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2020 All Day Ag Outlook




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Tuesday, March 3, 2020
Beef House
16501 Indiana 63
Covington, Indiana 47932

Registration
9:00am eastern / 8:00am central

Opening Remarks
9:25am eastern / 8:25am central
        • Todd E. Gleason, ILLINOIS Extension

The Future of Agriculture
9:30am eastern / 8:30am central
        • Steve Maulberger, Vice President Crop Risk Services, Inc.

Cash Grain Panel
10:00am eastern / 9:00am central
        • Matt Bennett, AgMarket.net
        • Aaron Curtis, MID-CO Commodities
        • Brian Stark, The Andersons
        • Chuck Shelby, Risk Management Commodities

Global Weather
11:00am eastern / 10:00am central
        • Eric Snodgrass, Nutrien Ag Solutions

Soybean Panel
11:30am eastern / 10:30am central
        • Dave Chatterton, Strategic Farm Marketing
        • Merrill Crowley, Midwest Market Solutions
        • Ellen Dearden, AgReview
        • Chip Nellinger, Blue Reef AgriMarketing

Lunch and Trade Show
12:15pm eastern / 11:15am central

ARC/PLC, MFP, & Crop Insurance
1:15pm eastern / 12:15pm central
        • Gary Schnitkey, ILLINOIS Extension

Corn Panel
1:45pm eastern / 12:45pm central
        • Curt Kimmel, Bates Commodities
        • Wayne Nelson, L&M Commodities
        • Mike Zuzolo, Global Commodity Analytics & Consulting
        • Jacquie Voeks, Stewart Peterson
        • Dan Zwicker, Zwicker Consulting

Let us know if you are interested in sponsoring the All Day Ag Outlook.
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Submit Input to NRCS on Easement Rule


The Natural Resources Conservation Service has posted a new Agricultural Conservation Easement Program rule to the Federal Register. The Assistant State Conservationist for Easement Program from Illinois NRCS explains just how easements work and what the new rules offer. Listen to Todd Gleason’s interview with Paula Hingson.


USDA NRCS Press Release

Champaign, Illinois – USDA’s Natural Resources Conservation Service (NRCS) seeks public comments on its interim rule for the Agricultural Conservation Easement Program (ACEP). ACEP is USDA’s premier conservation easement program, helping landowners protect working agricultural lands and wetlands. The interim rule – now available on the Federal Register – will be in effect until the final rule is published. These activities will make changes to the program prescribed by the 2018 Farm Bill.

“Through easements, agricultural landowners are protecting agricultural lands from development, restoring grazing lands and returning wetlands to their natural conditions,” said Ivan Dozier, NRCS State Conservationist in Illinois. “The new changes to ACEP under the 2018 Farm Bill make it stronger and more effective and will result in even better protection of our nation’s farmlands, grasslands and wetlands.”

NRCS is investing more than $300 million in conservation easements for fiscal 2020. NRCS state offices will announce signup periods for ACEP in the coming weeks. Changes to ACEP for agricultural land easements include:

  • Authorizing assistance to partners who pursue “Buy-Protect-Sell” transactions.
  • Requiring a conservation plan for highly erodible land that will be protected by an agricultural land easement.
  • Increasing flexibility for partners to meet cost-share matching requirements.

Changes to ACEP for wetland reserve easements include:

  • Identifying water quality as a program purpose for enrollment of wetland reserve easements.
  • Expanding wetland types eligible for restoration and management under wetland reserve easements.

“Conservation easements have a tremendous footprint in the U.S. with nearly 5 million acres already enrolled. That’s 58,000 square miles,” NRCS Chief Matthew Lohr said. “This is a great testament to NRCS’s and landowner’s commitment to conservation.”

Submitting Comments NRCS invites comments on this interim rule through March 6 on the Federal Register. Electronic comments must be submitted through regulations.gov under Docket ID NRCS–2019–0006. All written comments received will be publicly available on regulations.gov, too. NRCS will evaluate public comments to determine whether additional changes are needed. The agency plans on publishing a final rule following public comment review.

Applying for ACEP ACEP aids landowners and eligible entities with conserving, restoring and protecting wetlands, productive agricultural lands and grasslands. NRCS accepts ACEP applications year-round, but applications are ranked and funded by enrollment periods that are set locally.

For more information on how to sign up for ACEP, visit your state website at nrcs.usda.gov or contact your local NRCS field office.

Gary Schnitkey on the ARC/PLC Decision

Farmers will be making two government program decisions on or before March 15th. What to do about crop insurance is one of them. The other is to enroll in the updated farm safety net programs.


The 2018 Farm Bill included some changes that require farmer to do a couple of things. First, they'll want to update their yields with FSA, if and only if the current set is higher than those already on record. Second, a decision must be made about which farm safety net to use for the crop harvest last year, and the one that will be harvested this year. Gary Schnitkey from the University of Illinois has some advice, "If you have a farm that is complete Prevent Plant, I think you are going to want to do ARC-IC. One FSA farm. If they are yielding at all, you'll probably lean to PLC for corn, ARC-CO for soybeans and PLC for wheat".

You may learn more about ARC-IC on the farmdoc website. ILLINOIS has developed a set of tools farmers can use to help them make the best possible ARC/PLC decision no matter where they live. It includes, says Schnitkey, a calculator that runs on a super-computer, "The calculators are online. The Gardner ARC/PLC tool will allow you to look at the probabilities of these things making payments. Again, corn is not likely to make payments in 2019. Soybeans similarly. Wheat will make a PLC payment for 2019. So, you can look at the Gardner ARC County / PLC calculator for that. There is a 2018 Farm Bill Tool that is a Microsoft Excel speadsheet and you can use that to look at different prices and yields to see what ARC-County, ARC-IC, and PLC will do in those situations".

The ARC/PLC safety net decision is due to be made at the Farm Service Agency office by March 15th. The ARC/PLC calculators are online at https://farmdoc.illinois.edu/2018-farm-bill.

Revision of 2020 Corn and Soybean Budgets


The new trade deals have caused Gary Schnitkey to update the price outlook for the 2019 and 2020 growing seasons. As you’ll hear from Todd Gleason this really didn’t change much in the #ILLINOIS crop budgets for corn or soybeans.

by Gary Schnitkey, ILLINOIS Extension Agricultural Economist
link to farmdocDaily article

Budgets for 2020 have been revised and are now available on farmdoc. Revised budgets use a corn price of $3.90 per bushel and soybean price of $9.10 per bushel, both of which are an increase in price expectations following what appears to be softening of trade difficulties between China and the U.S. Even at those prices, returns are projected at negative levels for 2020. Before 2020 returns are positive, yields must be well above trend or Market Facilitation Program payments must continue in 2020.

Corn Returns Table 1 shows 2018 actual returns for both corn and soybeans grown on high-productivity farmland in central Illinois. These values are summarized from farms enrolled in Illinois Farm Business Farm Management (FBFM). Table 1 also shows 2019 values, which still are projections because FBFM financial statements have not been summarized. Also shown are projections for 2020.



Across FBFM farms, farmer return for corn averaged $8 per acre in 2019. In 2019, the average yield was 237 bushels per acre, and the price averaged $3.60 per bushel. Total non-land costs of $574 per acre include all financial costs of producing corn. Land costs also are subtracted. The $274 per acre land costs represent an average cash rent for high-productivity farmland in central Illinois. Share rent and owned land will differ from cash rent, and generally, be lower than cash rent costs.

