Projected 2015 Net Incomes on Grain Farms

by Gary Schnitkey, Extension Agricultural Economist - University of Illinois

Average 2015 net income for grain farms in Illinois is projected at around $15,000 per farm, down considerably from the 2014 average of slightly above $100,000 per farm (see Figure 1). Furthermore, the 2015 net income will be below incomes in 2010 through 2012 which were above $200,000 per farm. This decline in incomes raises questions.

title

What do incomes in Figure 1 represent?

Historical values in Figure 1 are average net farm incomes of grain farms enrolled in Illinois Farm Business Farm Management (FBFM). These farms are located throughout Illinois and represent a variety of farm sizes, tenure relationships, and debt positions. Farms have increased in size over time. In 2014, average farm size was close to 1,500 acres, but the sample included many smaller farms and may larger farms. There were a relatively large number of farms of over 5,000 acres.

How was the 2015 net farm income projected?

Commodity prices, yields, input costs, and cash rents were projected for 2015. More detail on these projections are contained in the 2015 budgets which are summarized in the July 7th FarmDoc daily article. Key items impacting projections are:
  • Commodity prices are $4.20 per bushel for corn and $10.00 per bushel for soybeans.
  • Yields are presumed to be near trend line levels.
  • Non-land costs are projected to declines slightly from 2014 levels.
  • Cash rents are projected to decrease slightly from 2014 levels.
Can 2015 net incomes vary from projections?

Of course. Differences in prices and yields from those used in projections will change incomes. For example, corn price could easily be $.50 per bushel different from the $4.20 price used in projections. With higher prices or higher yields, 2015 net incomes could be above $50,000. However, it is difficult to build a case where 2015 incomes are not considerably lower than 2014 incomes.

Why are 2015 net incomes projected so much lower than 2014 net incomes?

The projected 2015 commodity prices ($4.20 for corn and $10.05 for soybean) are above commodity prices received for 2014 crop (likely $3.70 for corn and $9.75 for soybeans). Given higher prices, why then are projected 2015 incomes lower than 2014 net incomes? Two reasons:
  • Trend line yields are used in 2015 projections. Much of Illinois had above average yields in 2014, contributing to higher net incomes.
  • Marketing gains contributed a large amount to 2014 incomes. Grain produced in 2013 was valued at a lower price on the end-of-year 2013 income than it was sold in 2014. More detail is provided in the May 27th FarmDoc daily article.
Why is projected 2015 net income lower than averages between 2000 through 2005?

From 2000 to 2005, net incomes on Illinois grain farms averaged $57,500, higher than incomes projected in 2015. When making 2015 projections, a $4.20 corn price and $10.00 soybean price are used. These 2015 projected prices are significantly above prices from 2000 to 2005 when prices received by Illinois farmers averaged $2.18 for corn and $5.69 for soybeans. Given higher prices, revenue is projected higher in 2015 than from 2000–2015. However, costs are projected much higher as well. For example, non-land costs for corn have increased 224% from $256 per acre average from 2000–05 to $578 per acre in 2015. Cash rents have increased 205% from $139 per acre to a projected $286 per acre. These cost increases are the primary factor offsetting higher commodity prices, leading to lower projected incomes in 2015.

Will lower incomes signal financial stress?

These lower incomes suggest the need for continuing financial adjustments. More on the financial strength and need for adjustments will be covered in the July 28th FarmDocDaily article.

Soybean Supply & Demand Tug of War

FarmDocDaily Article by Darrel Good, University of Illinois

It looks like this year’s U.S. soybean crop may be a bit smaller than expected, but at the same time it appears there is a corresponding drop in need.

Although “need” might be a pretty strong term.

U of I ag economist Darrel Good has put the price tug of war related to supply and demand into context as positives and negatives. Here’s a list of items supporting a higher price for soybeans.

First, on the supply side, the smaller than expected June 1 USDA stocks estimate. It resulted in the agency lowering the projection of this year’s ending stocks (what’s going to be leftover when we get to the fall) to 255 million bushels. That’s 75 million bushels less than the month earlier and 220 million bushels less than what USDA thought might be left when the first projections started coming out last year.

Second on the list is the June 30 USDA Acreage report. It predicts harvested acreage of soybeans this year will be about 700,000 acres more than projected based on the planting intentions reported in March. However, there is a general consensus that not all of the intended acreage was actually planted due to extremely wet conditions in Missouri, Illinois, Indiana, and Ohio. In addition, flood damage may result in more than the usual amount of abandonment of acreage that did get planted. So while the acreage number is the largest on record right now, it is expected that will drop.

Thirdly, those same wet conditions should result in a lower average U.S. soybean yield. Something below the projection of 46 bushels per acre in the July 10 WASDE report.

