U.S. grains and oilseeds as a group have earned a cumulative private market net return since 2006 of +4%. In contrast, over 1975-2006 private market net return was a -11% loss. The switch in profitability coincides with a tighter supply-demand balance.
Yields no longer increase fast enough to meet the growth in use. This yield gap provides a rationale for why profitability may continue in the near future, although it is not a given. The profit transformation implies commodity program payments should be temporary, not continuous. It also raises the question, “Is crop insurance insuring too much risk?”
Cost of Production Data
USDA, ERS (US Department of Agriculture, Economic Research Service) computes cost of production per planted acre for barley, corn, cotton, oats, peanuts, rice, sorghum, soybeans, and wheat. ERS assigns a cost to all inputs except management, including an opportunity cost to unpaid labor and farmer-owned land. Thus, an economic cost is computed.
Returns, both gross and net, are private market returns calculated using US cash price at harvest. Returns and costs from storing the crop are not included.
Also not included are payments by government programs, including commodity, disaster assistance, conservation, and livestock programs, as well as indemnities from crop insurance. Crop insurance premiums paid by farms are not included in costs.
Debate has surrounded ERS cost estimates since the beginning. We think their methodology is appropriate and their estimates reasonable, but encourage readers to examine the discussion of ERS methods in Zulauf, Langemeier, and Schnitkey (2020) and elsewhere to form their own opinion. ERS cost data are discussed further in Data Note 1.
Economic cost and private market net return per planted acre for each crop and year are multiplied by US acres planted to the crop for the year to obtain an estimate of the crop’s total US economic cost and private market net return for the year. The individual crop values are summed to obtain combined US economic cost and private market net return for the nine crops as a group for each year from 1975 through 2022. Planted acres are from Quick Stats (USDA, National Agricultural Statistics Service).
Combined Private Market Net Return
Between 1975 and 2006, the nine crops earned a combined profit from the private market at harvest in only 6 of the 32 years (see Figure 1). Cumulative private market net return was a loss of -11%. Since 2006, 9 of the 16 years have been profitable.
Cumulative private market net return is +4% (+$80 billion in dollar terms). In addition, average loss during years with a loss was nearly 50% smaller after 2006: -16.2% before 2007 vs. -8.6% after 2006.
To read the entire report click here.