Farmer return was -$4 in 2019, about the same as the 2018 level of $8 per acre. Yields were lower in 2019: 196 per acre in 2019 as compared to 237 bushels per acre in 2018. Offsetting yield declines are $82 per acre in MFP payment, an increase from the $1 level in 2018. Corn returns would have been very negative had not MFP payments occurred.

For 2020, farmer returns are projected at -$37 per acre, down from the -$4 return in 2019. In 2020, MFP payments are not included, thereby reducing corn revenue by $82 per acre. Partially offsetting no projected MFP payments are higher yields. The 2020 corn yield is projected at 211 bushels per acre, 16 bushels higher than the 195 bushels per acre yield in 2019. Prices used in return calculations are $3.90 per bushel for both 2019 and 2020. Given the same price, the 2020 crop revenue of $823 per acre is $62 higher than the $761 revenue in 2019.

There are possibilities for positive returns in 2020. Yields could again be above trend yields like in 2013 through 2018. If corn yields are at 230 bushels per acre, farmer return would be $37 per acre, with that increase assuming that the corn price remains at $3.90 per bushel, not a likely occurrence as high yields would lead to more corn supplies, which typically leads to lower corn prices. Another possibility for positive returns is another round of MFP payments in 2020.

Soybean Returns Farmer returns for soybeans were at $154 per acre in 2018 (see Table 1). Two items contribute to relatively high returns in 2018. One was a very high soybean yield of 74 bushels per acre. Even at a low soybean price of $8.85 per bushel, crop revenue was $655 per acre, higher than projected crop revenue in 2019 and 2020. The second was an MFP payment in 2018. In 2018, MFP payments for soybeans equaled a $1.65 per bushel MFP rate times production (The rate was $.005 for corn production). Production of 74 bushels per acre times $1.65 MFP rate resulted in an MFP payment of $122 per acre.

Farmer return in 2019 is at -$32 per acre, a $186 per acre decline from $154 per acre level in 2018. Even though the 2019 price of $9.10 is higher than the $8.85 price in 2018, 2019 crop revenue is lower at $501 per acre, $154 less than 2018 revenue. The 2019 projected yield is 55 bushels per acre, down from 74 bushels per acre yield in 2018. Also, MFP revenue for soybeans is $82 per acre, down by $40 per acre from the 2018 level of $122 per acre.

Farmer return for 2020 is projected at -$52 per acre, down by $20 from the -$32 level in 2019. Crop revenue is expected higher in 2020, $573 per acre in 2020, $72 higher than the $501 crop revenue in 2019. Higher projected yields contribute to increased revenue projections. The 63 bushels per acre projection for 2020 is a trend line projection.

Similar to corn, there are possibilities of higher returns in 2020. Above trend yields without a price decline would result in a higher return. For example, a higher yield of 70 bushels per acre results in farmer return of $12 per acre, given that price does not decline from $9.10 per bushel. A continuation of MFP payments could lead to higher returns as well.

Summary and Commentary
On many Illinois farms, incomes will be much lower in 2019 as compared to 2018. Illinois was hard hit by wet weather and delayed planting, which contributed to lower yields. Without MFP payments in 2019, returns would have been very low.

The 2019 returns in Table 1 are for high productivity farmland in central Illinois. Northern and southern Illinois will have much lower yields than central Illinois, resulting in much lower income projections for these areas of Illinois (projections are shown here.)

Again, projections are for a low return year in 2020. Higher incomes could result if 1) above-trend yields occur with no decline in prices or 2) another round of MFP payments are made on 2020 production. Time will tell if either happens.

Waiting for the Trade Deal


The highly anticipated release of USDA’s crop production and ending stocks reports last Friday created a somewhat negative tone in corn and soybean markets. Despite the slightly bearish tilt, prices for both commodities closed higher on Friday. The pending phase one trade agreement and South American production prospects look to set the tone for prices over the near term. - Todd Hubbs, ILLINOIS Extension



by Todd Hubbs, University of Illinois
link to original farmdocDaily article

Corn production for the U.S. in 2019 came in at 13.69 billion bushels, up 31 million bushels from the previous forecast on higher national average yields. Average corn yield of 168 bushels per acre is one bushel higher than the previous forecast. The harvested acreage estimate of 81.5 million acres is down from the November forecast of 81.8 million acres. Current production estimates for corn show eight percent of the crop still in the field and open the estimate to possible revision in the future.

December 1 corn stocks came in at 11.39 billion bushels. The estimate is 122 million bushels below trade expectations and indicates a total disappearance of 4.53 billion bushels in the first quarter of the marketing year. The USDA’s revision of the September 1 corn stocks higher by 107 million bushels along with greater production indicates a massive feed and residual use component in the first quarter.

At 5.525 billion bushels, the WASDE forecast for corn feed use and residual moved up by 250 million bushels from the previous forecast for the 2019–20 marketing year. Despite the significant boost in consumption from feed and residual, projected ending stocks fell only 18 million bushels from the previous forecast. Consumption projection for categories other than feed and residual fell 95 million bushels. While the corn use for ethanol forecast stayed steady at 5.375 billion bushels, the forecast for other industrial purposes decreased by 20 million bushels to 1.395 billion bushels. The forecast for corn exports dropped 75 million bushels to 1.775 billion bushels due to the continuation of weak export numbers through the first four months of the marketing year. The pending trade deal with China holds the promise for change in some of the consumption totals.

The phase one trade deal due to be signed sometime this week still lacks specificity. While the administration continues to tout agricultural export increases near $16 billion over 2017 totals of $24 billion, very little confirmation from the Chinese side has come forth thus far. The Chinese indicated that they would not exceed their global quota on corn imports for any individual country in 2020. The quota for corn stands at 7.2 million metric tons (near 283 million bushels). Through November of 2019, Census data indicates China imported 12.3 million bushels of corn from the U.S. during the calendar year. There remains plenty of room for increased Chinese imports of U.S. corn and corn-related products in 2020 despite the quota. Details surrounding the trade deal matter and look to help shape price prospects for corn over the next few months.

Foreign production projections for corn in the 2019–20 marketing year moved up slightly due to an increase in the European Union and Russian production. Brazil’s corn production forecast stayed at 3.98 billion bushels. Concerns about production losses for first crop corn in southern Brazil due to dry conditions continue to evolve. Strong domestic corn prices in Brazil point to producers planting the safrinha crop even if planting is later than ideal in many areas. Argentinian production forecasts stayed at 1.97 billion bushels. The forecast for Argentina and Brazil corn exports sit at 2.73 billion bushels, 335 million bushels lower than last marketing year. Given the current forecast for South American exports, the evolution of crop conditions in the region, particularly on the Brazilian safrinha crop, hold important implications for corn exports during the coming year.

Soybean production for the U.S. in 2019 totaled 3.558 billion bushels, up 8 million bushels from the previous forecast on higher national average yields. The national average soybean yield of 47.4 bushels per acre is 0.5 bushels higher than the previous forecast. The harvested acreage estimate of 75 million acres is down from the prior forecast of 75.6 million acres. Current production estimates for soybeans indicate two percent of the crop remains in the field. December 1 soybean stocks came in at 3.252 billion bushels, 66 million bushels above trade expectations.

