About This Episode
No guest this week. Chris reads out what the aggregated Profit Manager numbers say about 2022. Against average yields of 208 bushels of corn and 62 bushels of soybeans, cost of production lands at 4.83 on corn and 11.33 on beans, with wheat near 6.71 and far more spread around it. Those costs are up 96 cents a bushel on corn and 1.33 on soybeans from a year ago. Even so, corn pencils from breakeven to a 27 percent return and soybeans from 5 to 28 percent.
The line items behind that: nitrogen up 141.5 percent for corn and wheat, with individual farms anywhere from double to nearly triple last year. Fertilizer averages a 46 percent increase, about 17 dollars an acre on corn and 18 on soybeans, held down only because many bought early. Herbicides run 18.5 percent higher, though availability is the sharper problem, with producers writing checks for product that is not in the building yet. Crop insurance premiums are projected up 19 percent, roughly 6 dollars an acre at the same coverage.
Return to management is the category covering what the farm pays for outside the field: fuel, electricity, health care, owner draws. It went from 63.19 an acre last year to 76.90 this year, a 22 percent jump that adds about 7 cents a bushel on corn and 22 cents on soybeans. Their real inflation read is 17 to 18 percent. Selling averages near 30 percent across crops, with some at nothing and some at 50. Rotation has barely moved, though a few fields may swing back to beans after the rally.
“When we make more money, we have a tendency to spend a little bit more money. That's kind of human nature.”
— Chris Barron
Key Takeaways
2022 cost of production in their aggregate: 4.83 a bushel on 208 bushel corn, 11.33 on 62 bushel soybeans, about 6.71 on wheat with much wider variation.
Costs are up 96 cents a bushel on corn and 1.33 on soybeans from last year, so the working capital needed to plant is materially larger.
Nitrogen is the single biggest jump at 141.5 percent for corn and wheat. Fertilizer averages 46 percent, herbicides 18.5 percent, crop insurance a projected 19 percent.
Herbicide availability is the bigger problem than herbicide price. Checks are being written for product that has not arrived.
Put your own overhead in the budget. Return to management came in at 76.90 an acre against 63.19 last year, which is 7 cents a bushel on corn and 22 cents on beans.
Even with those costs, corn pencils from breakeven to 27 percent and soybeans from 5 to 28 percent, while average selling sits near 30 percent.
Full Transcript
Narrator: Thank you for listening to the Weekly Market Outlook. It is our pleasure to bring an industry-leading market analyst to provide you with the most value possible in your farm business. Please reach out anytime by emailing cbarron@agviewsolutions.com.
Chris: Welcome to another episode of the Ag View Pitch. We're heading into a new marketing week, February 7th through the 11th. You've got Chris Barron here, and we're going to take a little bit of a different approach this week. Typically I have a guest on here and we discuss the markets and give some perspective and kind kind of an outlook of what we're seeing in the next week and, and maybe a month or two ahead. And what I wanted to do today is spend a little time just kind of talking about the cost of production side of things and give everybody a little perspective on some of the things we're seeing as we've got some numbers aggregated. So we'll get into that in just a minute. But what I also want to do is I want to thank everybody that attended the Ag View Executive Business Conference. We had a phenomenal event. The networking was great.
We just really enjoyed all of the participants that were The speakers were excellent. And I just want to again, thank everybody that attended, that's listening here. Thank you for being there and plan again for next year. And if you couldn't make it to the 2022 Ag View Executive Business Conference, I want to give you a save the date. We have already officially decided we are going to have another Executive Business Conference next year. We don't exactly have the location identified yet for sure, but we do have the date. So go ahead and mark your calendars for January 2023. The 25th, 26th, and 27th of January will be next year's Ag View Executive Business Conference. We're excited to put that on. We already— Alyssa's already doing a lot of the planning. She did a phenomenal job putting the conference together this last year and— or this year.
And so just look forward to planning that for next year and just make sure you guys all get that on your calendar. So with that said, let's get into some of the stuff I kind of want to talk about here today. So bear with me a little bit if I jump around. I've got a lot of numbers here and I just want to get a little bit of perspective out there, some of the things that we're seeing as it relates to the corn and soybeans in particular. And I do have a little bit of numbers, some numbers on the wheat too. We just don't have as much information to aggregate on the wheat, so I'm a little hesitant to give a lot of wheat numbers out, but I'll give a little perspective there as well. So Basically what we're seeing is what a lot of you already know, is we're seeing some pretty intensive inflation.
And so we'll get into some of the individual line items in a minute, but what I want to do to start with is just kind of give you some perspective on cost of production as we go into 2022. And what we are seeing, our average yield on soybeans— we'll start with soybeans— that our clients in our aggregate are expecting is 62. So if you're listening to this and you're in an area where yields significantly lower than that, or an area where yields significantly higher than that. That's just our average. And so again, just for some perspective, that's kind of what we're seeing on soybeans. And on corn, it's at 208. Now the reason I, I say those yields is because, you know, we want to say, okay, what's, what's the cost of production at those yield levels based on the, the, uh, you know, the expenses that everybody has in as they're looking at 2022.
