AuthorThe “FOCUS ON AG” column is sent out weekly via e-mail to all interested parties. The column features timely information on farm management, marketing, farm programs, crop insurance, crop and livestock production, and other timely topics. Selected copies of the “FOCUS ON AG” column are also available on “The FARMER” magazine web site at: https://www.farmprogress.com/focus-ag Archives
October 2024
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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.
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