The WASDE report maintained consumption and ending stock projections at the same levels seen in the last forecast. The crush forecast stayed at 2.105 billion bushels, reflecting the pace of soybean crush in the first quarter of the marketing year. Soybean export forecast levels of 1.775 billion bushels remained steady and mirrored the current pace of exports without the possible trade deal impacts. Unlike corn, soybeans do not face a quota scenario in China. A trade deal with specificity on soybean exports could provide support for prices.

A Brazilian crop at 4.519 billion bushels portends tough competition in world markets for U.S. exports. The Argentinian soybean production forecast stayed steady at 1.95 billion bushels. Forecasts for Brazil and Argentina soybean exports are set at 3.09 billion bushels over the marketing year, up 15 million bushels from last marketing year’s estimate. Increased U.S. soybean exports to China under the trade deal may see strong substitution buying of South American soybeans by other major buyers that may limit U.S. exports upside potential despite a trade agreement.

Additional discussion and graphs associated with this article available here.

Hog Numbers are Up & Profits Should Come

The number of hogs being raised in the U.S. has been going up since mid–2014. However, it isn’t necessarily because profits are great.

The last Hogs and Pigs report released by USDA, back in December, was a record-setter at 77 million 338 thousand. That’s three-percent more than year ago. The expansion comes despite unprofitable margins and uncertainties related to trade issues says Jason Franken of Western Illinois University. The fact is there will be more hogs going to market from January to May. One of the reasons, Franken says, is that the litter size has grown on average and is now over 11 piglets per sow, “The continuation of the upward trend in pigs per litter, combined with reported farrowing intentions suggests more hogs going to market in 2020.”

Winter farrowing intentions are up 1 percent from actual farrowings last year and 5% from two years ago. The spring farrowing intentions are also up slightly from last year and up 3 percent from 2 years back.

All of these numbers point to a somewhat higher supply of hogs and pork in 2020 thinks Franken. And, he says, with higher production, one might expect lower prices, but there are additional items to consider on the demand side. For instance, we’re eating more pork per person. Last year’s mark at 52.7 pounds each is the highest number since 1981. Exports are good, too, even to China, “On the world market, all eyes are on Asia, and China in particular, due to their production losses from African Swine Fever. Although held back by China’s retaliatory duties, U.S. pork exports to China increased throughout 2019. In September and October, China surpassed Japan to become our second largest foreign customer after Mexico.”

USDA, by-the-way, is forecasting U.S. pork exports in the first three quarters of 2020 to be 21%, 7.5%, and 8.8% greater than the corresponding quarters from last year. Taking all of this into account, WIU’s Jason Franken says hog prices should be profitable throughout much of 2020, even though they have been below the cost of production in recent weeks, as they often are seasonally at this time of year.

Conservation Reserve SignUp Opens

enroll at your local FSA

USDA's Conservation Reserve Program signup opens December 9 & closes February 28, 2020. There are currently 22 million acres in the program with room for 27 million. This map shows how acres enrolled decreased nearly 13 million from 2007 to 2016.



FSA has updated soil rental rates for CRP. Rates are statutorily prorated at 90 percent for continuous signup and 85 percent for general signup.

Use this link to download an Excel spreadsheet from USDA with the county rates.

MFP Payments and 2020 Cash Rents


MFP payments have had impacts on land rental rates. Moreover, uncertainty about the continuation of MFP in 2020 presents issues in setting cash rental rates. Given this uncertainty, we present the idea of setting cash rents at appropriate levels given the price and yield environment, likely lower than 2019 cash rent rates, with contingencies for cases in which MFP payments occur. By doing this, base cash rent is set at a level that allows the farmer to generate profits and leaves open the option for both parties to benefit if MFP payments occur in 2020.

by Gary Schniteky, ILLINOIS Extension
link to farmdocDaily article

Market Facilitation Program (MFP) payments have served as a significant source of revenue on grain farms in 2018 and 2019. Without MFP payments, average farmer returns would be negative in 2019, and far below any level since consistent records began in 2000. Without MFP payments, 2020 returns are projected to be negative. It is unknown at this time if MFP payments will occur in 2020, or the potential level of an MFP payment if the program continues. When developing cash rental rates, we suggest lowering cash rent levels if they are at or above averages for a productivity level, and then having the possibility of higher cash rents if MFP payments occur.

Historic Returns to Central Illinois
Figure 1 shows average operator and land return and average cash rent on high-productivity farmland in central Illinois, with historical values representing actual returns from grain farms enrolled in Illinois Farm Business Farm Management (FBFM). Documentation for values shown in Figure 1 is provided in Revenue and Costs for Illinois Grain Crops (click here for download). Historical and projected revenue assumptions also are given in a November 19, 2019 farmdoc daily article. Figure 1 shows returns for farmland given that 50% of the acres are in corn and 50% are in soybeans.



Two lines are shown in Figure 1. The first is operator and land return, representing a return to both the farmer and land owner. Costs for farmland are not included in operator and land return. If farmland is cash rented, the cost to the farmer is cash rent. Figure 1 also shows average cash rent in central Illinois. When operator and land return is above cash rent, a farmer will have a positive cash return on cash rented land. Losses occur when operator and land return is below cash rent.

Between 2006 and 2013, a period in which corn and soybean prices were relatively high, operator and land returns exceeded cash rents by large margins. This period was characterized by higher net incomes (see farmdoc daily, November 19, 2019). Cash rents were rising during this period in response to higher operator and land returns.

Average operator and land returns have been roughly the same as average cash rents since 2013:
  • 2014: Operator and land return was $290 per acre, cash rent was $293 per acre, and farmer return was -$3 per acre.
  • 2015: Operator and land return was $265 per acre, cash rent was $278 per acre, and farmer return was -$13 per acre.
  • 2016: Operator and land return was $291 per acre, cash rent was $273 per acre, and farmer return was $18 per acre.
  • 2017: Operator and land return was $250 per acre, cash rent was $267 per acre, and farmer return was -$17 per acre.
  • 2018: Operator and land return was $355 per acre, cash rent was $274 per acre, and farmer return was $81 per acre.
  • 2019 Projections are for an operator and land return of $273 per acre, cash rent of $274 per acre, and farmer return of -$1 per acre.
Lower returns after 2013 largely occurred because of declines in commodity prices. Returns shown in Figure 1 suggest that cash rents should decline because farmers need to obtain a positive return for the risks, labor, and management of farming. Likely reasons that cash rents farmers are paying have not declined are 1) financial reserves built during the period of high incomes from 2006 to 2012 are allowing farmers to continue paying high rental rates in hopes that higher commodity prices in the future will make those rates profitable (farmdoc daily, October 4, 2016 and October 23, 2018), and 2) positive returns from owned and share rented farmland are used to subsidize cash rent farmland (farmdoc daily, August 22, 2017). Trade disputes, and other factors such as African Swine Fever in China, have considerably diminished chances of higher prices in the near future.

Impacts of MFP payments
In 2018, trade disputes between the U.S. and other countries began impacting agriculture, with the tariff battle between China and the U.S. receiving a great deal of attention. Soybean prices declined throughout the year as the trade dispute continued. On central Illinois farms, prices averaged $8.85 per bushel for soybeans produced in 2018, down from the $9.81 average from 2013–2018.

