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n. Illinois | I concur with your thought process.
This is what I am seeing. in 2022 every operation I did business with made money with no exceptions (this has never happened before there is always someone figuring out how to lose money) but in 2023 60% of the operations loss money and the losses were significant; many times the loss far exceeded what was made in 2022. Even saw that unicorn operation everyone thinks exist everywhere the guy that farms his own ground and pays no rent and has no debt on any of the 1000+ acres he owns Even they lost money in 2023, Now they can handle the loss without any consequences about all it does for them is it makes that income tax problem smaller for a couple years.
Almost 100% of the losses can be explained by the drop in value of the inventory carried over from year to year. But they are losses still. The few operations that made money seem to have done a much better job in marketing grain IE they would have contracts for spring delivery on corn starting with a $5 and beans with $13 they had less carryover too so they had already sold a good chunk of the 2023 crop at what I had to assume were better prices than most. Only one operation could claim an production issue due to lack of moisture everyone else either matched or exceed their yields in 2022 which were a record for our area. So it was not a production issue. But they all had much higher operating costs in their seed, Fert, Chem expenses and cash rents were marginally higher as were repairs. Fuel expenses were less than the year before but fuel isn't the big ticket item that the Seed Fert Chem are.
In spite of the losses I continue to see massive amount of capital spending on new paint in same cases taking on another 200-$500,000/yr worth of equipment payments, In some cases total elimination of working capital. Farms still being purchased as if corn was still priced with a $6 as the first number. I have seen where we have allowed the farm to be purchased by stretching everything out to the max and ended up with a farm payment that exceeds the expected gross income from the ground being purchased/refinanced. IE we some how think that the profit from rented ground will make this work.
The circumstances are setting themselves up for something bad to happen. Interest rates are higher, earnings/repayment ability is down, Fix costs (land and equipment costs are all higher) etc. Maybe we get lucky and the Chinese come in and buy up a bunch like they did in 2020 setting off the last rally or maybe some other large demand event happens. Maybe there is a real production issue in 2024. there are so many if's that none of us know.
But what is known is that earnings were substantially less in 2023 and it appears in 2024 the earnings will continue to be tight.
Is your operation set to handle lower returns ??
Edited by Reality speaks 6/5/2024 14:05
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Lessons we learned twice last century
