While the cost of many inputs have retreated from historic highs made earlier in 2022, fertilizer and farm diesel fuel remain elevated continuing to push total costs of production in 2023. Despite the fact that commodity prices remain relatively strong, margins will be stretched thin for many crops this year.
Enterprise budgets can be a good farm management planning tool for growers to use when evaluating crop selection and budgeting returns (net or total specified with overhead) to land. In the 2023 enterprise budgets released by the LSU AgCenter, fertilizer prices for nitrogen, phosphate, and potash are estimated at $0.78, $0.90, and $0.67 per pound of active ingredient. This represents an increase of $0.02, $0.25, and $0.09 per pound of active ingredient, respectively from 2022. Another energy-related farm input, diesel fuel, is projected at $4.00 per gallon, an increase of $1.60 per gallon from the 2022 enterprice budget.
The magnitude of the fertilizer cost impact will have on a grower’s bottom line will vary with crop selection, variety, and soil nutrient profile. Soil testing is crucial in times of elevated input prices. Knowing the nutrient profile can be a cost-saving measure for the grower. For fuel cost, the extent of field preparation activities and irrigation will significantly impact a grower’s fuel expenditure.
Over the past three years, the cost of production for corn, cotton, rice, and soybeans in Louisiana have increased in conjunction with the increase in fertilizer and fuel costs. Figure 1 illustrates the cost of production (C.O.P.) per unit using representative farm yields for the 2021 to 2023 crop years.
Figure 1. Breakeven cost of production estimates for selected Louisiana crops.
Especially in times of dramatic price and cost changes, it is critical to have a handle your cost of production. Estimating your own production costs is an important management exercise that helps with both understanding and controlling cost, as well as establishing price targets and marketing plans. A pre-season breakeven price is calculated by estimating the total cost of production related to a specific crop and dividing it by the expected yield of that crop. Or simply put: how much money do you expect it will take to produce each bushel or pound of production? Similarly, a breakeven yield is that same total cost of production divided by the expected price.
In today’s agricultural production environment, given the volatility in both input and commodity prices, breakeven analysis can help farmers make better short-term operational decisions. Enterprise budgets can be a useful tool in performing breakeven analysis utilizing both their individualized farm’s crop yields and expectations regarding market prices for a given commodity that is uniquely tailored for their agricultural production space.
Crop enterprise budgeting resources are available for download for Southern states by clicking on the links below.
North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/
South Carolina: https://www.clemson.edu/extension/agribusiness/resources/request-budget.html
Delilberto, Michael. “Projecting Your Cost of Production and Combating Higher Costs in 2023.” Southern Ag Today 3(11.3). March 15, 2023. Permalink