Although soybean prices were down, returns were positive for central Illinois farmers, at the highest level since 2013 (see Figure 1). In 2018, operator and land return exceed cash rent by $81 per acre. Both exceptionally high yields and MFP payments contributed to this higher return. In 2018, MFP payments accounted for $62 per acre of return, with most of that coming from soybean acres (see farmdoc daily, November 19, 2019). Without the MFP payments, farmer return in 2018 would have been $19 per acre, in the range of returns in other years since 2013.

In 2019, farmer return is projected at -$1 per acre. Returns are down in 2019 because of much lower yields. MFP payments have a large, positive impact on returns. For 2019, MFP payments for central Illinois grain farms are estimated at $82 per acre, up by $20 from average 2018 levels (see farmdoc daily July 30, 2019 for a list of payments by county). This $82 level assumes that all three tranches of MFP payments are paid. Two tranches totaling three quarters of the payment amount have been paid.

The third tranche, if confirmed, would be distributed in early 2020 with the remaining quarter of the payment. Without a MFP payment, 2019 returns are estimated at -$83 per acre, the lowest farmer return since 2000 (see Figure 1).

Figure 1 also includes projections for 2020. Operator and land return is projected at $232 per acre, cash rent at $270 per acre, and farmer return at -$38 per acre. The 2020 projection is based on a return to trend yields. Exceptional yields like those in 2018 would be needed to get positive returns given prices of $3.90 per bushel for corn and $9.00 for soybeans. However, prices may fall to lower levels if exceptional yields occur. As a result, crop revenue increases alone likely will not lead to higher farmer returns. Positive returns in 2020 may be dependent on some level of support, such as the continuation of the MFP.

MFP Payments in Perspective
In the last two years, MFP payments have been a significant source of revenue on Illinois grain farms. In 2018, MFP payments represented 8 percent of total gross revenue received from corn and soybeans production. In 2019, MFP’s share is presented at 11 percent (see Figure 2).



Government payments have not accounted for that large of a share of gross revenue on Illinois grain farms since the early 2000s. In the early 2000s, government support to farmers through the Agricultural Market Transition Act, Market Loss Adjustment, and marketing loan programs represented a higher share of gross revenue. For example, government payments were 25% of gross revenue in 2000, 23 percent in 2001 (see Figure 2)

Cash Rents Corn and soybean prices fell and were at lower levels in both the early 2000s (beginning in 1998) and since 2018. Those lower prices then led to governments payments. In the early 2000s, those payments were legislated through Congress. The MFP payments come through different authority, with levels determined through a process that is not transparent (see farmdoc daily, November 21, 2019 for more discussion of the MFP program). Also, the levels of MFP payments from one year to the next are not known. For 2019, administrative officials indicated that MFP payments would not occur up to May 2019. In actuality, MFP payments on most farms will be higher in 2019 than in 2018.

Counterfactuals are difficult to prove, but it seems likely that farmers in the early 2000s would have had to make larger adjustments in response to lower commodity prices had government support not existed. In the end, land returns likely would have declined, and cash rents fallen.

Similarly, cash rents likely would have fallen in 2019 as a result of lower commodity prices in 2018 had MFP payments not existed. The extent to which they would have fallen depends on how participants view the permanence of lower soybean prices. If soybean prices will continue below $9.00 for several years, cash rents need to adjust downward if MFP payments do not continue.

2020 Cash Rents
The uncertainty of MFP payments presents an issue for setting 2020 cash rents. If MFP payments do not occur, farmers could face large losses if cash rents levels are set as if MFP payments will occur. On the other hand, MFP payments at the 2018 and 2019 levels could result in good farmer returns, particularly if yields are exceptional. This uncertainty obviously adds to the difficulty in making cash rent decisions for 2020.

As farmers and landowners negotiate rental rates for 2020, several factors should be considered. Cash rental rates have remained relatively flat despite a lower price environment since 2013. The average central Illinois cash rental rate has put farmer returns below break-even in three of the last five years, and likely right at break-even in 2019 including the full MFP payment.

Given the uncertainty about MFP payment, an appropriate approach would be to set a cash rent without the MFP considered in budgeting and allowing for an increase in the rent if the MFP occurs.

As an example, consider 2020 projections. Without an MFP payment, 2020 operator and land return is projected at $232 per acre. This $232 per acre is considerably below the 2018 average rent of $273 per acre. Setting a cash rent at $230 per acre would result in a $2 projected return to the farmer, not a desirable return, but better than a loss that would result with a cash rent at the $273 average for 2019. The lease could then have a clause that shares the MFP payments 50–50 between the land owner and farmer. If an $82 per acre MFP payment is received — equivalent to the average projected payment for 2019 — the farmer would make an additional payment of $41 to the land owner, resulting in total rent to the land owner of $271 per acre ($230 base cash rent plus $41 payments from the MFP payment), and a $43 return to the farmer ($2 projected return with MFP pulse $41 from MFP).

Several notes about the above lease:
  1. A share-rent arrangement has risk sharing directly built into the lease. As a result, MFP payments already are considered in share-rent arrangements
  2. The above lease is very close to a variable cash lease (see farmdoc daily, September 9, 2015 for a discussion of one-type of variable cash leases. Click here for a lease). Variable cash leases would consider possible higher returns due to higher prices or yields. Inclusion of MFP like payments in variable cash leases seems warranted if base levels are low enough such that farmers do not take large losses at base rent levels.
  3. Base levels need to be set low enough so that farmer risks are reduced. Putting a clause for MFP sharing without lowering cash rents simply shifts returns from farmers to land owners, and adds risk to the farmer.
  4. The 50–50 sharing percent is dependent on having the base level low enough that farmer risks are reduced. Given the current economic environment, base rent levels should be well below cash rent levels. A method for determining average cash rents for different cash rent levels is presented in a November 7, 2017 farmdoc daily article.

WILLAg IFES Post


2019 was a truly historic and in many ways unbelievable year for Illinois agriculture. The ongoing trade war with China and the on- and off-again efforts to reach an agreement dominated headlines much of the year. As if this wasn’t enough uncertainty for one year, Illinois was hit by one of the wettest spring planting seasons on record. Looking forward, the story of Illinois agriculture will continue to be one of managing volatility and financial difficulties. The stress of a prolonged period of low corn, soybean, and wheat prices, was amplified for producers experiencing low yields this year due to poor planting and summer growing season weather. Producers and landowners continue to face a series of difficult management challenges as they grapple with adjusting to this highly volatile economic environment. What is the prospect for a recovery in grain prices? Should cash rents be lower? And if so, how much? How much will government programs offset some of the financial stress? The members of the farmdoc team from the Department of Agricultural and Consumer Economics and University of Illinois Extension will be holding a series of five Illinois Farm Economics Summit meetings to help producers navigate these tumultuous times.


