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Showing posts from July, 2020

Fungicide Applications on Corn and Soybeans

Farmers will be urged to make fungicide applications on their crops this month. Todd Gleason discussed the issues related to both corn and soybean diseases with ILLINOIS Extension Plant Pathologist Nathan Kleczewski.

Illinois Grain Farm Incomes in 2020



by Gary Schnitkey, Ryan Batts, Krista Swanson, Nick Paulson, Jonathan Coppess - University of Illinois and Carl Zulauf, The Ohio State University

link to farmdoc Daily article

We project net incomes for a typical Illinois grain farm in 2020. Before the onset of COVID–19, 2020 net incomes were expected to be low without a turnaround in exports, likely resulting in pressures to continue Market Facilitation Program (MFP) payments. With COVID–19 at the forefront in 2020, the Coronavirus Food Assistance Program (CFAP) was implemented to provide relief to offset losses due to the virus and COVID–19 control measures. Even with CFAP payments and larger payments from commodity title programs, incomes are projected to be negative in 2020. More Federal aid could result in 2020 incomes being close to 2019 incomes. Looking ahead, the recent increases in Coronavirus outbreaks suggest this environment may not improve soon and could result in very low incomes in 2021.

Incomes in Historical Perspective

Figure 1 shows the average yearly net incomes on grain farms enrolled in Illinois Farm Business Farm Management (FBFM). Overall, incomes have been much lower since 2013 as compared to the period from 2006 to 2013. Incomes averaged $189,000 per farm for the years from 2006 to 2013. From 2014 to 2019, incomes have been over $100,000 less per farm, with a $78,000 yearly average. From 2006 to 2013, corn use in producing ethanol was growing, leading to higher corn prices. Soybean prices also were high, as the market signaled the need for soybean acres as soybean exports from the U.S. to China were increasing. Since 2013, corn use in ethanol has stabilized, leading to lower commodity prices. In 2018, exports of soybeans declined, further lowering commodity prices.



Average incomes were $147,000 in 2018 and $74,000 in 2019. Compared to other years since 2013, the years 2018 and 2019 were not particularly poor income years. However, much of the income in 2018 and 2019 resulted from the Market Facilitation Program (MFP), which was put in place to counter lower prices caused by trade disputes. MFP accounted for 13% of revenue in 2018 and 10% of 2019 revenue (see farmdoc daily, June 10, 2020). Without these payments, incomes would have been very low in both 2018 and 2019.

Approach Used to Estimated Historic Incomes

The incomes in Figure 1 are calculated by FBFM using a modified cost approach for a calendar year. Each year’s income statement attempts to match production with sales. In 2019, costs of 2019 grain production are given along with “revenue” from 2019 production. To match revenue with production, values are placed on a number of items for which the revenue has not been received. These items include:
  • Grain inventory. Much of the grain produced in 2019 has not been sold as of the end of the year. The unpriced inventory is placed on the end-of-year balance sheet for 2019 at an estimated value.
  • Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) payments for 2019. The ARC/PLC payment for 2019 is based on 2019 production but will be received in October 2020. These payments are not known on December 31, 2019 because the payments are based on a Market Year Average (MYA) prices, which run from September 2019 to August 2020 for corn and soybeans.
These two values will take on a large importance in 2020 cash income. Inventory prices used to place grain in inventory on December 31, 2019 were much higher than actual sales on many farms. FBFM used inventory prices of $3.75 for corn and $9.30 for soybeans. In May, cash prices were near $3.00 for corn and $8.30 for soybeans. The difference will result in an unrealized loss on grain held in December 31, 2019 inventory on many farms.

ARC/PLC payments likely will be higher than the December 31, 2019 receivable. Lower MYA prices will result in higher ARC/PLC payments than estimated on December 31, 2019.
To summarize, three items will take a larger role in 2020 income projections than usual:
  • Unrealized loss on 2019 crop. Farmers who held 2019 grain inventory likely will have large losses on holding that crop into 2020. Marketing weights suggest that 60% of the corn crop and 46% of the soybean crop is held into the next year.
  • Changes in 2019 ARC/PLC payments. Expectations of the size of these payments increased because of lower prices.
  • Coronavirus Food Assistance Program (CFAP) payments (see farmdoc daily, May 22, 2020). CFAP provides partial compensation for losses on grains held unpriced on January 15, 2020.
Income Projections for 2020

