High commodity prices, excellent yields, and large ad hoc government programs have contributed to higher farm income levels for the 2020 to 2022 crop years. However, production costs have also increased substantially leading to potential concerns over profitability in 2023 and 2024 if commodity prices decline while costs remain at current levels or have further increases.
This article provides growth rates of direct costs – fertilizer, pesticides, and seed – from 2000 to 2022 using data from Illinois Farm Business Farm Management (FBFM) for corn production on high productivity farmland in central Illinois. This article builds on a previous article documenting cost changes from 1990 to 2015 (farmdoc daily July 12, 2016).
Costs tend to adjust upward with rising corn prices and corn revenue. However, cost adjustments have been more muted than price and revenue increases, and typically occur with a 1 to 2 year lag. Thus, expectations for continued cost increases for 2023 and into 2024 should be expected even if, as market expectations suggest, prices and revenues level off or decline relative to the high levels experienced over the most recent crop years.
Changes in Production Costs over Time
Table 1 reports per acre costs for fertilizer, pesticides, and seed on high-productivity farmland in central Illinois since 2000. Also included in table 1 are actual corn yields and prices received in the region over the same timeframe. Corn prices increased significantly from the mid-2000s through 2012, then declined to lower levels through 2019 before increasing again over the three most recent crop years.
Unsurprisingly, history shows that input costs adjust to market conditions. Since 2000, fertilizer, pesticide, and seed costs have increased, on average, at roughly the same rate as corn revenues per acre – about 6 to 7% annually. Costs tend to increase more rapidly during periods of elevated prices, and can level off or decline during extended periods of lower prices. However, downward cost adjustments tend to occur with a 1- to 2-year lag relative to prices and revenues.
Market based indicators suggest commodity prices will likely be lower for the 2023 and 2024 crop years relative to levels in 2021 and 2022. Costs will likely continue to increase in 2023 and even into 2024 given the historical lag in adjustment timing. Producers should be aware and consider this as they finalize remaining input and marketing decisions for the 2023 crop and look ahead to those decisions for 2024.
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