Category: Crop Marketing

Sugarcane and sugarbeet production are highly specialized processes with a unique set of production costs. These crops are grown in limited geographical regions of the country with sugarcane being grown in Florida, Louisiana, and Texas and with sugarbeets being mainly cultivated in the Red River Valley, upper Midwest, Great Plains, Northwest, and in California. Sugarcane is a perennial crop often grown in cycles of between four to six years. Conversely, sugarbeets are often grown in rotation with grain, oilseed, and pulse crops, which typically limits the planting of sugarbeets to once every four years for a particular piece of land. 

Given that the commodity program safety net for sugarcane and sugarbeet growers is mainly provided through the marketing loan program, this article evaluates sugarcane and sugarbeet production costs relative to loan rates established in the 2018 Farm Bill. Specifically, production costs of Louisiana sugarcane and that of sugarbeets grown in Minnesota and North Dakota are compared for the last several years, subject to available data. 

In this analysis, Louisiana sugarcane production costs represent the weighted costs per acre for a five-year crop rotation with harvest through stubble, as defined by the LSU AgCenter. Cost data for sugarbeets was obtained from the University of Minnesota FINBIN database which encompasses production and cost data for many sugarbeet-producing farms in Minnesota and North Dakota (the Red River Valley). 

Since 2018, production costs for sugarcane in Louisiana have risen substantially. The main drivers behind these increases have been mainly due to a 130% increase in the cost of fertilizer and an 82% increase in the cost of diesel fuel since 2018 (Figure 1). 

Figure 1. Selected direct production expenses for Louisiana sugarcane per acre, 2018 to 2023. 

For Louisiana sugarcane producers, the total cost of production has risen from $551 to $858 per acre over the period of 2018-2023. That is an increase of over $307 per acre since 2018. A unique feature of sugarcane’s cost structure is the acquisition and maintenance of highly specialized farm equipment (e.g., combine billet harvester, planting wagons). Increases in machinery costs coupled with higher interest rates have resulted in overall machinery ownership costs increasing by 55% over the past five years (Figure 2).

Figure 2. Comparison of Louisiana sugarcane production costs, 2018 versus 2023. 

As a result of the increase in production costs, the average breakeven selling price for raw sugar has increased from 17.2 cents per pound in 2018 to 28.2 cents per pound in 2023, an increase of 64% (or 11 cents) as noted in Table 1. 

Table 1. Cost of production for raw sugar in Louisiana, 2018 to 2023. 

Referencing the uniqueness of the crop, sugarcane must first be processed into raw sugar and then transferred to another facility where it is converted to refined sugar. Sugarbeets omits this intermediate step because after it undergoes initial processing, the finished product is refined sugar. Because of this difference in processing techniques, the production costs for sugarcane are calculated per pound of raw sugar while the cost of sugarbeets are calculated on a per-ton basis.  

While produced on a slightly larger area than sugarcane, the cost structure for sugarbeets can differ from that of sugarcane based on geographical differences. In the Red River Valley region, the average total cost of production per acre for sugarbeets has increased from $1,099 in 2018 to $1,350 in 2022, an increase of $250 per acre. Large drivers of the increase in production costs were chiefly attributable to a 66% increase in the price of fertilizer and a 37% increase in the price of diesel fuel (Figures 3 and 4). Like sugarcane, sugarbeets have their own set of unique costs (e.g., specialized equipment costs for carts, defoliators, and harvesters), which is reflected in the cost increase over the observed period. 

Figure 3. Selected direct production expenses for sugarbeets Minnesota and North Dakota, 2018 to 2022. 

Figure 4. Comparison of sugarbeet production costs in Minnesota and North Dakota , 2018 versus 2022.