The registration fee for each location is $85 per person.  Save $5 by registering online for $80.  This fee includes all meeting materials, break refreshments, and lunch.  Registration at the door will be $90 per person, as space permits.
For registration questions contact Nancy Simpson at 217-244-9687 (8am to 4pm CST) or nsimp1@illinois.edu.
The registration deadline is December 9th, 2019


Monday, December 16 – Mt. Vernon Holiday Inn
Tuesday, December 17 – Springfield Crowne Plaza
Wednesday, December 18 – Peoria Par-A-Dice Casino
Thursday, December 19 – Dekalb Faranda’s Banquet Center
Friday, December 20 – Champaign I Hotel





2019: THAT Just Happened
Scott Irwin, Professor
Department of ACE, University of Illinois

What Did We Learn with Delayed Planting? Farm Management Implications
Gary Schnitkey, Professor
Department of ACE, University of Illinois

Illinois Farm Income: 2019 Projections and Outlook for 2020
Dale Lattz, farmdoc Research Associate
Department of ACE, University of Illinois

The ARC/PLC Decision in the New Farm Bill
Jonathan Coppess, Assistant Professor
Department of ACE, University of Illinois

Trade, MFP, and Policy Directions
Nick Paulson, Associate Professor
Department of ACE, University of Illinois

Grain Price Outlook for 2020
Todd Hubbs, Assistant Professor
Department of ACE, University of Illinois

Register for the Illinois Farm Economic Summits

click page to register





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Projected Net Incomes on Illinois Grain Farms in 2019 and 2020



by Gary Schnitkey, ILLINOIS Extension

Due to lower corn and soybean yields, 2019 net farm incomes on Illinois grain farms are projected to decline more than $80,000 per farm from 2018 levels. The low yields are partially offset by higher corn and soybean prices and higher MFP payments in 2019 as compared to 2018. Incomes in 2020 are projected to be negative if yields are at trend levels and Market Facilitation Program (MFP) payments do not occur.

Historic Net Incomes on Illinois Grain Farms
Figure 1 shows average yearly net incomes on grain farms enrolled in Illinois Farm Business Farm Management (FBFM). These net incomes are averages across all grain farms in Illinois. Size, tenure relationships, and financial structures vary across these farms. Many farms are below 1,000 tillable acres, and some farms have over 8,000 acres. Over time, the size of farms has grown. In 2018, the average number of tillable acres was around 1,500 acres.



As can be seen in Figure 1, there are three distinct periods of net income. Between 1996 and 2005, net income averaged $55,000 per farm. This period was characterized by relatively low corn and soybean prices, resulting in low incomes. Income during this period reached a low of $11,000 in 1998, a year in which government programs were instituted to provide price and income support to grain farms.

From 2006 to 2013, incomes were much higher, averaging $189,000 per farm. Corn and soybean prices were higher than the other two periods due to increased use of corn in ethanol production, growing export demand for soybeans, and yield shortfalls occurring in several years. The prime example of a yield shortfall was 2012, a year of intense drought over much of the eastern and lower corn-belt. While yields were low in 2012, corn and soybean prices reach all-time highs. High prices, along with proceeds from crop insurance products, resulted in a record income of $298,000 per farm.

Prices have been lower since 2013, with corn prices generally being below $4.00 per bushel and soybean prices being below $10.00 per bushel. From 2013 to 2018, net incomes have averaged $79,000 per farm, about $110,000 less per farm than the 2006–2012 period. Incomes during the 2013–2018 period have been $24,000 higher than the 1996–2006 period, but have been much more variable. Incomes have varied from $500 per farm in 2015 up to $147,000 in 2018.

Compared to 2013 through 2017, incomes were much higher in 2018. In 2018, soybean prices fell partially due to U.S. trade disputes with China and other countries. In 2018, central Illinois farms on high-productivity farmland averaged $8.85 per bushel of soybeans, down from the $9.81 per bushel average from 2014 to 2018 (see Table 1). Two factors countered this price decline resulting in higher 2018 incomes:
  1. Yields were exceptional. While yields have been high since 2014, 2018 yields were truly outstanding. On central Illinois farms, corn yields averaged 237 bushels per acre in 2018, 16 bushels per acre higher than the 221 bushel average from 2014 to 2017. Soybean yields averaged 74 bushels per acre, 8 bushels higher than the 67 bushel average from 2014 to 2017.
  2. Market Facilitation Program (MFP) payments. In 2019, MFP payments in central Illinois averaged $122 per acre for soybeans and $1 per acre for corn. Without these payments, 2018 incomes would have been below the 2013–2017 average.


Projected 2019 Incomes
The average net income in Illinois will be below $60,000 per farm, much lower than in 2018, with possibilities for incomes approaching 2015 levels on many farms. Most of the decline in net income is associated with lower gross revenue, as opposed to a significant change in expenses. On central Illinois high-productivity farmland, gross revenue averaged $819 per acre in 2018, given that 50% of the acres were in corn and 50% were in soybeans (see Table 1). Average gross revenue is projected at $761 per acre in 2019, $58 lower than in 2018. Factors impacting revenue from 2018 to 2019 are:
  1. Lower yields. In central Illinois, corn yields are projected at 205 bushels per acre in 2019, down by 32 bushels per acre from 2018 levels. Soybeans yields are projected at 58 bushels per acre, down by 16 bushels per acre from the 74 bushel average in 2018. Lower yields are the major reason for lower incomes.
  2. Prices are projected to be higher in 2019 as compared to 2018. Projections are made with a $3.90 corn price in 2019, compared to a $3.60 price in 2018. Soybean prices are projected at $9.00 for 2019, compared to $8.85 in 2018. Higher prices partially offset lower yields, resulting in higher incomes.
  3. MFP payments are projected at $82 per acre for both corn and soybeans in 2019. MFP payments will average about $20 per acre higher in 2019 as compared to 2018 on Illinois grain farms. Without MFP payments, average income on Illinois grain farms would be negative in 2019.
The $58 per acre decline in gross revenue from 2018 results in a net income that is $87,000 lower per farm ($58 per acre times 1,500 acres) in 2019. This leads to an estimate of net income for central Illinois farms of $60,000 ($147,000 income in 2018 minus $87,000 less income). Central Illinois likely will have some of the highest yields in the state, and therefore higher incomes than other areas. In northern Illinois, for example, yields are projected at 185 bushels per acre for corn, resulting in much lower income projections for northern Illinois. As a result, average incomes on Illinois farms likely will be below $50,000 per farm when averaged across Illinois.

Projected 2020 Incomes
Current projections would place revenue lower in 2020 as compared to 2019. In central Illinois, for example, average gross revenue is projected at $695 per acre in 2020, a decrease of $66 per acre from 2019 projected levels of $761 per acre (see Table 1). These projections are based on:
  1. A return to trend yields, which are higher than 2019 yields. Projections use a 211 bushel per acre yield for corn and 63 bushels per acre for soybeans.
  2. Stable prices of $3.90 per bushel for corn and $9.00 per bushel for soybeans.
  3. No MFP payments.
  4. No commodity title payments from Agricultural Risk Coverage or Price Loss Coverage.
These values would result in a negative average net income for 2020. Many factors could result in higher incomes, with two of the more likely factors being:
  1. A return to above-average yields. From 2014 to 2018, yields averaged 225 bushels per acre for corn and 68 bushels per acre for soybeans. These higher yields would result in average gross revenue of $745 per acre, still below the $761 projection for 2019. While higher yields are quite possible, those higher yields could be associated with price declines from projected levels. The impact of potentially lower prices are not considered in the projections, and would partially offset the impacts of higher yields.
  2. A continuation of the Market Facilitation Program. Another payment of $82 per acre will bring gross revenue near 2019 levels if yields return to trend levels.
Summary
Lower yields will contribute too much lower incomes on Illinois grain farms in 2019. A continuation of low incomes is projected into 2020. Without a continuation of the MFP program in 2020, incomes on Illinois farms will be negative if prices do not increase given that trend yields occur.
Soybean prices have fallen since the trade dispute began in 2018. Currently, soybean prices are near $9.00. Note that this $9 price results with considerably lower soybean acres in 2019, and much lower yields. In the current supply and demand environment, a return to more normal acres and above-trend yields likely would push prices below $9.00 per bushel. Farmers have not felt the full impact of lower prices because MFP payments have supported income in 2018 and 2019. If prices do not increase or yields are not exceptional, farms may have negative incomes without MFP payments in 2020.

