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2022 has been dubbed “the most expensive crop in decades.” One of the major drivers of high production costs has been abnormally high fertilizer prices.
After spiking to record highs last year, it looks like those numbers are finally starting to come down. That said, prices are still well above historical averages.
Like many landowners in the U.S., you may be looking into the most profitable use of your farmland in 2023. So it’s worth taking a look at how current trends in fertilizer prices are impacting farmland profitability and value.
Just last week, ag researchers from the University of Illinois & Ohio State University published a detailed study on the current state of fertilizer prices in the U.S. The main takeaway: fertilizer prices have been on the decline in recent months.
Specifically, they broke down their findings by fertilizer category (compare November 2022 to February 2023):
Although these short-term declines are important, current prices are still high by historical standards, including both comparison to 2020 and the five-year average.
The primary drivers of this price decline have been:
Despite anticipated downward pressure into the spring, it’s unlikely that fertilizer prices will dip below historical averages. As a result, landowners and farmers will need to continue accounting for higher input costs when planning their finances for 2023 onward.
When any farm input is more expensive, the cost of producing the applicable crop is higher, which eats into farmers’ profits. These increases have led to downstream effects across the entire agricultural production cycle, including ranchers who rely on grain to feed their animals.
Although the corresponding increase in crop prices has helped farmers bear the brunt of these price hikes, profitability margins have still suffered. Last year, the per-acre return on corn has decreased from $477 in 2021 to $193 in 2022, a 59% loss. This year, University of Illinois forecasts farmers' profit to drop to -$11 per acre.
Farm Credit Services of America reported that, based on December 2023 corn futures price of $5.96 per bushel, corn yields of 211 bushels per acre are required to break even. Given 2022 averages of 173.3 bushels per acre, this means that crop yields will need to reach record highs in 2023 to be profitable.
Although there are numerous inputs responsible for these dynamics, the fact that fertilizer prices remain above historical averages will be an important factor for farm profitability in 2023.
Although farmers are in a tough spot economically in 2023, land values are doing very well. Some of the notable drivers of record high land values include:
By now it should be obvious that America needs farmland, not only to keep up with our own domestic food supply, but to support global agricultural trade. But if fertilizer costs don’t tame soon, profitability will continue to be a real concern.
At the same time, land values seem to remain strong. As such, the incentives are for landowners not to farm their land, but to sell it off for more profitable means—in most cases, for development.
The key: find ways to make your land more profitable. If seasonal crops aren’t helping you break even this season, there are some additional methods that may end up working for you.
Planting multiple crops on the land—either during the same season or rotating across seasons—is a great way to get additional value out of your land:
If you own any non-tillable land, another option is to rent the land to hunters—sometimes for weeks or a month at a time. This will require you to have large tracts of land with abundant game, like deer, turkey, or elk. A well-stocked lake on the property is also a bonus.
The profitability of this revenue stream depends on the size and quality of the land, as well as the amount of game on it. At the very least, you should be able to earn enough to pay your property taxes.
Consumers are interested in learning about where their food comes from. If you can turn your operation into a full-blown experience, they’ll show up. This can include on-site farmers markets, tractor rides, corn mazes, Community Supported Agriculture, and more.
While agritourism likely won’t be your most profitable venture, it can at least provide an extra source of revenue—and help you connect with your local community.
If you have a suitably sized and well-located space for large scale wind turbine installation, you may be able to lease your land to wind developers or utility companies. These companies generally cover 100% of the installation costs, then pay you a sum based on the number of wind turbines in operation and total energy output.
Given the increasing importance of renewable energy for energy companies, you shouldn’t have a hard time finding an energy company who’s willing to lease your land for wind production. This can be a highly lucrative venture, provided your land meets the following requirements:
Additionally, because the amount of land taken by the turbine is relatively little, this leaves a significant portion of the land that can be used for your tenant farmer to continue their operations. So for most farmers, it’s not an either-or proposition!
The only downside is that many wind farming contracts are quite long—as long as 20 years in some cases. That said, the almost risk-free nature of this investment makes it hard to turn down.
While wind contracts are highly common, there are other ways to contract out your land for energy purposes. Carbon, battery storage, and solar are all examples. However, you’ll want to consider how these operations will impact your farmer and their activities, as you don’t want them to be at cross-purposes with each other.
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