Lower corn, soybean prices to reduce farm income for 2024

DEKALB, Ill. — The prices for corn and soybeans have been grinding downward since the summer of 2022.

“We’ve seen a relatively wild ride over the last couple of years in terms of pricing opportunities,” said Nick Paulson, Gardner Hinderliter professor at the College of Agricultural, Consumer and Environmental Sciences at the University of Illinois.

“There are a lot of similarities between the last three years compared to the ethanol build period where we saw increased demand for corn, that also impacted soybeans, and we also had the expansion in export demand particularly from China for soybeans,” said Paulson during a presentation at the Illinois Farm Economic Summit, hosted by farmdoc and U of I Extension.

“Then we entered into something we’re historically pretty used to seeing, a relatively more stable price environment with lower prices and tighter margins from 2014 to 2019,” Paulson said.

“Coming out of COVID in the summer of 2020, the market started to rally and we saw good prices in 2021, better prices in 2022 with fantastic returns in income,” he said.

“At the end of 2023, we were in the mid-$12 range for beans and mid-$4 range for corn, which are historically high price levels, but much lower than for the 2021 and 2022 crops.”

Looking ahead to new crop bids for delivery of the 2024 crop, prices are in the mid-$4 range for corn and mid to a little higher $11 ranged for soybeans.

“The USDA is expecting, absent widespread drought in the major production regions, a path down to the lower-$4 range for corn, mid-$10 range for soybeans and $6 on wheat for the next two to four marketing years,” Paulson said.

The national yields for corn and soybeans have been somewhat mediocre the last few years, a few bushels below trend, but it has been different in Illinois.

“Illinois has preformed a little above trend and that’s been a bright spot for Illinois farmers,” Paulson said.

With the dry conditions during the early part of the growing season last year, many Illinois farmers expected much lower yields than what they harvested.

“It wasn’t great, but we thought it was going to be a lot worse,” Paulson said. “I think that’s a testament to genetics and also to the excellent soils we have in Illinois.”

Costs to produce the corn and soybean crops have been creeping up over the years, the ag economist said.

“Costs tend to go up faster during periods of higher returns,” he said. “We see that during the ethanol build and export market period from the late 2000s to the early 2010s.”

Then there are periods where costs adjust down slightly or plateau during lower return periods like 2014 to 2019 when there were lower commodity prices.

“With the higher commodity prices the last few years, costs have gone up,” Paulson said.

“We don’t have a lot of historical evidence that farmers can adjust those production costs dramatically year to year,” he said. “Those production costs don’t tend to come down with lower return levels nearly as quickly as they’re able to adjust up in years of higher returns.”

Direct costs, which are inputs for crop production such as fertilizers, pesticides and seed costs, probably have the most volatility, the economist said.

“The direct costs are almost always driven by fertilizer costs,” Paulson said.

“We see large swings of fertilizer costs based on things going on in the world,” he said. “There was a big jump in 2009 coming out of the great recession and another big jump in 2022 driven by what’s going on in Ukraine and Russia.”

For the 2024 crop year, direct costs are predicted to be a little lower.

“That is mainly driven by fertilizer prices that peaked in mid-2022 and have been working down to price levels that are still historically high relative to the last 10 to 20 years, but back to where we were in late 2021,” Paulson said.

“Seed is expected to plateau or increase moderately from 2023 to 2024,” the economist said.

“Pesticides have been one of the largest increases in percentage terms over the last couple of years,” he said. “Crop scientists blame that on increased weed resistance that results in the need for higher application rates and the use of new and more expensive products.”

In addition, Paulson said, when there are $6.50 per bushel corn opportunities, farmers want to protect that crop.

“We’ve seen a lot of fungicide applications before there is evidence of pressures,” he said. “Now that we’re back to the $4 range for corn, we need to think a little more carefully about those applications.”

Power costs are associated with machinery used in a farming operation.

“There are larger increases during the higher return periods driven a lot by the depreciation component when farmers invest returns in good years with improving their machinery,” Paulson said. “The average diesel price exceeded $5 and has now worked back down to the $3 range over the last year and a half.”

Overhead costs of labor and interest are projected to increase for 2024.

“Labor challenges are facing all industries, it’s not an ag specific thing,” Paulson said. “But agriculture has unique, additional challenges and we don’t see any easy solution or short-term change.”

Illinois farmers had profitable years in 2021 and 2022.

“Their net farm income was $400,000 in 2021 and it reached $500,000 in 2022,” Paulson said. “But based on the budget numbers we’re looking at, net farm income will be back below $100,000 per farm in the 2023 and 2024 crop years, similar to where we were from 2014 to 2019.”

As a result, Paulson said, it is really important for farmers to have their machinery sized appropriately for their operation.

“Harvest and tillage field operations are where we see the greatest costs in the power cost category,” he said.

In addition to appropriately sizing machinery, other characteristics of high-performing farm operations include knowing the cost of production and utilizing a marketing plan.

“A marketing plan means being able to identify and take advantage of profitable marketing opportunities that arise throughout the marketing year,” Paulson said. “Having a marketing plan and executing it is key to longer-run success.”