Acknowledgements
The author would like to acknowledge that data used in this study comes from the local Farm Business Farm Management (FBFM) Associations across the State of Illinois. Without their cooperation, information as comprehensive and accurate as this would not be available for educational purposes. FBFM, which consists of 5,500 plus farmers and 60 professional field staff, is a not-for-profit organization available to all farm operators in Illinois. FBFM field staff provide on-farm counsel along with recordkeeping, farm financial management, business entity planning and income tax management. For more information, please contact the State FBFM Office located at the University of Illinois Department of Agricultural and Consumer Economics at 217–333–5511 or visit the FBFM website at www.fbfm.org.

Adding the Costs of Conservation to a Farm Lease


Farmers and landowners alike are wanting to try more conservation practices. Todd Gleason reports the timing and amount of nitrogen applications along with the use of cover crops can all be written into a farm lease.

farmdoc farm lease page link

(1) Soil Health and Conservation Addendum

The Soil Health and Conservation Addendum is for a landowner who seeks to reach clear understanding with the farm-tenant about practices on the land under lease. The addendum is a fillable pdf and the parties can negotiate the specific provisions to include in the addendum, memorializing the agreement by selecting the specific provisions. The provisions and fillable pdf are designed to be additive: each selected provision will be incorporated in the lease agreement.
Included among the provisions that can be selected are those for tillage practices and cover crop practices. There are also specific provisions pertaining to other conservation efforts that may be present on the farmland, such as ditches, vegetative buffers, terraces or other erosion control measures. The addendum also includes general options that address soil health and conservation efforts for the farmland. Finally, the addendum provides options for the parties to agree to adjustments in the annual rent based on the provisions for soil health and conservation selected above. All of these are only options and the parties are free to adjust or revise the provisions as they consider best and all are again advised to discuss with legal counsel before completing.


(2) Nutrient Management Addendum

Similarly, the Nutrient Management Addendum is a fillable pdf that provides for selecting basic provisions that can be incorporated into any lease. Among the options are those pertaining to adherence to the Maximum Return to Nitrogen (MRTN) for nutrient application on the land subject to the lease, as well as for requiring specific application practices such as split application. Options also include for soil testing, adoption of nutrient management plans and the application of manure, such as an agreement to avoid application on frozen ground.
This addendum also provides options for the parties to agree to adjustments in the annual rent based on the provisions for soil health and conservation selected above. All of these are only options and the parties are free to adjust or revise the provisions as they consider best and all are again advised to discuss with legal counsel before completing.


(3) Conservation Habitat Addendum

This addendum provides specific options pertaining to wildlife habitat on the farmland that is subject to the underlying lease. This addendum provides for general descriptions of the critical area and options for agreeing to basic maintenance or integrated pest management practices. The addendum also provides space for the parties to agree to any adjustments to the rent due to the conservation habitat on the farmland subject to the lease. Again, these options create or alter legal rights and both the landowner and the farm-tenant are advised to consult with their respective legal counsel before completing the addendum.

Tidbits from the ILLINOIS Fam Tax School

Farmers generally try to get their taxes in order before the end of the year. This season they may need to consider MFP and Prevented Plantings payments and how to best make charitable contributions.

The tax implications of the MFP payments are that the money is taxable in the year it is received. One-half of the MFP payment has already been or will be delivered shortly. It is expected 25% will be delivered in a second check in November. And if needed the third check, another 25% of the total, is likely to come in January. The first two checks are taxable in 2019, and the final portion would be taxable in 2020.

Another payment farmers may not be used to dealing with involves the Prevented Planting portion of crop insurance says Bob Rhea, “Those payments are either taxable when received, or under certain circumstances, could be delayed until 2020 the year after the disaster occurred. So, they should visit with their tax professional as they determine, especially as we near year end, whether those should be taken as 2019 income or used under the election to be treated as 2020 income.”

Rhea presented during this fall’s ILLINOIS Farm Tax School Seminars. He reminded the tax preparers in attendance that farmers also have a unique way to make charitable contributions, “IRS has prescribed some specific steps to validate a contribution with grain. One of those is that the grain must be delivered to the charity. The charity must be the owner of the grain in inventory, and the producer should notify the charity that he has provide x-number of bushels in their name at a certain location. The charity then, from that point, takes the risk and makes the sale and handles the cash proceeds from there.”

In simple terms the producer delivers grain in the name of the charity to the grain elevator, notifies the charity, and the charity then makes the sale.

Have Soybean Prices Put in a Low


The price of soybeans may have put in a seasonal low but there are a lot of factors at play. Todd Gleason has more on what farmers should do with University of Illinois Agricultural economist Todd Hubbs.

September 16, 2019
by Todd Hubbs, University of Illinois

Last week’s price rally in the soybean market relied on the prospects of easing trade tensions with China. The potential for soybean prices to maintain recent momentum depends on developments in trade negotiations and production prospects for both the U.S. and South America.



USDA’s September soybean production forecast came in at 3.633 billion bushels, down 47 million bushels from the August forecast. Yield per harvested acre fell by 0.6 bushels per acre to 47.9 from the August forecast of 48.5. Compared to the August forecast, yield prospects for the top ten states in soybean acreage increased in Missouri and Kansas. Yield prospects declined in Illinois, Iowa, Minnesota, Indiana, and South Dakota. North Dakota, Nebraska, and Ohio saw no change in expected yield from August.



The crop production report showed the lowest pod count for the 11-states in the objective yield survey since 2012. At 1,561 pods per 18-square feet, this year’s pod count led to an implied pod weight near 0.35 grams per pod. A pod weight at this level is the highest in a decade and led to speculation about potential lower pod weights in this late-planted crop. Over the last five years, pod counts increased from the September forecast to the final yield estimate. Pod weights over the same period fell in four out of the five years.

In conjunction with the lower production forecast, total supply for the 2019–20 marketing year dropped an additional 65 million bushels, to 4.658 billion bushels, on lower beginning stocks. Soybean crush and export estimates for the 2018–19 marketing year increased by 20 and 45 million bushels, respectively. The USDA left the 2019–20 soybean export forecast 1.775 billion bushels and the crush forecast at 2.115 billion bushels. Ending stocks for the 2019–20 marketing year fell to 640 million bushels, down 115 million bushels from the August projection. While expectations of strong crush levels remains in place for the next marketing year, the prospects of maintaining higher soybean prices fall on exports or production issues. The recent thaw in trade negotiations between China and the U.S. came as a rare positive development this year and prompted the rally in prices last week.



