Managing the 2022 cost environment

It’s estimated that input costs will be higher in 2022 whether you’re a grain producer or livestock producer. Knowing your cost of production is essential for profitable marketing and making sound business decisions.

Bob Campbell is a Senior Vice President with Farm Credit Services of America and Frontier Farm Credit. He says if you haven’t already, start anticipating your costs.

"We’re not sure about what fertilizer’s going to look like or some inputs, so what’s your best guess? What’s your supplier telling you? We know what your cost structure in terms of debt payments are, you know what your rent’s going to be, or land payments," says Campbell. "So, let’s start building your cost of production estimates now so that can inform your marketing plan now. And with the prices as strong as they are, does the market give you an opportunity to lock in some positive margin or not? If it does, consider it."

He predicts the equipment market will be strong. Upgrades and replacements will be led by tractors then combines – assuming availability. 

Will inflation affect interest rates? On the short-term side, it depends on what the Federal Reserve does, but he says they don’t anticipate significant increases.

"On the long-term rates with real estate, we go into the bond market and right now the bond market’s holding pretty steady. We don’t project rates, but we don’t envision, like, the 10-year treasuries to get too far out of hand," he says. "What’s interesting though, is the existing farm debt that’s out there, 75% of it is a fixed rate. In the last 2-3 years they’ve been able to lower that rate significantly. So, interest rate risk today is not very high."