Sugarbeet producers have seen their cost-per-ton estimates increase substantially from the 2018 crop year. The average direct cost per ton of sugarbeets produced has increased from $31.73 in 2018 to $42.19 per ton in 2022. However, the highest cost occurred in 2019, when the average cost of production per ton was $48.21. When comparing the lowest cost of production per ton ($31.73) to the highest ($48.21), this represents an increase of over $16 per ton (52%). Likewise, the total cost plus overhead per ton has increased from $40.07 to $60.25, an increase of greater than $20 per ton (Table 2). The increase in production cost per ton in the 2019 crop year was caused by flooding that disrupted planting followed by a freeze during the harvesting of sugarbeets. This disruption reduced3.50.1- sugarbeet yields causing production costs-per-ton to sharply increase. Since that time, sugarbeet costs have displayed precipitous peaks and valleys. 

Table 2. Cost of production per ton for sugarbeets in all States, 2018 to 2022. 

The 2018 Farm Bill sets the raw cane sugar loan rate at 19.75 cents per pound and the refined beet sugar loan rate at 25.38 cents per pound (USDA, 2023). This article provides information that could be useful in Farm Bill discussions regarding sugarbeet and sugarcane loan rates. Since the enactment of the 2018 Farm Bill, costs of production for sugar have drastically increased—by about 30% for sugarbeets (2018-2022) and by about 38% for sugarcane (2019-2023). 

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References 

Deliberto, M. and B. Hilbun (2023). Projected Costs and Returns for Sugarcane in Louisiana. Louisiana State University AgCenter, Department of Agricultural Economics and Agribusiness, A.E.I.S. Report No. 362, January 2023. 

FINBIN (2023). Center for Farm Financial Management, University of Minnesota. http://finbin.umn.edu . Date Accessed: November 10, 2023.

USDA. (2023). Sugar Policy. https://www.ers.usda.gov/topics/crops/sugar-and-sweeteners/policy/. Date Accessed: December 1, 2023.  

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Deliberto, Michael. “Examining Sugarcane and Sugarbeet Production Costs.” Southern Ag Today 3(50.1). December 11, 2023. Permalink

As we proceed through the 2023/2024 marketing year, crop prices are expected to decrease generally compared to the previous marketing year. While prices of corn, cotton, soybeans, wheat, sorghum, and rice are expected to drop this marketing year, peanut prices are expected to increase to a marketing-year average of $550 per ton, reaching their highest level in over a decade according to the USDA (Figure 1). This would be the fourth straight year of increased peanut prices and a $14 per ton increase from 2022/2023. While the other crops are seeing increases in their ending stocks, peanut stocks look to remain stable. 

Figure 1: Peanut Prices by Marketing Year

On the production side, yields are projected at 3,740 lb. per acre, which would mark the lowest level since 2016. This would fall well below the 10-year average of 3,942 lb. per acre. Severe drought in 2023 across the predominant peanut-producing regions of Alabama and Florida — two of the top-four peanut-producing states— has led to forecasted 24% and 26% yield decreases compared to 2023 for those two states, respectively. This comes in a year that was expected to achieve a significant boost in peanut production, due to a 16% increase in planted acres. Now, peanut production is only projected to increase by 8% over last year and reach 2.99 million tons.

Accompanying the bullish production estimates, peanut demand is also looking strong. This is driven by a 4.5% projected increase in peanut exports and a 3.7% increase in domestic food use. If production and disappearance projections are realized, this would mean carryover at the end of the 2023/24 marketing year would remain almost unchanged at 1.02 million tons, providing support for continued strong peanut prices. 

