Higher Costs, Lower Prices Lead to Lower Farm Earnings
Published: Friday, September 27, 2024
The following is from Bradley Zwilling, a agricultural economist at the University of Illinois.
Based on Illinois Farm Business Farm Management Assn. records, average farm operator returns for labor and management on 2,013 Illinois farms was much lower for all geographic areas in the state in 2023 compared to 2022 and below the average for the last five years. Higher costs, along with lower grain prices were the main reasons for the lower incomes. Livestock farmers were also much lower.
Farm earnings were highest in the central and east central areas of the state. Earnings were lowest in the far southern part of the state.
The average return to the operator's labor and management income in 2023 was negative $77,131. This figure can be thought of as the farmer's "wage" or "salary". This is what remains from the operator's net farm income after a fair return to the operator's equity in machinery and land has been subtracted. The 2023 returns were $489,228 below the 2022 average of $412,097 and $259,449 below the average for the last five years. Operator's labor and management income ranged from about negative $202,000 in the most southern part of Illinois to over negative $18,000 in the most central part of Illinois.
The 2023 earnings are the lowest for any year during the last 10-years. Labor and management incomes have varied greatly during the last 10-years, ranging from a low of negative $77,131 in 2023 to the high of $412,097 in 2022.
While the 2023 labor and management earnings are at low levels, one needs to remember that farm earnings, like earnings for many other businesses, can be cyclical in nature and have wide swings from year to year. Farm earnings are dependent on several factors outside the farmer's control, such as weather, markets and government policy.
From that standpoint, it may be helpful to look at farm earnings over a longer period. The 2019 through 2023 five-year average of labor and management earnings was $182,318 while the 2014 through 2023 ten-year average of labor and management earnings was $97,616, $174,747 above the 2023 earnings.
If you remove the two highest values on record that occurred in the last ten years (2021 and 2022) from the latest 10-year average, that eight-year average is only $23,707. The 2023 level of earnings is considerably below the last five and 10-year averages.
Corn yields were slightly below the relatively good yields recorded the year before. Corn yields were 4 bushels per acre lower in 2023 compared to yields recorded in 2022. Soybean yields were 2 bushels per acre higher than in 2022. The average corn yield on the 2,013 farms was 223 bushels per acre. Soybean yields averaged 68 bushels per acre.
Corn yields were generally highest in the central parts of the state. Soybean yields were the highest in the east and central parts of the state along the I-74 corridor. The average corn yield was the second highest on record and the average soybean yield was tied with 2018 for the highest year. Year-end inventory price for the 2023 corn crop of $4.40 per bushel was $2.10 per bushel lower than a year earlier.
Soybeans were inventoried at $12.75 per bushel, $2 lower than Dec. 31, 2022. The average sales price received for the 2022 corn and soybean crop sold in 2023 was below their inventory prices. Crop returns averaged $975 per tillable acre, $319 per acre lower than the 2022 crop returns. The average crop returns per acre were the fourth highest in recent history.
Wages earned by farm operators were highest on grain farms followed by dairy, hog and beef farms. Returns to operator's labor and management averaged $14,742 on grain farms, $8,334 on dairy farms, negative $31,518 on hog farms and negative $33,662 on beef farms.
Farms classified as grain farms were 92% of all farms while hog farms comprise 1% of the total. Livestock farms many times also include returns from grain production as well. Thus, most livestock farms had lower returns than grain farms due to having lower returns from grain and livestock on those farms.
The average size of these farms continues to grow, averaging 1,349 tillable acres in 2023. This was 38 acres larger than the previous year and 108 acres larger than five years ago. Farms classified as grain farms averaged 1,4000 tillable acres compared to dairy farms, which averaged 452 tillable acres.
Per acre fertilizer, pesticides and seed costs were higher compared to the year before and five years earlier, except for pesticides which did not have much change from 2022. Crop costs on the 2,013 farms averaged $392.78 per acre in 2023 compared to $355.31 in 2022. Fertilizer increased 17%, pesticides were similar, and seed increased 10%. Tillable acres planted to corn increased by .9% while acres planted to soybeans decreased by 1.6% when compared to 2022. Compared to 2019, fertilizer costs have increased 97%, pesticides have increased 72% and seed has increased 18%. Fuel and oil costs averaged $30.82 in 2023 compared to $34.39 in 2022 and $20.77 in 2019. Most of these costs are expected to stay about the same or increase slightly for 2024 and 2025, except for fuel and fertilizer costs.
Spending on machinery and equipment was higher than the year before. Expenditures increased 18 percent in 2023 compared to 2022, averaging $327,874 per farm or $243 per tillable acre. Machinery purchases in 2022 averaged $212 per tillable acre while 2021 averaged $175 per tillable acre.
Total economic costs per acre to produce corn and soybeans in 2023 increased as compared to 2022 in all areas of the state. The main factors for the increase in per acre costs were due to higher fertilizer, machinery depreciation, non-land interest charge, and land costs.
Cost per bushel to produce corn increased in all areas of the state due to much higher costs compared to 2022. The cost per bushel to raise soybeans increased in all areas of the state. Total economic costs per acre to raise corn and soybeans on these farms averaged $1,303 and $929 respectively.
From a sample of pure grain farms in the state, the total economic costs per bushel of corn produced were $5.82 with an average yield of 224 bushels per acre. The total costs per bushel of soybeans were $13.46 with an average yield of 69 bushels per acre. This compared with costs per bushel of $5.13 and $12.43 for corn and soybeans respectively in 2022. Even with the high yield, this was the second highest cost per bushel to grow corn since 2012.
The 2023 cost to grow soybeans per bushel was $2.02 higher than the last five-year average and $2.65 higher than the 10-year average. This was the highest cost per bushel on record for soybeans.
The variation in yields and costs over the past few years makes it important to analyze these costs over more than one year. The 2014-23 ten-year average to produce corn and soybeans on these farms is $4.51 per bushel for corn and $10.81 per bushel for soybeans.
Livestock Returns
Returns above feed cost were lower than the year before for all livestock enterprises except feeder cattle and beef enterprises. Also, except for hogs and feeder pigs, returns above feed costs in 2023 were above the last five-year average. All livestock enterprises experienced lower feed costs in 2023 compared to 2022 besides feeder cattle.
Much lower pork prices were the main factor for the lower hog returns. Returns for farrow-to-finish hog producers were estimated to be about $12 per hundredweight below the breakeven level in covering total economic costs in 2023.
Dairy producers experienced lower returns due to lower milk prices, $2,767 returns above feed per cow in 2023 compared to $3,407 in 2022. Milk prices were 22% lower while feed costs were 15% lower compared to the year before.
Returns to feeder cattle enterprises were higher than the year before and the highest in the last five years. Returns were higher due to higher prices received for market cattle. Prices paid in 2023 for replacement cattle were 28% above the year before.
Cattle prices received were about $49 per hundredweight lower than prices paid for replacement cattle, but 18% higher market price last year. Returns above feed per cow increased $412 for beef cow enterprises due to higher prices received. Returns were the highest during the last five years.
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