U.S. producers can expect 2023’s high-cost input environment to linger in 2024, according to Mark Welch, professor and Extension economist--grain marketing, Texas A&M AgriLife, College Station.

“It’s unfolded in 2023 and I think it’s going to carry forward into 2024, where we still have a relatively high-cost input environment,” Welch told Farm Press at the 2023 Wheat Symposium held in conjunction with the Amarillo Farm and Ranch Show. “That creates a lot of dollars of investment, a lot of dollars at risk for whatever we're doing in livestock or crops.”

Input costs such as fertilizer continue to trend downward. But Welch fears that the savings won’t compensate for the lower commodity output prices seen over the last couple of years.

“What's driving that is we've seen some significant improvement on the production side around the world in the grain complex, so we’re seeing bigger grain crops relative to what I would call headwinds or factors that are hampering growth on the demand side, the use categories.”

He cites the U.S. corn crop as a good example. “We’ve got challenges with our livestock numbers in the U.S. The U.S. calf crop, the cow size, is not getting larger, so what does that mean for feed use moving forward for the corn complex?

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“Gasoline demand is not coming back to pre-COVID levels. In fact, projections are for lower gasoline demand in ‘24 than we're seeing in ‘23. What does that mean for ethanol? So again, that's limiting some of the growth and those are our two biggest categories for corn: feed and fuel. And there doesn't look like there'll be growth there.”

Grain exports

As for U.S. exports, competition with Brazil is intensifying. “Brazil is expected to be the largest corn exporter in the world in this current market year,” Welch says. “They've done that one other time and that was in 2012, with the big drought, limiting our grain supplies to meet that export market. So, that competition is growing.

“Again, there's some challenges on the use categories, growing to keep up with what the potential is, weather permitting on the supply side, and that's a recipe for lower prices, whether we're talking about corn or wheat.”

Much of the wheat supply is predicated by Russia, the world’s largest wheat exporter, and access to the world wheat market. “If you look at wheat exports out of the Black Sea, combine Ukraine and Russia, our concern in February of 2022 was that that was going to collapse with the invasion, that we wouldn't get grain out of that part of the world. Wheat supplies were going to be limited, if you compare export numbers prior to the invasion.”

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But that hasn’t happened. “In fact, Russia is supplying the cheapest wheat in the world and increasing exports to record levels, offsetting the devastating effects on Ukraine’s agricultural sector. All this maintaining wheat exports out of the Black Sea region at levels prior to the invasion, so that's creating a price depressing effect on the global wheat trade relative to what would be a normal situation,” Welch says.

And the global wheat supply is tightening. “The U.S. could turn that around this year with an El Nino winter, a better wheat crop in the Southern Plains, particularly Kansas, Oklahoma and Texas, where the prospects look better this year. But globally, we haven’t rebuilt those supplies.”

As a result, the wheat market is more reliant on a single factor -- that wheat is coming out of Russia. “That’s a real concern, which creates vulnerability,” Welch says. “It may create opportunity, pricing prospects. But generally speaking, an improvement in supply, relative to what's happening on the demand side, whether that's global economic conditions, as well as other individual factors such as export competition, that’s the real challenge that hit us in 2023 and I don't see that abating in 2024.”

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Saving on input costs

As producers prepare for 2024, Welch says that producers can watch for ways to save on input costs.
First, if possible, book fertilizer when the price lowers. Second, increase input efficiency with soil tests, only purchasing what is needed for the crop, especially following a short crop due to drought.

“Mine leftover resources,” he says. “Feed that crop along and just give it what it needs rather than making a major investment.”

Next, understand who your customers are and add value to your product. “If you look at the futures market, some of those prices don’t look attractive compared to where they’ve been the last two or three years. But yet, for most of us, that futures price isn’t what you’re going to receive. You’re going to get a cash price adjusted, up or down, to some kind of basis, which will be based primarily on the supply and demand conditions in your local market.

“Is there a conversation you can have around your customer? How can you add value to what you’re supplying, whether that’s quality or quantity or timing or just a commitment to do something early?”

For example, December 2024 corn is trading just over $5 a bushel. “That’s not a great price. Many farmers will tell you, ‘That’s below my breakeven. I can’t make money growing corn at $5 a bushel or $4.80.’ And that’s probably right, but that may not be your price. If there’s still a basis possibility of 20 or 30 or 40 or 50 over, having that conversation, can you take some of that price risk off the table? Would you market grain in 2024 at $5.50 a bushel? How does that look? And it gets a different answer for every producer.

“But having those conversations and recognizing those are possibilities, whether we want to take them, that’s fine, but yet to be aware. Then if the markets go higher, we’ll have more grain to sell. If the market goes lower, we’ll be glad we got at least something done at those prices.”

Successful grain production "ifs"

Welch sets up a series of “ifs” for successful production in 2024.

If a wetter spring occurs in 2024, as predicted, and growing conditions for winter and spring-planted crops improve; if producers improve input efficiency, “getting every bushel possible from every acre;” and if producers capture marketing opportunities that work for their farms to reduce price risk, they will have a potential for profitability and sustainability for 2024 and beyond.