In short, the 2015 crop is expected to be smaller than the current USDA projection of 3.885 billion bushels, but expectations are in a pretty wide range. USDA will release the first survey based production forecast in the Crop Production report August 12. That report will reflect the results of the re-survey of soybean planted and harvested acreage in Missouri, Kansas, and Arkansas.

Fourth, consumption of old crop soybeans remains strong and on track to reach record levels. This goes for domestic usage, called the crush, and the export market. Unshipped sales of 94 million bushels as of July 9 were sufficient to supply the necessary shipments to meet the export goal.

This brings us to the concerns, or the negatives, Darrel Good puts on the ledger.

The concern about soybean demand centers on potential export demand for the 2015 crop. USDA puts it 50 million bushels smaller than this year, but on-the-other-hand, this year is a record high.

Still sales for next year are dismal. They only represent 14 percent of the projection. Over the past three years, at this time, sales have been at least twice that big, and as much as three times. And, the number one destination is the cause. Sales to China, by far the largest customer for U.S. soybeans, stood at only 89.5 million bushels as of July 9. Sales to unknown destinations, which likely include China, totaled 120 million bushels. In the previous three years, combined sales to China and unknown destinations averaged 457 million bushels, compared to only 209.5 million bushels this year.

It is possible, says Darrel Good, that the slow pace of new crop export sales so far this year reflects a shift away from the recent seasonal pattern of export sales back to the pattern that prevailed during the period from 2006 through 2010. During those five years, new crop export sales as of about July 9 accounted for an average of only 14 percent of marketing year exports.

So, those are the positives and the negatives of the soybean market as detailed by Darrel Good on the Farm Doc Daily website.

Prevent Plant Soybean Acres in the United States

Rain from Missouri to Ohio has kept farmers from planting part of this year’s soybean crop, but nobody knows for sure - yet - just how many acres have been idled.

USDA has a term for land farmers planned to, but failed to sow because of the weather. It is “prevent plant”. This year rain has prevented farmers throughout the Midwest from planting some acres of soybeans. USDA has one figure already, but it is surveying farmers in Kansas, Missouri, and Arkansas to see if it needs to be updated. The figure is not for prevent plant, but rather for planted acreage. This year that is expected to be a record high 85.1 million acres. But there has been a lot of rain and the number will probably change. Gary Schnitkey wanted to know if history could act as a guide to how many acres might eventually not be planted to soybean.

Quote Summary - Just to give you a feel, from 1996 through 2014 on average there were 759 thousand prevented plant acres for soybeans in the U.S. There were four years when this number topped a million acres. The highest was 2013 at 1.69 million acres

The other three years in which prevent plant exceeded one million acres for soybean include 2001, 2010, and 2011.

Quote Summary - The common thing in all those years was either North Dakota, South Dakota, or Minnesota or some combination of the three having a large number of prevent plant soybean acres. Following those three it was Minnesota. The rank order is South Dakota, North Dakota, Minnesota, and then Missouri. These are typically the states you look at for large numbers of soybean acres going to prevent plant.

The Dakota’s and Minnesota are not the problem this year. It leaves, mostly, Missouri. And, historically, the highest number of soybean prevent plant acres in this one state is only 200,000.

Quote Summary - We are looking at something larger than that. The largest we’ve ever seen in the United States for a single is 450 thousand. So if we see something over half-a-million acres in Missouri, which we could well see, that would be record setting and a million would be way out there.

USDA will update the soybean acreage figures for Missouri, Kansas, and Arkansas August 12th along with the release of the Crop Production report and the monthly supply and demand tables.

Wheat Consumption Tracks USA Eating Habits

The following chart and commentary are posted to a USDA ERS website. Essentially it tracks how many pounds of wheat flour the average U.S. citizen has consumed per year since 1964. The ERS commentary on the reasons for the increase in consumption through the mid-1990's and sudden drop near the turn of the century reflect the eating habits of a couple generations of Americans. 

Wheat consumption stable among U.S. consumers in recent years.

Per capita wheat flour consumption has been relatively stable in recent years, and is estimated in 2014 at 135 pounds per person, unchanged from 2013 but down 3 pounds from the recent peak in 2007. The 2014 estimate is down 11 pounds from the 2000 level when flour use started dropping sharply, partially due to increased consumer interest in low-carbohydrate diets. From the turn of the 20th century until about 1970, U.S. per capita wheat use generally declined, as strenuous physical labor became less common and diets became more diversified. However, from the early 1970s until the late 1990s, wheat consumption trended upward, reflecting growth in the foodservice industry and away-from-home eating, greater use and availability of prepared foods for home consumption, and promotion by industry organizations of the benefits of wheat flour and pasta product consumption. During this time, the domestic wheat market expanded on both rising per capita food use and a growing U.S. population.  Relatively stable per capita flour use in more recent years means that expansion of the domestic market for U.S. wheat is largely limited to the growth of the U.S. population. This chart is based on the April 2015 Wheat Outlook report.