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Why ’22 profits could be a problem in ‘23

My fear is too many will hesitate to market when margins are ‘only’ $100 per acre.

Matt Bennett

December 16, 2022

5 Min Read
2022 money

Editor’s note: Bennett will share marketing insights at the upcoming Farm Futures Ag Finance Boot Camp (Jan. 18) and Business Summit (Jan. 19-20). Learn more and register.

This year will go down as one of the more profitable years for many producers. While the 2022 crop wasn’t a bin-buster for everyone, particularly the western-corn-belt, excellent commodity prices have the vast majority of producers in a good situation.

With prices as high as we’ve seen since the drought of 2012 for both corn and beans, many producers will see 2021 and 2022 as the two best back-to-back years for profitability in their careers.

One of the big problems with such hefty profit margins is how hard it becomes for producers to accept margins that are more meager in scope. The 2022 calendar year was one in which a producer had multiple opportunities to sell at levels we rarely see -- and with a solid crop in many parts of the Corn Belt, gross and net margins were nothing short of amazing.

I’d like to point out just how big some of those margins have been as well as point out how tough the sailing may be as we move into the 2023 crop year.

Numbers add up

For starters, the average national yield at this time is 172.3 bu. per acre. While this type of yield was sub-trend, at an average cash price forecasted by USDA at $6.70 per bu., those with average yields are looking at an average gross income of $1,171 per acre.

While costs to put out the 2022 crop were on average quite high, it’s hard to imagine many producers losing money with a gross income average at this level.

Then there’s a state like Illinois. At 215 bu./ac (USDA yields). At the $6.70 average cash price, that equates to $1,440 per acre gross. If that is the average state yield, just think what some producers saw for a farm average for gross and net income.

Before we move on, I’ll say a solid average net cost per acre for a producer works with was running from $1,000 to $1,050 per acre for the 2022 crop.

Challenges ahead

Now, when looking at the 2023 crop, there are some challenges. With many producers logging $150-$400 and above net profit margins in 2022, will that hamper their ability to effectively market the 2023 crop? With the average cost of production likely to be the highest ever U.S. producers have been faced with, the chances for a pendulum swing on profit margins is ever-so-present.

N, P & K for the average producer in the I-states is likely to run well in excess of $400 per acre for corn while seed, chemicals and fuel all appear to be as high or higher for 2023 than prices paid in 2022.

My fear is too many will hesitate to market when profit margins are ‘only’ $100 per acre, due to how much money was made in 2022.

Being able to distinguish the two years is paramount for those trying to maximize return for both crop years. And part of that is knowing it’s quite unlikely we’ll see two years in a row with such profound profitability.

Take action

So, what is the best course of action for those worried about how this situation could play out? For one thing, locking in inputs without some sort of risk-management for prices is playing a risky game. Considering input prices are again up on the year, most producers are looking at an additional $50-100 per acre or $1,050-1,150 per acre to put the ’23 crop in. This puts break-even prices for many in the $5-$5.25 range.

With Dec23 corn currently sub-$6, it’s imperative to understand just how tight our margins have become. Setting a floor under prices to avoid further profit deterioration is advisable, while locking in enough bushels in the $6 neighborhood to cover high fertilizer costs would also be wise.

Either way, a person needs a flexible strategy that locks in a worst-case scenario.

Given profitability is still on the table for 2023, my hope is producers are willing to consider managing that profit while it’s still there.

I hope everyone has a Merry Christmas and a Happy New Year.   

Feel free to reach out to me or anyone on the AgMarket team. We’d love to hear from you. Also, check out our winter conference that will be held Feb. 5-6.

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About the Author(s)

Matt Bennett

Commodity analyst, AgMarket.Net

Matt is a Windsor, Ill., farmer and former grain elevator owner. He is Channel Seed’s grain marketing consultant and holds a Series 3 brokerage license doing business through AgMarket.Net, Farm Division of JSA. He specializes in formulating risk-management strategies for corn, soybean farmers and livestock producers. A graduate of University of Illinois, Matt and his wife Tiffany live on the family’s centennial farm where they raise their five children.

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