Income projections for 2020 are made using output from the Farm Projections Tool, a Microsoft Excel spreadsheet that can be downloaded from the FAST section of farmdoc. Farmers can use this spreadsheet to make projections for their individual farms. Special adjustments are made to the output to account for the above three items, which are not accounted for by the program automatically.
In this article, the farm for which 2020 projections are made represents a typical farm in central Illinois:
  • A 1,600 acre grain farm with 200 acres owned, 400 acres share-rented with a 50–50 share lease, and 1,000 acres are cash rented at $260 per acre.
  • The farm is located in central Illinois and has non-land costs equal to those contained in central Illinois budgets for high-productivity farmland: $561 per acre for corn and $359 per acre for soybeans.
  • Yields for 2020 are projected at trend-levels of 216 bushel per acre for corn and 68 bushels per acre for soybeans.
  • The farm has $1,200,000 of debt.
Pre and Post-COVID Net Incomes

Incomes are estimated for a pre-COVID scenario and a post-COVID scenario (see farmdoc daily, April 28, 2020 for a discussion of price scenarios). Prices used for the pre-COVID scenario are $3.90 per bushel for corn and $8.75 per bushel for soybeans. Under this scenario, net income is projected at $44,330, which is down from 2018 and 2019 levels. A $44,330 income would be at an insufficient level to maintain the financial position of most farms. Most farms would use working capital to provide for cash needs, resulting in reductions of working capital. Many farms would see net worth declines. This pre-COVID income estimate does not include any MFP payments. Due to low incomes, pressures likely would have built for a continuation of the MFP program into 2020, particularly without improvement in trade relations and growth in exports. Whether or not MFPs would have occurred in 2020 given the pre-COVID scenario is an open question.

Under the pre-COVID prices ($3.90 for corn, $8.75 for soybeans), ARC/PLC payments would not result for 2020 (payable in 2021), and the pre-COVID income statement in Table 1 does not include any ARC/PLC payments. Note that many Illinois farms would have received 2019 commodity title programs. These payments will be received in 2020 but should have appeared on the 2019 income statement, and been a receivable on the year-end 2019 balance sheet.



Post-COVID income is projected using 2020 cash prices of $3.20 per bushel for corn and $8.60 per bushel for soybeans. These prices are close to current bids for 2020 fall-delivery. As a result, crop revenue is reduced from $1,005,830 for the pre-COVID scenario to $890,960 for the post-COVID scenario, a decline of $114,870 (see Table 1). A number of other changes also are incorporated into revenue:
  • Coronavirus Food Assistance Program (CFAP) payments are included at $29,187 (see farmdoc daily, May 22, 2020). These payments are in the process of being paid. Our estimates represent CFAP payments of 40% of 2019 production (208 bushels per acre for corn and 64 bushels per acre of soybeans).
  • Marketing loss on 2019 crop. Grain held into 2020 likely was sold at lower values than that placed on year-end 2019 balance sheets. The -$43,680 loss is based on 40% of 2019 production being sold in 2020 at a loss of $.55 per bushel for corn and $.65 per bushel for soybeans.
  • Increase in 2019 ARC/PLC payments. Lower Market Year Average (MYA) prices will result because of the lower, post-COVID prices, increasing ARC/PLC payments for 2019. This will show as a gain on 2020 income statements because 2019 ARC/PLC payments would have been under-estimated for 2019.
  • 2020 ARC/PLC payments. These payments were unlikely in the pre-COVID scenario but are likely in the post-COVID scenario. The post-COVID scenario includes $43,000 of 2020 ARC/PLC payments. We estimate these payments at roughly $60 per base acre for corn and $0 per base acres for soybeans.
After considering all adjustments, gross revenue declines from $1,015,830 for the pre-COVID scenario to $946,467 for the post-COVID scenario, a decline of -$69,363. Net farm income is projected to decline from $44,330 per farm for the pre COVID–19 scenario to -$25,033 for the post-COVID scenario (see Table 1).

Commentary

A -$25,053 net income would be very low, and result in negative net incomes on most Illinois grain farms. However, the -$25,033 does not include other forms of assistance such as the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs administered through the Small Business Administration (SBA). Both are loan programs, not direct payments. However, PPP loans are forgivable provided used for qualifying business expenses (see farmdoc daily, April 14, 2020). Though EIDL loans are not forgivable, an emergency advance portion, for those who received it, did not have to be repaid (see farmdoc daily, May 12, 2020). A significant number of farms have enrolled in these programs, but likely not the majority of grain farms in Illinois. Moreover, any forgivable aid from these programs likely will not be enough to cause incomes to be positive.

Also not included in the -$25,033 is additional Federal aid currently being discussed in Congress and at the USDA. Given the above projections, additional aid at the levels of last year’s MFP program would be needed to bring incomes close to 2019 levels, with last year’s income levels not being at a particularly high level.

Of course, much could change projections. Favorable market news is possible, perhaps leading to higher prices. Surprises often occur in agriculture. Of course, more negative results are possible as well.