Soybean exports for 2018–19 came in down approximately 390 million bushels from the previous marketing year. Exports to China, using export sales data on accumulated exports, fell 544 million bushels from the previous marketing year and 835 million bushels from the 2016–17 marketing year. At around 490 million bushels, U.S. soybean exports to China have not been this low since the 2006–07 marketing year. The recent announcement of lower tariffs on soybeans and pork look to support soybean prices, but clarity on the level of tariff reductions and a guarantee of following through by Chinese buyers remain lacking. For the current marketing year through September 5, outstanding sales and accumulated exports total 39.3 million bushels. Recent reports place Chinese purchases in the range of 29.5 million bushels (804 thousand metric tons). Additional purchases may total between 37 – 110 million bushels. This amount of buying remains a long way from the levels of export needed to support prices in the long-term but provides a positive development on the trade front.

New agreements with Argentina and Russia on meal imports combined with an expanded emphasis to rebuilding the hog herd decimated by African swine fever point towards China preparing for an extended fight in the trade war. Additionally, Chinese soybean production sits at a forecast level of 628 million bushels, up 8 percent from last year. The lull in the trade fight may allow China to backfill soybeans and pork to alleviate domestic pressures and settle in for a protracted battle. While Chinese buying of South American soybeans may cool in the near term, the potential for U.S. soybean exports to remain at reduced levels from pre-trade war totals in the 2019–20 marketing year continues as a high probability. Soybean production prospects in South America will continue to be crucial over the next few months, particularly if the trade war rekindles.

The forecast of South American production for the 2019–20 marketing year came in at 7.03 billion bushels, up 2.4 percent from last year’s estimate. The projected size of the Brazilian soybean crop increased by 220 million bushels to a production level of 4.52 billion bushels. The soybean production forecast for Argentina decreased 84 million bushels from last year’s estimate to 2.032 billion bushels. Some early season dryness in southern Brazil and Argentina merits monitoring. A continuation of the current dryness may delay planting in some areas. However, it remains too early to forecast any definitive change in soybean production in those regions.

If production issues do not materialize, the status of the trade war will be paramount. Current U.S. crop prospects point to maintaining some of the recent price gains. A failure of trade negotiations in October may push prices back to ranges seen in early September. Marketing soybeans on price rallies associated with trade negotiations and weather may be prudent. The uncertainty related to production levels and trade remains exceptionally high.

MFP Impact on 2019 through 2023 Incomes and Financial Positions

read farmdocDaily post

Market Facilitation Program (MFP) payments in 2019 of $50 per acre will reduce financial erosion on farms. Still, incomes for 2019 are projected to be over $100,000 lower than 2018 incomes.

2019 Northern Illinois Crop and Prevent Plant Budgets in July

by Gary Schnitkey, University of Illinois
link to farmdocDaily article

Overall, projections suggest low returns for corn, soybeans, and prevent plant acres in Northern Illinois, an area that has been hard hit with wet weather, delayed planting, and prevent planting. Corn and soybean returns are projected to be lower than any year going back to 2000, even after including significant Market Facilitation Program (MFP) payments and estimates of crop insurance payments at an 85% coverage level. Corn prevent planting returns are higher than corn returns given current estimates of harvest-time prices, although both results in a loss on average cash rented land. Soybean returns are expected to be better than soybean prevent plant returns, which are very low. As with corn, both soybean scenarios result in a loss on average cash rented land.


Current projections of prices and yields result in negative returns for Northern Illinois, an area that has experienced a large amount of wet weather that has caused delayed and prevented planting. These negative returns are based on a significant-sized MFP payment. There could be some upside, most likely for farmers who have planted. Higher returns than those presented in this paper could result if corn and soybean prices increase significantly from current levels. Still, all of this projections suggest negative incomes for farmers in water-logged areas.



Northern Illinois Budgets

Parts of northern Illinois are among the hardest hit regions of the nation with heavy rainfall, and therefore large amounts of prevent plant acres. In DeKalb County, for example, visual impactions on June 27th suggest many fields still are unplanted and much of the planted corn at V2, a very early vegetative stage of growth. Progress in LaSalle County is even worse. As a result, northern Illinois budgets are depicted in this article (see Table 1).

Revenue in Budgets

Budgets shown in Table 1 are based on purchasing Revenue Protection (RP) crop insurance at an 85% coverage level. As shown later in this article, lower coverage levels will result in lower revenue estimates, particularly for prevent planting acres. A Trend-Adjusted Actual Production History (TA-APH) yield of 205 bushels per acre is used for corn and a 62 TA-APH is used for soybeans. Crop Progress Reports from the National Agricultural Statistical Service suggest that over half of the corn in Illinois was planted in June, and half the soybeans were planted after June 9th. As a result, we assume that some of the planting occurred after the final planting dates (June 5 for corn and June 15 for soybeans), resulting in reductions in crop insurance guarantees from their original levels. We assume an average planting date of June 8 for corn and June 20 for soybeans, resulting in a 3% reduction in the corn crop insurance guarantee and a 5% reduction in the soybean crop insurance guarantee.

Yields are estimated at 165 bushels per acre for corn and 50 bushels per acre for soybeans. Both of these yields will result in RP insurance payments at the 85% coverage level. Given late planting assumptions, crop insurance payments will occur when yields are below 169 bushels per acre for corn (169 = 205 TA-APH x .85 coverage level x (1 – .03 late planting reduction)) and 50 bushels per acre for soybeans (50 = 65 TA-APH x .85 coverage level x (1 – .05 late planting reduction)). At these coverage levels, lower yields will have very little impact on return projections, as higher crop insurance payments will offset lower crop revenue.

Harvest prices used to determine crop insurance payments are $4.50 per bushel for corn and $9.20 per bushel for soybeans, above the current level of the December 2019 Chicago Mercantile Exchange (CME) corn contract price and the November 2019 CME soybean contract price. Settlement prices of those contracts during October are used to set revenue for crop insurance guarantees. In recent days, both corn and soybean prices have fallen. Using current futures price levels would result in lower returns for corn and soybeans planting.

At this point, the $4.50 estimated harvest price is above the $4.00 projected price for 2019. Higher corn harvest prices will result in higher returns because both crop revenue and crop insurance proceeds will increase with higher harvest prices. The soybean harvest price of $9.20 is below the $9.54 projected price for 2019. Higher harvest prices will increase crop revenue but the difference will be offset by a reduction in crop insurance proceeds. Total returns for soybeans should not be expected to increase until CME soybean futures prices exceed the projected price of $9.54.

A $.30 basis is used for corn and a $.40 basis is used for soybeans, resulting in cash prices at harvest of $4.20 for corn ($4.50 harvest price – .30 basis) and $8.80 for soybeans ($9.20 harvest price – .40 basis). Crop revenue will be based on these cash prices, with pricing assumed at harvest. Many farmers priced grain in the spring. Since prices are now higher than in the spring, those farmers who pre-priced grain, often viewed as a sign of “good marketing”, could have lower returns this year.
Crop revenue from the market is forecast at $693 per corn, equaling the $4.20 cash price times a yield of 165 bushels per acre. Soybean crop revenue from the market is projected at $440 per acre, equaling a 50 bushel per acre yield times an $8.80 per bushel cash soybean price.

