By Stan Maddux
WEST LAFAYETTE, Ind. – Farmers, if possible, should think twice about making any major equipment purchases to prepare for a projected drop in net income in 2023.
That was one of the main messages from agricultural economists at Purdue University during their monthly corn and soybean outlook webinar on Nov. 11.
“Think long and hard about whether you do need to buy machinery,” said Michael Langemeier, associate director of Purdue’s Center for Commercial Agriculture.
The reason is inflation, along higher interest rates, at a time when corn and soybean prices are expected to drop but remain fairly strong next year.
Farmers were advised to hang on as much as possible to the money they saved from the previous two years when net income was high to make sure they have enough money to cover their bills in 2023.
Right now, net farm income in 2023 is projected at $50 per acre compared to $120 per acre this year and $350 per acre in 2021. USDA is expected to come out with a revised net farm income forecast for 2023 in February.
Langemeier said net farm income in 2023 and maybe 2024 could be the worst since 2019. Slumping prices from 2014 to 2019 left farmers struggling to stay above their input costs. “Just be really cautious,” he said.
According to latest USDA estimates, the cash price for corn in January is projected to be $6.66 per bushel.
Langemeier said that’s down slightly from last month’s price prediction but the breakeven point for corn remains below $6 a bushel. “These are still pretty good margins,” he said.
The projections by USDA for soybeans were also viewed by the experts at Purdue as favorable, with futures in January expected to be $14.37 a bushel. The current breakeven point for soybeans is $13.50 a bushel.
“The prices look good. Inflation is the bad news,” he said.
Langemeier also noted higher input costs from inflation is the major reason the outlook of farmers was recently measured by a Purdue University study as pessimistic.
Jim Mintert, director of the center, said only time will tell where inflation and prices are actually going. “The margins look much smaller in 2023 compared to what we had in 2021 and 2022,” he said.
He also noted corn, which once looked more profitable than soybeans next year, is no longer the case due to the high cost of production, especially for corn.
“The bottom line is soybeans are looking a little better than they were for several months,” Mintert said.
Factors that could drive prices above current projections include future demand from China.
Last year, Mintert pointed out China measurably scaled back imports of U.S. corn and soybeans but could order more to make up for any losses in production from countries in South America.
Mintert said an increase in demand from China would put on strain on supplies projected already by USDA to remain “fairly tight.”
“The question is going to be whether that turns around,” he said.
He said one hopeful sign for U.S. exports is barges grounded by low water on rivers like the Mississippi are beginning to move again. “That’s really turned around in the past couple of weeks,” he said.
Mintert said water levels are not anywhere back to normal but have improved enough to allow some barge movement.
If the water continues to rise, barges heading to other countries will also be able to carry more grain because of the lower risk of running aground from such heavy loads.
Larger volumes of grain are also expected to be shipped next year from states like Indiana and Illinois to help make up for lower production elsewhere in the nation.
USDA ranks production nationwide in 2022 as strong but major producers such as North Dakota, South Dakota along with western Iowa and parts of Texas were hurt significantly by drought.
As a result, more grain could move across the Corn Belt from east to west and places to the north and south to meet demand in those regions.
That could also have a positive impact on prices in regions not hurt nearly as much by weather during the growing season. “It’s interesting to track that and how we’re going to see corn move,” he said.