Much of 2020 income is dependent on Federal aid. More Federal aid could cause 2020 incomes to be near or above 2019 levels. More worrisome is 2021, which likely will have lower levels of Federal aid. Given recent setbacks in Coronavirus control, it seems reasonable to expect social distancing measures to be relatively long-lasting, quite possibly into next summer and beyond. If this is the case, ethanol demand could remain low, and the economy will not be in full recovery. Demand for crops could remain low going into 2021, and 2021 could be a very low-income year for Illinois grain farms.

Prevented Plant Impacts on 2019 Illinois Grain Farms Incomes

link to farmdoc Daily article

In 2019, spring weather was very wet, and many farmers in Illinois had prevented plant (PP) acres. Compared to 2018 incomes, 2019 incomes declined more for those farms that had a larger proportion of their acres in PP. While some have suggested that PP payments may overcompensate farmers, the income results presented in a new paper from the University of Illinois do not support the contention. Todd Gleason has this discussion with ag economist Gary Schnitkey.




Farms Included in Study

Table 1 shows 2018 and 2019 incomes on Illinois grain farms enrolled in Illinois Farm Business Farm Management (FBFM). To be included in Table 1, a farm had to meet the following criteria:
  • Receive the majority of their incomes from grain operations,
  • Have over 500 acres, and
  • Have records that were certified useable by Illinois FBFM staff in both 2018 and 2019.
A total of 1,483 farms meet these criteria, with results for all farms given in Panel A.
For all farms, tillable acres averaged 1,525 per acre, with a range of 500 acres to over 13,000 acres. Net farm income averaged $184,460 in 2018, declining by 51% to $89,866 in 2019 (see Panel A of Table 1)



Income Declines as Percent Prevented Plant Acres Increases

In Panel A, the 1,483 farms are divided into five categories based on the proportion of PP acres. In 2019, 73% of the farms had no PP acres. Even given the wetness of 2019, most Illinois grain farms planted all acres in 2019. Still, of the farms in this sample, a sizable proportion (26%) has some PP. Of those farms that had PP, 15% had less than 10% of their acres in PP. Percentage of farms then declines as the proportion of PP acres increased: 8% had between 11 and 30% of acres in PP, 2% had between 31% to 50%, and 4% had over 50%.
Incomes declines became more negative as the proportion of acres of PP increased, as shown in the last column in Panel A of Table 1. With no PP, the average income change was –45% from 2018 to 2019. The income change was
  • –53% when PP when less than 10%,
  • 97% when 11% to 30% of acres were PP,
  • –103% when 31% to 50% of acres were PP, and
  • –112% when over 50% acres were PP.
On average, net incomes in 2019 were negative when over 31% of acres where PP: -$3,832 per farm when PP was between 31% to 50%, and -$12,638 when PP was over 50% of tillable acres.
Incomes in Table 1 include all sources of revenue, including that from additional government payments offered in 2019 to counter incomes lost due to trade difficulties. Market Facilitation Program (MFP) payments are included in revenue (farmdocDaily, July 30, 2019). Also included is the 10% increase in PP payments.

Income Declines by Region in Illinois

Northern Illinois had more delayed planting than other areas of Illinois. Only 43% of the farms located in northern Illinois got all their acres planted, compared to 81% for central Illinois and 60% for southern Illinois. Over 10% of northern Illinois farms had over 30% of their acreage in PP (6% in 315 To 50% and 4% in over 50% categories) Income declines were larger in northern Illinois than in other parts of Illinois. The average income change in northern Illinois was –76%, compared to –45% for central Illinois and 53% for southern Illinois.

Commentary

The above results do not present an analysis of whether taking PP or planting was the correct decision. To conduct that PP/plant comparison, one would have to link up farms with the same growing conditions who made different PP/plant decisions and then see corresponding results. In this article, we compare incomes with different levels of PP. Given the reluctance of Illinois farmers to take PP, we assumed that most farmers who took PP had no alternative but to take PP. 
There has been some thought that PP payments may provide more than adequate compensation (see Brasher, https://www.agri-pulse.com/articles/12390-coverage-changes-could-limit-prevent-plant-payout ). In 2019, for example, the Risk Management Agency lowered the standard PP payment factor on corn from 60% of the guarantee to 55% (see Risk Management Agency, https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Prevented-Planting-Coverage-Factor-Changes-for–2019 ). As incomes decline with more PP, income results in this article do not support the contention that PP provides overcompensation. Of course, results could vary by across years.

USDA Surprises Drive Corn Prices Higher

original farmdoc Daily article

by Todd Hubbs, ILLINOIS Extension

The Acreage and Grain Stocks reports, released on June 30, produced some surprises for the corn market. The drop in acreage spurred a rally in corn prices and injected some optimism into the corn outlook moving into the 2020 marketing year. The market turns to weather forecasts and the upcoming WASDE report for price formation over the short term.




