The fall harvest will not begin for weeks but the USDA already forecasts a modest increase in costs of production for the major field crops in 2016, up 1 to 2 percent an acre compared to this year. Costs have been on the rise since the 2008-09 recession but market prices for corn, wheat and soybeans, which hit record highs in 2012, are forecast to be markedly lower for years to come.
Writing at the Agricultural Economic Insights blog, Brent Gloy says costs of production will be higher in some regions than the USDA’s figures, which are national averages, and some components of production costs may decline before the new year. “Regardless, we believe that 2016 will likely be another year where cost control will take center stage in the decision-making process. It will also likely continue to put downward pressure on fixed asset values including land and equipment values,” says Gloy. The farm sector is in strong financial condition but “there is a continuing need to reduce costs to restore profitability,” he says. “In our view, this need will probably not go away any time soon.”
The USDA’s forecasts suggest that growers need to make $4.11 a bushel on corn, $10.65 a bushel on soybeans and $6.50 a bushel on wheat to break even on production costs, says Gloy. However, commodity prices for 2016 are projected lower than that. Corn would lose the smallest amount, whether figured on a per-bushel or per-acre basis. Under that analysis, corn will be a more attractive crop next year than soybeans or wheat. “If so, this will likely have the effect of keeping some of the variable costs such as fertilizer firm in 2016,” wrote Gloy. Farmers spend nearly $100 an acre more for fertilizer on corn than on the other two crops.
Economist Gary Schnitkey of U-Illinois says “relatively large cost cuts need to occur” before corn and soybean growers can turn a small profit per-acre in 2016. As an example, he said growers might make $34 an acre on corn and $3 on soybeans if they cut their costs by $100 an acre. “These are very large cost reductions,” amounting to 12 percent of production costs on corn and 17 percent on soybeans, Schnitkey writes at farmdoc daily. “However, profitability in 2016 likely depends on making these cost cuts.”
Like Gloy, Schnitkey says there must be a general emphasis on cost control. There are many opportunities for cuts, he said, listing land rental rates, seeds, fertilizer and machinery purchases as examples.
Crop and livestock producers rang up $397.6 billion in farm production expenditures in 2014, up 8.3 percent from 2013 and the largest increase since 2008, according to the annual Farm Production Expenditures report. Crop farms spent $202.2 billion, down 2 percent, while livestock farm spending zoomed by nearly 22 percent, to 195.4 billion. “Total farm expenditure average per farm is $191,500 compared with $175,270 in 2013, up 9.3 percent,” said the USDA.