Ask a farmer what their profit levels from crop farming were in 2023, and the answers can range from “much better than anticipated” to “pretty good” to “acceptable” to “right down terrible.” Any of those answers could be correct, depending on where the farmer is located and how the 2023 drought affected crop production in the area.
The other big factor in farm profitability in 2023 was where farmers were positioned in the volatile grain markets during the year, as well as the type and level of crop insurance coverage that was in place on the 2023 crop.
Following is a brief overview of how some of these major factors will likely affect final farm profitability in 2023.
2023 crop yields
Mother Nature was not kind to producers in some portions of the Upper Midwest that limited rainfall during much of the growing season and experienced serious drought conditions. The hardest hit areas were Missouri, Kansas, portions of southeast Minnesota, northeast Iowa and southern Wisconsin, as well as parts of western Iowa and Minnesota and adjoining areas of Nebraska and South Dakota.
The drought in these areas resulted in corn and soybean yields that were 20-30 percent or more below APH yields. The drought also resulted in very low hay and pasture production, which created some hardship for some beef cow/calf producers in the region. There were also severe storms in some areas with strong winds and hail that damaged crops and resulted in reduced crop yields in some locations.
Many crop farmers in other portions of the Upper Midwest would categorize 2023 crop yields as “better than expected.” Following fairly favorable planting and early season growing conditions for both corn and soybeans in many areas, weather conditions turned very warm and dry from late May through mid July.
In some areas, it remained quite dry until mid-August, with the exception of a few timely rains in July. Many portions of this region only received 50-75 percent of the normal growing season precipitation from May 1 through Sept. 30, and much of that came after mid-August. However, the combination of fairly good planting conditions, limited drown-out loss, some timely rainfall, and above-normal growing degree units resulted in corn and soybean yields that were near average in many portions of the region.
Given the very dry conditions in many locations for most of the growing season, 2023 was also a very good testament for the advancements in crop seed genetics that have occurred in recent decades.
On the other hand, many growers in Illinois, Indiana, and the eastern Corn Belt, along with portions of south central Minnesota, and north central Iowa had above average crop yields in 2023. These areas benefited from all of the factors described earlier as far as early planting, no crop loss from heavy rains, and above-normal growing degree units, as well as also receiving more total precipitation and more uniform rainfall during the growing season than in some other portions of the region.
The combination of excellent corn and soybean yields, together with some opportunities for favorable crop prices, resulted in very good profit margins for many crop producers in these areas.
Grain marketing decisions
Many farmers often choose to store some of their grain and market it incrementally during the first half of the following year.
There was a big difference in the timing of post-harvest marketing decisions following the 2022 crop year. Local cash corn prices in southern Minnesota were slightly above $6.70 per bushel with a positive local basis during January and February of 2023. By June, the local cash corn price had dropped below $6.00 per bushel, and by September the cash price was below $5.00 per bushel. The timing of corn sales can have a major impact on final profit levels for crop producers.
If two farmers both had a final 2022 corn yield of 200 bushels per acre, the farmer that sold their corn for $6.50 per bushel grossed $1,300 per acre, while the farmer that had an average price of $4.50 per bushel grossed $900 per acre, which is a difference of $400 per acre. The difference in post-harvest grain marketing strategies for the 2022 crop will likely be a factor in the variation of 2023 profit levels.
The “new crop” 2023 corn prices in the Upper Midwest did not offer the same opportunities as the cash corn prices that were available for the 2022 corn in storage. The 2023 “new crop” corn prices in southern Minnesota started the year near $5.50 per bushel and after February spent much of the year below $5.00 per bushel.
Many crop producers likely had breakeven costs of $5.00-$5.50 per bushel for 2023 at average corn yields on cash-rented land. As a result, many farmers did not “lock in” a forward price on a significant portion of their 2023 corn crop and are hoping for some post-harvest rallies in the market.
Due to much higher interest rates than in recent years, storing grain in 2023-24 is more costly than a few years ago.
The 2023 “new crop” soybean price in the region started the year above $13.00 per bushel before dipping to near $11.00 per bushel in May and then rebounding to above $13.00 per bushel on several occasions during the last half of 2023. This has provided some very good pricing opportunities for the 2023 soybean crop, as the market prices are above the cost of production for most producers.
The local cash price in southern Minnesota for 2022 soybeans in storage was $14.00 to $15.00 per bushel in 2023 from January through April and stayed above $13.00 per bushel until late summer, which also offered some favorable post-harvest marketing opportunities for the 2022 soybean crop that was marketed in 2023.
2023 crop insurance coverage
The crop insurance fall harvest prices for corn and soybeans were well below the spring base price levels. This meant that farmers with 85 percent or higher insurance coverage on corn could start collecting 2023 crop insurance indemnity payments at yield levels very near their average (APH) farm yields for corn and slightly below APH yields for soybeans. The level and type of crop insurance coverage that a producer carried for the 2023 crop year will impact farm profitability, especially in the areas that had greatly reduced crop yields for the year.
Corn and soybean producers had the option of selecting revenue protection (RP) crop insurance policies ranging from 60 percent to 95 percent coverage levels, which can result in some producers receiving large crop insurance indemnity payments and others receiving very little or no indemnity payments at the same APH yield and final yields.
The 2023 final harvest price for corn was $4.88 per bushel, compared to the Spring base price of $5.91 per bushel. If two farmers both had a 200-bushel-per-acre APH yield and a 180-bushel-per-acre actual 2023 corn yield, a farmer with an 85-percent RP policy would receive an indemnity payment of approximately $126 per acre, while a farmer with a 75 percent RP policy would receive only $8 per acre.
Corn and soybean producers also had the option of utilizing “enterprise units” or “optional units” for their 2023 crop insurance coverage.
Enterprise units usually have a lower premium cost for the same coverage level and combine all acres of a crop in a given county into one crop insurance unit.
By comparison, optional units allow producers to ensure crops separately in each township section, which can be a big advantage in a year with variable yields, such as 2023. Some farm operators also carry special wind or hail insurance coverage, which may have been beneficial in various locations in 2023.
Bottom line
Corn and soybean producers with average or above-average yields will likely have a fairly profitable year in 2023, depending on their grain marketing decisions.
Producers with below-average to very low crop yields in 2023 will likely have reduced profit margins to disastrous profit levels for the year, depending on their crop insurance coverage and grain marketing decisions.
Farm operators that are facing serious year-end cash flow shortages are encouraged to consult their farm management advisers and ag lenders sooner than later to look at ways to address the situation.
Farmers that had a very good profit year in 2023 will want to consult their tax adviser before year-end to review any tax management strategies.
Farmers that will receive large crop insurance indemnity payments for the 2023 crop year should be aware of tax implications and potential audits related to those payments.
For additional information contact Kent Thiesse, Farm Manage-ment Analyst and Sr. Vice President, MinnStar Bank, Lake Crystal, MN. Phone: 507-381-7960. Email kent.thiesse@minnstarbank.com) Website http://www.minnstarbank.com/