Corn producers reported they planted or intended to plant 92.01 million acres of corn this year, 2.31 million more than planted in 2019. Corn planted acres came in 3.2 million acres lower than the average trade guess and 4.98 million acres smaller than March planting intentions. Compared to March planting intentions in major producing states, the June survey revealed lower corn acres in all states. In particular, the western Corn Belt saw substantial acreage reductions with North Dakota (800,000 acres), South Dakota (600,000), and Nebraska (700,000) leading the way. The eastern Corn Belt saw one million acres of corn dropped from March intentions with Illinois and Indiana at 400 thousand acres each. The five million acres drop in corn acres did not move into other principal crops and hints at expanded prevent plant acreage for corn this year.

Producer intentions to plant principal crop acreage show a 9.3 million acre increase from 2019. The USDA estimates that acreage planted to principal crops will total 311.9 million acres. The planned increase in total planted acreage from a year ago came from increases in feed grains and soybeans. Sorghum acreage came in 355,000 acres higher than a year ago at 5.62 million acres. Barley and oats increased by 76,000 and 324,000 acres, respectively. Soybean planting intentions indicated farmers plan to plant 83.8 million acres of soybeans, up 7.7 million acres from 2019. The soybean acreage came in at the low end of market expectations. An additional 2.24 million acres of corn remain unplanted at the time of the survey and brings into question whether those acres may end up in alternative crops or unplanted. The surprise in corn planted acreage led to a strong rally in corn prices. The market’s focus now turns to demand and weather.

While the Acreage report revealed a positive surprise for corn prices, the June 1 stocks report came in much higher than expected. June 1 corn stocks came in at 5.224 billion bushels, slightly higher than last year and about 273 million bushels larger than the average trade guess. The higher than expected stocks total revealed a lower level of feed use in the third quarter of the marketing year. Feed and residual use during the first three quarters of the marketing year sits at 4.729 billion bushels. To reach the projected 5.7 billion bushels of corn, the USDA projects for feed and residual during this marketing year, feed and residual use in the fourth quarter must equal 971 million bushels. Fourth quarter feed and residual use has not equaled that level since the 2005–06 marketing year. Based on current stocks estimate, it appears feed and residual use this year may not reach the projection of 5.7 billion bushels and may see the USDA lower the estimate in the next WASDE report on July 10.

A lower feed and residual amount points toward a larger carry out into the next marketing year. The potential for the current marketing year ending stocks eclipsing 2.2 billion bushels, while not sure, looks high. Ethanol production continues to recover from the weakness seen in April and May. Corn use for ethanol in the third quarter totaled 955 million bushels, down 387 million bushels from the third quarter of the last marketing year. For the week ending June 26, ethanol production came in at 900 thousand barrels a day, up almost 18 percent from a month ago. The recent uptick in Covid–19 cases and subsequent policies enacted around the country to fight the spread insert a considerable level of uncertainty into ethanol use projections. Corn use for ethanol may flatten out as the virus’s resurgence mitigates economic activity during the peak driving season and may carry over into the next marketing year. An expectation of USDA lowering corn use for ethanol by 50 million bushels in the next WASDE report seems reasonable.

Corn exports appear on track to hit the USDA estimate of 1.775 billion bushels for the current marketing year. Outstanding sales as of June 25 sit at 332 million bushels. Exports through June 25 for the marketing year total near 1.38 billion bushels. While the export pace sits slightly below the USDA estimate, some light Chinese buying and strong domestic prices in Brazil hold positives for corn exports. Higher corn prices and the potential for slow global growth may prevent an acceleration of exports as the calendar moves into the next marketing year.

A higher carry out, despite lower acreage, places an added emphasis on yield potential. Some dryness in major corn-producing areas looks feasible over the near term. The recent drought monitor showed areas in North Dakota, Illinois, and Indiana poised to come under stress if dryness continues. The overall impact on the crop is challenging to predict now. An extended dry period as the early-planted crop moves into pollination will push corn yields lower. The projection for harvested corn acres sits at 84 million acres, 2.7 million more than harvested in 2019. If USDA’s yield projection of 178.5 comes to fruition, corn production comes in near 15.0 billion bushels with the present acreage intentions, up around 1.37 billion bushels from 2019.

Corn prices already reflect lower acreage and weaker demand. Subsequent rallies in corn prices rely on the weather. The prospect of the market building a weather premium seems high over the next week given the current weather forecast.

ISAP | Conservation Practices, the Supply Chain, & Consumers

Margaret Henry, Director of Sustainable Agriculture - Pepsico
Ryan Sirolli, Global Row Crop Sustainability Director - Cargill

Companies along the food and fiber supply chain are thinking through how to incentivize clean water and conservation practices while providing for consumers’ wants and demands.