss to the farm operator.