How many times have you built your 2022 crop budget only to scribble through key line items and start over?

Unless you purchased all your inputs six months ago, locked in half your future crop with futures contracts and already know what weather will do to yield, the answer is probably: a lot.

Wild volatility – in both inputs and surging grain prices – reveals a different profit scenario practically every day, let alone every week.

In the past, you may have seen crop budgets as a somewhat academic exercise. But today those budgets could change quickly; staying on top of them can help you make tough decisions. That’s especially true for the many farmers who have yet to obtain needed herbicides or fertilizer this spring.

Our advice: set your budgets and adjust them at least weekly through the summer, especially as Russia’s war against Ukraine impacts world commodity prices and drought threatens some North American cropping regions. If the war quickly ends commodity prices could collapse in a matter of days.

“Most costs are set by planting time unless you add post spraying and fungicide costs later,” notes Purdue Ag Economist Michael Langemeier. “It’s the revenue side that changes. From a marketing standpoint, you should change price and expected yield throughout the growing season. That’s important if you use this information for projected cash flow.”

While costs have clearly gone up significantly, so have crop prices, especially since the Russian-Ukraine war began last week. With higher yield potential it’s a good bet many grain operations will add fungicide costs this summer.

If you want to keep an iron grip on projected cash flow, commit to weekly crop budget updates from now through summer. To help, the University of Minnesota’s Center for Farm Financial Management put together a list of links to 2022 crop budgets from Land Grant Universities across the corn belt. They even include emails for the ag economists who work on these crop budget templates. Just explore those links for budgets that make the most sense for your operation.

Use these online tools as a guide to forecast your own cost and expected revenue projections. Several of these links also include downloadable excel tools so you can customize budgets for your own operation.

All the costs?

Farmers often don’t add in all the costs associated with crop production to get a real-world idea of profit. That includes things like family living and opportunity costs.

“At times farmers are in denial when you consider the returns you get on the assets you own,” says Langemeier. “With the budgets we have put together at Purdue, there are opportunity costs in there so you can get a quick idea of actual returns.

“If you look at cash basis accounting, which most farms do, it’s not too difficult to cover just variable costs. The real benefit of a full-on enterprise budget is first, you get some idea of the opportunity costs of owning machinery, your labor, and owning land - whether the return on those is 1% or more. A crop budget should include a market value for renting the land, the value of using that machinery, and your operator or family labor, to see if all costs are covered.”

Planting decisions

The second important use for a crop budget is planting decisions. In the eastern corn belt farmers are seriously looking at more second year soybeans, a decision not driven by the soy-to-corn ratio, but relative costs, especially nitrogen. In Iowa farmers are probably taking a close look at continuous corn vs. soybeans-after-corn, for the same reason. Continuous corn takes even more nitrogen than rotation corn and that cost has skyrocketed.

“The reason why second year soybeans look good in Indiana is because of the cost difference, not necessarily because of the price difference,” Langemeier says. “Some people are getting sticker shock with corn this year but you have to look at all the costs and relative expected profit.”

Crop budgeting can also help determine if a field or farm is still worth renting, although today’s higher grain prices make that less relevant.  

“With higher returns you rarely need to think about giving up ground, but when margins are tighter, using some kind of enterprise budget is important,” says Langemeier.

One more benefit to crop budgets: From a time and information standpoint, it’s much easier to put together a projected budget than an income statement. That’s because you’re dealing with information you have, such as yield and price. A lot of states have examples available to people at their land grant university.

To complicate matters more, remember the impact weather has on yields. Corn hits a home run when weather is good, but that was last year. With any crop budget, use trend yield -- don’t put in your best number. Soybeans tend to be more resilient when it comes to weather, even with improved corn hybrids these days.

“Sometimes you don’t get the rain you need at pollination but you get those saving rains during pod set in August,” notes Langemeier.