Figure 2: Peanut Production, Disappearance, and Ending Stocks by Year

Sources:

USDA Economic Research Service. Oil Crops Outlook: November 2023. Available at: https://downloads.usda.library.cornell.edu/usda-esmis/files/j098zb08p/8g84p626f/hx120116v/oiltables.xlsx

USDA. World Agricultural Supply & Demand Estimates: November 2023. Available at: https://www.usda.gov/oce/commodity/wasde/wasde1123.pdf

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Sawadgo, Wendiam. “Why are Peanuts Bucking the Declining Crop Price Trend?” Southern Ag Today 3(49.1). December 4, 2023. Permalink

At the end of the calendar year, many producers prepay for inputs to reduce taxes and potentially avoid higher prices in the spring. To prevent the risk of profit margin reductions (from a decline in commodity prices), producers may want to consider obtaining downside price protection for a portion of their anticipated 2024 production at the same time as inputs are purchased. One strategy is purchasing put options on the yield required to pay for the input purchased, and carrying the put option position until the projected crop insurance price is determined.

Table 1 shows a simple budget for Tennessee corn production (target yield of 180 bu/acre), and the number of bushels of production required to cover the specified expense at different corn prices. This is computed as the cost of the production input per acre divided by the harvest price.  For example, a fertilizer expense of $181.80/acre would require 40.4 bu/acre to cover the fertilizer expense at a corn price of $4.50/bu, 38.3 bu/acre at a corn price of $4.75/bu, or 36.4 bu/acre at a corn price of $5.00/bu. A producer can mitigate financial risk by using put options to cover the amount of production needed to cover that input cost, thus bridging the price risk gap until crop insurance prices and revenue protection are determined. 

A producer with 260 acres of corn, seeking to set a futures price floor at $4.75/bu and provide sufficient price protection on the bushels needed to pay the fertilizer expense, could purchase two put options (5,000 bushels each covering 260 acres x 38.3 bu/acre = 9,958 bushels). On November 21^st a $5.20 December 2024 corn put option could be purchased for 45 cents, setting a $4.75 futures floor. The put option could be carried until March 1, at which time projected crop insurance prices are established and revenue protection for the upcoming crop are determined. At that time, the option purchaser can evaluate the price protection their crop insurance provides and decide to maintain the put option position or exit. If the December corn futures contract is below $4.75, the purchaser can maintain the put option position for additional price protection or exercise the option for a financial gain. If the December corn contract is above $4.75, the purchaser can maintain the position or exit the put option position and recoup a portion of the premium based on the time value remaining.  

Producers should examine times during the year when they are exposed to price and financial risk and seek strategies to mitigate those risks. Using put options can be an effective tool to remove some price risk when prepaying for fertilizer, and other inputs, until crop insurance prices and revenue protection are determined. 

Table 1. Tennessee Corn Budget for 2024 and Number of Bushels to Cover a Specified Expense at Three Corn Prices

References:

Barchart.com. December 2024 Corn Options Prices. Accessed at:  https://www.barchart.com/futures/quotes/ZCZ24/options   University of Tennessee Field Crop Budgets – https://arec.tennessee.edu/extension/budgets/

USDA’s supply and demand balance sheet for U.S. corn has a feature not seen in the corn market since the beginning of the 2019 growing season: carryover from the previous crop exceeding 2 billion bushels. That level of beginning stocks has a significant price moderating effect. In inflation adjusted 2023 dollars, the season average farm price has not been higher than $4.33 per bushel in the three years since 2006 during which beginning stocks exceeded 2 billion bushels. 

Figure 1. Corn beginning stocks and that season’s average real cash farm price ($2023)

With a 2024 average yield of 180 bushels per acre (trend line estimate), planted acres could decline from about 95 million in 2023 to just over 87 million in 2024, and the total supply of corn from one season to the next would be little changed. 

Table 1. 2023 U.S. corn supply forecast and 2024 alternative projection

Season	USDA November 2023 Forecast	2024 Alternative Projection	Change
Planted, mil ac	94.9	87.9	-7.0
Harvested, mil ac	87.1	80.3	-6.8
% Harvested	91.8	91.3	-0.5%
Yield, bu/ac	174.9	180	5.1
	Million bushels
Beginning Stocks	1,361	2,156	795
Production	15,234	14,445	-789
Imports	25	25	0
Total Supply	16,621	16,626	5

Of course, supply is only one side of the balance sheet. Lower corn prices could stimulate increased corn use.  But planted acreage above 87 million would also significantly augment the corn supply.  In the recently released long-term projections, USDA projects planted corn acreage in 2024 at 91.0 million, a yield of 181.0 bushels per acre, and ending stocks (beginning stocks for the 2025 growing season) of 2.616 billion bushels, the most since 1988 (USDA, 2023).

