Control production costs through mindful input spending
Be ready for a big profit swing for 2023 — to the downside. Early projections show higher costs and lower returns.
In central Illinois, for example, the 2023 return for high-productivity farmland is projected at $25 per acre for a corn-soybean rotation, per University of Illinois crop budgets.
“That is much lower than the return in 2021 when we had a record $413 per acre, and it is also below 2022 returns of $156 per acre,” says Gary Schnitkey, University of Illinois Extension agricultural economist.
Why the big swing? High operating expenses, says Pauline Van Nurden, economist for the Center for Farm Financial Management at the University of Minnesota.
Based on 2023 projections, corn input costs have jumped 44% since 2020, according to data for southern Minnesota farmers in the center’s FINBIN database. For soybeans, input costs have jumped 38%.
BUILD A BUDGET
Higher input costs on the horizon mean you need a realistic budget for next year, says Chris Barron, Iowa farmer and national financial consultant for Ag View Solutions. This will ensure you’re toeing the line between needs and wants for your 2023 input purchases.
To start the budget process, Barron suggests taking these steps:
- Clearly identify your specific crop expenses.
- Assign an annual maximum and/or acceptable expense cost.
- Break those expenses down on a monthly, daily and per-unit cost.
“Once you have your budget, monitor the numbers quarterly,” Barron says. “There will likely be some categories that need tweaking, but the numbers will get better as time goes on. If you measure your budget quarterly and monitor changes, you will become much
better at forecasting expenses in the future. Remember, if you measure it, you can improve it.”
With a comprehensive budget in hand, you can stress test management decisions to see if there are areas where you can reduce costs, Van Nurden says.
“You can’t cut to a point where it will hurt production,” she says. “But you can work with consultants who can help you with these decisions. Remember, incremental changes end up making an important impact on your farm’s profitability.”