And so what we see on soybeans is a cost of production right at $11.33 a bushel, $11.33 per bushel on soybeans. It's kind of where we're at on corn right now. We are at $4.83 cost of production for corn at $4.83 with those yields I just talked about. And then the wheat's kind of all over the board. We see more variability in wheat from the north to the south and different regions of the country., you know, in the Corn Belt we see some higher yields and then we maybe do in some other areas, but we're looking at a cost of production on the wheat right around $6.71. And again, there's a lot of more range in there. I don't have as many numbers, but that's kind of what we're seeing on, on the wheat. And then when you start looking at, okay, well, with these costs where they're at, what's that look like for profitability?
And, and as you think about crop rotation and that kind of thing, what's that look like? And so We're seeing a profit range in soybeans anywhere from about 5% to about 28%. Now again, I know the markets, we've seen some, you know, here recently, last couple weeks, we've seen some pretty intensive price strength on the commodity side of things. And so we see variability of where people are sold kind of all over the board, you know, people that have virtually nothing sold yet. And then we've got some clients that are pushing 50% sold across all of their commodities.. And, uh, in, in that sold category, I would say that's also kind of protecting the downside. So some of that's done with option strategies, and some of that's done with HTAs, some of it's done with futures.
So we see a mix of a lot of things, but I would say, you know, the average sold on the, on, on each of the crops is pretty similar. We see, we see the corn, soybeans, and wheat somewhere in that 30% sold pretty much on average. Again, those aren't statistical numbers, it's just again our perspective on kind of what we're seeing and where a lot of the producers are at right now. On corn, what we're seeing for profitability is a range from about breakeven on the low end to as much as about a 27% return on investment. So where these commodity prices are at right now, one of the perspectives I would throw out there is that if we just plug in, if you're one of those producers that, that's been patient enough to not make any sales till now, and you look at where these price opportunities are at, the margin opportunity is pretty darn strong.
I, I can't say that I've seen this in my career of working with producers and analyzing cost production. And again, we don't give marketing advice, but when we really dial these numbers in, I think it's important to, to really pay super close attention to kind of where that, that opportunity is at as you manage your, your margins. And a little perspective too real quick, and then I'll get into some of these line item expenses that we're seeing. But on the soybean side of things, we're seeing a cost of production increase of about $1.33 a bushel over last year's cost of production. And with corn, it's about $0.96 a bushel. And I don't have a good number on wheat there, so I apologize for the wheat producers listening here. But you, as you know, the cost significantly higher than last year on wheat as well.
And so The, the point being there though is, is we visit with a lot of bankers and we're doing a lot of loan renewals, a lot of year-end meetings and planning for 2022. And the amount of working capital that's going to be required going into this next year is a pretty big number. So I would just encourage you, if you're not using our, our crop rotation tool, be sure to reach out to Shay, and we can send this tool to you if you guys want to, want to crunch some numbers. And, and I know a lot of you have Profit Manager or some other tool that you use to manage your cost of production. This tool is kind of handy because you can, you can plug your numbers in and see what your cost of production increase is on each of the line items. And so we'll get into that here now for a minute.
Basically what we see, and I'm gonna, I'm gonna read these off real quick, the categories that we look at are return to management, land, taxes, interest, insurance, seed, fertilizer, nitrogen, herbicides, your fungicide and insecticides, equipment, grain handling, and then any drying expense if it's corn, and also storage. So those are the primary items that we look at. So I'm going to give you some of what we call the honorable mentions. Unfortunately, it's it's not necessarily good news, and it's, and it's just probably going to confirm what you may already know. But again, for some perspective on what we're seeing here, it's been kind of interesting. The return to management category, for those of you that already use Profit Manager and know our philosophy, there is part of the cost of production is paying yourself.
So when we look at that return to management category, that's all everything that's in your budget that your farm's paying for. So for example, your your electrical, your, you know, fuel in your vehicles that you use, you know, maybe even personally. It'd be your owner draws, maybe healthcare costs, those kind of overhead expenses. And what we saw last year on a per acre basis, and this is across all crops—corn, soybeans, wheat, cotton, you name it—was an average of $63.19 an acre. And so this year, where we're at right now, as we've got numbers aggregated with with our profit managers to date, we're looking at $76.90 an acre. So that's, that's a 20— basically it's about a 22% increase. And what we see on the budget and what we've been observing is just that that cost of doing business is going up for a couple of reasons.
When we make more money, we have a tendency to spend a little bit more money. That's kind of human nature. And then the other side of that is, is the inflation. Now, what the government reports and what we see is probably a little different. We're seeing, you know, some real inflation numbers that are coming in closer to that, probably right around 17-18% is, is kind of the real number that we're coming up with, give or take a percentage. But that's just the real number we're seeing. And so, um, just again, for a little perspective there on corn, that's, that's an extra well, on all crops, it's an extra $13.71 an acre. So if you drill that down to a cost per bushel, just that overhead cost on corn is about 7 cents a bushel more, and on soybeans it's about 22 cents a bushel more, and on wheat it's going to be a similar number to soybeans. It might be just a little bit smaller.