We are just closing the bin door on the final bushels of the 2023 corn crop, but it is not too early to evaluate pricing opportunities for the 2024 corn crop given projections (what might happen) and forecasts (what we expect to happen) around acres, yield, and use. 

References

USDA, Office of the Chief Economist, World Agricultural Supply and Demand Estimates, November 9, 2023. USDA. Long-term Agricultural Baseline Projections, November 7, 2023, available online at https://www.usda.gov/oce/commodity-markets/baseline

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Welch, J. Mark. “Corn Price Prospects When We Start the Year with a 2-Billion-Bushel Carryover.” Southern Ag Today 3(47.1). November 20, 2023. Permalink

It is important for farmers to have accurate knowledge of their costs of production.  Having a historical baseline of production costs gives producers a standard for managing their operation.  Accurate knowledge of production costs is also the basis for developing a marketing plan, i.e., identifying break-even price levels to target your price risk management or selling.

There are tools available to assist producers.  There are commercial software products that provide useful database management and financial calculations.  Some Extension agricultural economists provide support using standard accounting programs like Quickbooks.  Extension agricultural economists in major cotton producing states also publish planning budgets, often in spreadsheet formats, to guide producers in developing their own customized cost and returns estimates. Lastly, the USDA Economic Research Service (ERS) also conducts regular grower surveys of production costs, by region, and publishes research reports based on this information (Figure 1).

Figure 1 summarizes annual data on U.S. average annual cotton production costs.  The data depict two measures of historical profitability:  1) short run profitability, reflected as the value of cotton production less specified variable costs, and 2) long run profitability, calculated as the value of cotton production less specified variable and fixed costs.  The value of production shown does not include farm program payments or crop insurance indemnities.

On the face of it, these data reflect U.S. cotton as a marginal proposition.  While there appears to be an economic rationale to operate in the short run, and partially contribute to fixed costs, the long run profitability implications of U.S. cotton appear poor. The possible implications for long term viability of U.S. cotton include the following.  1) The cotton growing operations that will be left are likely of a scale that implies lower than average fixed costs, particularly machinery costs. This may involve beneficial leasing terms that are unavailable to smaller scale producers.  2)  The larger scale operations may also benefit from volume discounts on purchases of variable and capital inputs.  3) Some operations may generate above average value of production.  On the yield side, this perhaps is being achieved by the early adopters of yield enhancing technology and production systems.  On the price side this could involve better risk management and marketing that captures some of the upside price risk that is available in most years. Lastly, the picture implied by Figure 1 reinforces the need for the buffering effects of federal farm programs and crop insurance. 

Figure 1. Cotton U.S. Net Return Cost Trend

References and Resources

Beginning Quick Books Online Training for Farmers and Ranchers. https://amarillo.tamu.edu/files/2023/08/QuickBooks-Online-Course-Flyer.pdf.

Texas A&M AgriLife Extension. Cotton Budgets. https://agecoext.tamu.edu/resources/crop-livestock-budgets/by-commodity/cotton/.

University of Georgia. Department of Agricultural and Applied Economics. Budgets. https://agecon.uga.edu/extension/budgets.html.

University of Arkansas Cooperative Extension Service. Crop Budgets for Arkansas. https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx.

USDA Economic Research Service. Commodity Costs and Returns. https://www.ers.usda.gov/data-products/commodity-costs-and-returns/.

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Robinson, John. “U.S. Cotton Cost Trends and Implications.” Southern Ag Today 3(46.1). November 13, 2023. Permalink