Rising input prices mean it’s time to adjust harvest budgets
Crop prices were higher in 2021. Operating costs and input costs also increased. As decisions are made for the remainder of the crop year and gears up for 2022, it’s important to keep abreast of production costs and break-even estimates.
One of the best ways to do this is to use business budgeting, which is essential for making the best management choices such as input selection, production considerations, capital purchases (machinery and land) and marketing plans.
As crop prices and projected incomes rise rapidly, some may not be concerned with the cost of things, believing that a high enough price would more than offset the higher production costs. Caution should be exercised, however, as crop prices are often quite volatile and it is difficult to predict if and how much income could decline.
We cannot always count on higher revenues from grain sales to offset the higher costs. If costs rise rapidly but take longer to fall, this can be dangerous in an environment characterized by high volatility in grain prices.
When fuel prices were studied for the University of Nebraska-Lincoln’s 2021 crop budgets, the price of diesel delivered to the farm in October was $ 1.50 per gallon. In May, the price of diesel rose 60% to $ 2.40 per gallon (500 or more untaxed gallons).
Fertilizers and chemical inputs often follow increases in fuel and oil prices. Since the creation of the 2021 harvest budgets, the prices of fertilizer products have increased from 33% to 73%. The price increases for pesticides for crops ranged from 25% to 66% higher.
Using research-based production information and available resource tools can help producers know when and how much product to purchase for maximum yield, which is particularly critical as material costs grow. culture increase.
To demonstrate the effect of these recent increases on operating and material expenses for fuel, fertilizers and pesticides for crops, comparisons of production costs from fall 2020 to spring 2021 were calculated for five farm businesses. academics.
Comparison examples include statewide dry corn, statewide diesel pivot irrigated corn, dry soybean and diesel pivot irrigated soybean budget, and budget irrigated wheat. The price changes made in all five budgets include an increase to the price of a gallon of diesel to $ 2.40.
Fertilizer costs have been increased by 60%, and pesticide costs have also been adjusted by 30% higher. Changes in total operating costs per acre and total economic costs per acre are compared in the bar chart (Table 1), showing both before expenses are adjusted upward and after adjustments.
The most significant change in operating costs and total costs per acre shown in the graph is in the diesel pivot irrigation corn budget, adding $ 87.78 to operating costs per acre and $ 79.07 to costs. economic totals per acre.
The significant increase in the cost of diesel had the greatest effect on irrigated budgets, with an increase of almost $ 40 per acre in total economic costs on irrigated soybeans and an increase of almost $ 67 per acre on the budget. irrigated wheat. On corn and wheat, the 60% increase in fertilizer products used in these cropping systems contributed more significantly to the cost increases relative to the budgets of the soybean companies.
As crop prices improve, there is often more optimism for profitability; therefore, producers could consider making investments and upgrading machinery and equipment as needed. Using the same five sample corporate budgets, equipment upgrades were performed on the mid-size tractor and combine used in the company’s field operations.
A total of $ 250,000 was added to the machinery investment ($ 100,000 on trade-in for a newer tractor and $ 150,000 more on a combine). Across all five budgets, the additional capital investment in machinery and equipment added about $ 21 per acre to the total cost, with nearly $ 18 of that total coming from the additional depreciation expense per acre.
Increased costs per bushel
Overall, with increases in the company’s budget for fuel, fertilizer and pesticide costs, and then adding the new investment in machinery and equipment, increases in total economic costs per unit ( bushels) for each company ranged from 40 cents per bushel cents per bushel on irrigated wheat as shown in Table 2.
There are many other potential farm business budget changes that could and should be considered. However, due to the space allocated, the examples used and described in this article are limited. As we all know, production and income projections can easily change. Additional expenses such as seed costs, repairs, labor, interest, insurance, custom services, electricity, drying, trucking and land costs can affect the cost of results of production.
UNL worked on ways to make it easier to update and customize corporate budgets with the Farm Budgeting program. This schedule was used to make cost scenario changes for all five budgets. This program allows you to consider budget changes and comparisons and is very useful for performing “what-ifs” for various businesses, or fields, on all types of farms.
All 2021 University Harvest Budgets are available in the ABC program so users can download and work from these base budgets or create their own corporate budgets in the system from scratch. Since the ABC program is available online, users can view their budgets when they are “on the go” and update their costs and projections as needed, like those pictured for the 2021 season.
In addition to regular expenses for materials and services, the costs of machinery and equipment for a farm or ranch can be included in the program, giving producers a clearer estimate of operating costs on the farm. field. Learn more about the ABC program and register at the program link at farm.unl.edu/abc.
McClure is a Nebraska Extension educator and farm and ranch management analyst.