It's probably going to be somewhere around that 18, 19 cents per bushel of the wheat. So it's So just again, you know, these are just some numbers and some perspective I'm giving you from what we're seeing on average. And again, if you don't have this tool, I'd recommend you get it and plug some numbers in to kind of see where you're at, because it'll help you understand what you're going to need for that additional working capital in this next year. So a couple of the other honorable mentions I want to hit on real quick here before we wrap up is crop insurance. We're seeing a projection of about a 19% increase in the crop insurance premiums. We don't know that yet for corn and soybeans.
Obviously wheat's taken care of for the most part, but as far as the insurance goes, that 19% increase is about a $6 an acre increase if that's— if the person were to basically by the same level of coverage as last year. And again, that's a projection, so don't hold us to that one as an absolute yet because, you know, we got to get through the month of February here and, and see what the volatility part of the equation does here at the end of the month as well. So we'll have a little better, better handle on that towards the end of the month, and we can touch base with everybody on that. A couple of other honorable mentions that really stick out are fertilizer nitrogen and and herbicides. And so I'll start with fertilizer. What we're seeing there is about a 46% increase on average.
Now I know there's people out there that, you know, they're, they're staring at 100% increase over last year, maybe even more. Again, we're at a 46% just because a lot of people put a fair amount of fertilizer on early, and so that's just where we're at. But that, even at that though, you know, that's a $17 an acre increase that we're seeing on corn, and it's about an $18 increase we're seeing on soybeans. So, you know, it's, it's not like it's a small number, it's a pretty big number there as well. As far as nitrogen goes, that's really the big kicker. And again, probably not telling you all something you don't already know, but it's, it's a, it's a big one. We're right now, we're still at that 141.5% higher in nitrogen for, for both the corn and the wheat.
And again, you know, some of you I know put a lot of nitrogen on last fall, and also in the wheat country, I know there was a fair amount of nitrogen that went on there as well, in certain areas anyway. And so, you know, we're seeing as much as a 100%, you know, 100% increase, and we're seeing as much as, you know, approaching almost 200% in some areas. And this is going to be a wild card for the rest of the nitrogen that's got to be put on yet. That too, the way it looks. It's just kind of all over the board, wide ranges. And, and so we'll have to keep an eye on that as well. We'll report back more when we get a little bit more dialed in on that. And then the herbicides are kind of a— one of the big things we're seeing there is just that supply chain disruption. That's been kind of a big deal. And so we're, you know, we're seeing that be more of an availability thing.
We're seeing a lot of producers write checks and there's no nothing in the building yet, no, no inventory. So I'd be real careful with those numbers too. We're seeing about an 18.5% increase on herbicides versus last year. Um, that ranges some too, you know, and, you know, obviously there's some products that are 200% more and there's some that are the same. And that's just where we're at right now with our client base and And so that's just, again, just to give you some perspective. If you got questions or whatever, you can email, email us. I would go ahead again, like I said earlier, I'd email shay@agviewsolutions.com with any questions in this tool. So that really, I think, hits kind of the highlights of some of the things I wanted just to touch base on. I mean, usually in these conversations, we have a conversation back and forth with a couple of us.
And I just thought it would be good to take a week here as we kind of think through crop rotation and these managing these costs and looking at our overall cost of production. And with the price increases that we've had, you know, not giving any, any marketing advice at all, I mean, we all have to make our own executive decisions on where we pull the trigger. But with where some of these costs are and things, it's interesting that we have the profit opportunity that we do here right now, even though we're facing some, some pretty high input costs here. As far as crop rotation goes, I haven't seen a lot of people changing from what they normally would do. There's a few outliers where there's possibly some fields that may go back to beans now with the recent rally in the soybeans.
I think there's a few people we've talked to in the last couple weeks that are scratching their head now, and, you know, maybe they would plant that other farm or two to soybeans. So, so we'll have to keep an eye on that in terms of the crop rotation. And but there's so many things to consider with that crop rotation, you know, there's the, there's that, that price ratio between, you know, corn, soybeans, wheat, and other crops for that matter as well, whether it be cotton or some of the crops in the north, in the North Dakota areas and things. But you know, it's those— the agronomic things, the fertility, and you know, and the, the past crop rotation and what the future crop rotation might look like. So again, you know, I, I'm offering this tool out there to people that listen to the podcast.
We definitely, um, we care about you guys and we want to make sure that you're running the numbers and, and you're looking at, at the right things and you have accuracy there. So So really, that's about all I have for now. I hope this was a good perspective for all of you and gives you guys a chance to kind of look through things and, and think about what decisions you might want to make, either it be crop rotation or just having some perspective on some of these expenses. So with that, that's all I got. Again, just a reminder, mark your calendar for next year. We're just majorly excited to host another Ag View Executive Business Conference on January 25th, 26th, and 27th of 2023. And again, we'll get that location out. We'll announce the location here in another, probably in another month, exactly where that's going to be located. So with that said, I think that's all I've got for now.
We really appreciate you all listening, and we will catch you again next time on the Ag View Bitch.