Costs are too high. Prices are too low. If you listen to ag media, you’ve heard this many times in the past several years. What defines too high or too low? It’s not necessarily that the price of corn or soybeans is too low, it’s that costs are too high in relationship. Vice-versa, current costs would work if crop prices were higher.
So we’re in a cost/income squeeze.
We consider the ratio between each cost item and anticipated income. For example, we expect seed corn to cost 10-12% of anticipated revenue. A good fertilizer program could normally be purchased for somewhere between 15-20% of revenue, depending on a number of dynamics involved. Today’s fertilizer cost exceeds 20% of expected revenue.
As you go down the line of costs, each is at its upper end of the normal range or exceeding the normal upper end. Of course, yields work into this equation every bit as much as price per bushel.
It is revenue per acre, not just price per bushel, less costs, that determines a profitable outcome. This concept helps in the case of runaway prices, such as $8 corn or $16 beans which occur rarely but push costs higher when it does happen. The price tag on rising costs is not so bad if it maintains a normal relationship to income.
Right now, we’re paying costs which were influenced by higher crop prices a few years ago, plus other inflationary factors and supply disruptions. This will settle out to “normal” once again, but the squeeze is real for now.
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