USDA has not announced payment rates for the Market Facilitation Program (MFP). Hence, MFP payments must be estimated. Market Facilitation Program (MFP) payments are estimated at $50 per acre for corn and soybeans. The same rate is used per acre for corn and soybeans as USDA announced that all MFP-eligible planted crops will receive the same per acre payment. In recent press reports, USDA has suggested that cover crops must be planted to be eligible for MFP payments on prevent planting farmland (The Hagerstorm Report, July 1, 2019). In previous reports, USDA said that a minimal-MFP payment would be received if a cover crop that was harvestable (USDA Press Release, June 10, 2019). A $30 per acre MFP is used in prevent planting return estimates on this article. This estimate recognizes that USDA wishes to encourage cover crop planting, but there may be limits to the size of the MFP payment on prevent planting farmland. The prevent planting MFP could be of the incorrect size relative to the MFP payments for corn and soybeans.

Agricultural Risk Coverage (ARC) commodity title program payments are built in at $10 per acre. These projections are for the 2019 crop year. As of yet, final details of commodity title choices have not been released by USDA, although sign up for 2019 programs is scheduled to open in September. Estimates in Table 1 are based on choosing ARC at the county level over Price Loss Coverage (PLC). At prices used in forecasts, PLC is not projected to make a payment. Current price and yields estimates suggest that soybeans are likely to have higher ARC payments than corn. ARC payments are the same for all budgets as commodity title payments are made on program acres and not planted acres.

Crop insurance proceeds coincidentally are both $18 per acre, based on the 85% RP policies more fully described above.

The prevent planting payment for corn is $383 per acre (.55 prevent plant payment factor x .85 coverage level x 205 TA-APH yield x $4.00 projected price). The prevent planting payment for soybeans is $302 per acre (.60 prevent planting payment factor x .85 coverage level x 62 TA-APH x $9.54 projected price).

Non-Land Costs

Non-land costs for corn and soybeans come from 2019 Illinois Crop Budgets for northern Illinois with two modifications. Fertilizer costs are lower under the assumption that farmers reduced nitrogen applications. Drying costs for corn have been increased to $50 per acre to reflect likely higher drying needed for late harvesting.

Prevent planting costs for both corn and soybeans are calculated given planting of cover crops ($18 per acre of seed) and one application of pesticides ($15 per acre). Machine hire, machine repair, and fuel are built into budgets to cover these operations. Machinery depreciation is $65 per acre for corn and $56 for soybeans. Machinery deprecation for cover crops is at $45 per acre, lower than that for soybeans. To a large extent, depreciation is a fixed cost. Simply owning the machinery inventory will result in costs. As a result, there is a significant depreciation charge included for prevent planting farmland.

Land Costs

Land costs are included in the budgets at $253 per acre, the average rent projected for northern Illinois farmland. Land costs will vary depending on ownership structure and rental arrangement. Owned land will have financial costs related to property tax (approximately $50 per acre) and interest if mortgaged (about $20 per acre on average). Property tax and interest costs do not include any cash flow requirements related to principal payments on land loans. The cost of share-rent farmland, typically 50% of gross revenue minus 50% of direct cost, will be lower than cash rent in 2019.
Farmer Return

The farmer return is the amount remaining after paying all financial costs and land costs. Estimates in Table 1 are for cash rent farmland at the average cash rent.

The farmer return for corn is -$93 per acre. This net return is the lowest for corn going back to 2000 (see Figure 1). The next lowest return occurred in 2015, when farmer return was -$61 per acre. Corn has had negative farmer returns in 2009 (-$21 per acre), 2014 (-$43 per acre), 2015 (-$52 per acre), 2016 (-$31 per acre), 2017 (-$61 per acre) and 2018 (-$57 per acre). Thus, negative returns in 2018 will be the sixth year of negative returns to corn.



The farmer returns for soybeans is -$93 per acre. Similar to the corn, the soybean net return is the lowest net return of any year going back to 2000. The next lowest return is -$8 per acre in 2002. The negative returns projected for 2019 would be only the third time since 2000 that soybeans have a negative return.

If 2019 projections hold, both corn and soybeans will have negative farmer returns in 2019. This will be the first year in the nineteen-year period that both corn and soybeans have negative returns in the same year (see Figure 1). Furthermore, note that returns estimates include $50 of MFP payments. Without these payments, farmer losses would be over $100 per acre. Increases in MFP payments are possible, but MFP payments would have to exceed $143 per acre before farmer returns for planting crops are positive.

The farmer return to prevent plant corn is -$15 per acre. This prevent plant return is higher than the -$93 return for corn, but still is negative. This example assumed cover crops are planted, making it eligible for a MFP payment, the corn prevent plant return includes an estimated MFP payment of $30 per acre. A higher payment would increase returns, and a lower return would decrease returns

The net return for prevent plant soybeans is -$113 per acre. This is a disastrously low level.

Overall, net return projections point to negative net incomes for Northern Illinois farms in 2019. As covered in the following sections, there is some hope for higher returns in both corn and soybeans.

Difference in Corn Returns from Projections

In Table 1, farmer returns for corn are projected at -$93 per acre. Differences in yields and prices will cause farmers returns to vary from that projection. In Table 2, the -$93 per acre projection for a $4.50 harvest price and a 165 bushel per acre yield is highlighted and in a box. At a 165 bushel per acre yield, positive farmer returns result if the harvest price is over $5.25 per bushel. Given a $.30 basis, the $5.25 harvest price results in a cash price at $4.95. Even at lower yields, a $5.25 harvest price results in positive returns as crop insurance covers the lower yields.



Higher yields could also result in positive farmer returns. For example, positive returns result at a 185 bushel per acre yield if harvest price is above $4.75. At the 205 TA-APH yield, harvest prices need to be at $4.25 per bushel for positive returns.

The following two points summarize the yield and price relationships:

Harvest prices above $5.25 per bushel likely will result in positive farmer returns if RP is purchased at 85% coverage If yields are close to the TA-APH yield, marketing the crop at prices above $4.00 per bushel will result in positive returns The above relationships are based on an estimated $50 per acre MFP payment. A lower MFP payment will cause break-even prices and yields to increase, and vice versa.

Difference in Soybean Returns from Projections

In Table 1, farmer return for soybeans is projected at -$93 per acre. Positive returns for soybeans could result if harvest prices are above $10.40 per bushel (see Table 3). Given a $.40 basis, a $10.40 harvest price would result in cash prices above $10 per bushel. As yields approach the TA-APH (62 bushels per acre) harvest price has to exceed a lower threshold of $10.20 per bushel ($9.80 cash price).



Higher yields will not increase soybean returns at an 85% RP coverage level without price increases. The projected price for soybeans is $9.54. As long as the projected harvest price is below $9.54, increases in prices will increase crop revenue but reduce crop insurance payments, resulting in no change to overall farmer returns.

Similar to corn, the above soybean profitability relationships are based on a $50 per acre MFP payment. Lower MFP payments will result in higher break-even prices, and vice versa.

Difference in Prevent Planting Payments from Projections

Net returns from prevent planting are projected at -$15 per acre for corn and -$113 per acre for soybeans. Changes in prices and yields will not influence the prevent planting returns. Three items on the revenue side could change projections shown in Table 1.

First, the MFP payment could differ from the $30 per acre values shown in Table 1. Again, USDA has not announced these rates, so the values in Table 1 are estimates.

Second, payments related to recently passed ad hoc disaster assistance could increase prevent planting returns. The legislation indicates that payments can be 1) based on the higher of the projected and harvest prices and 2) compensate farmers up to 90% of losses. There is considerable discretion in how USDA implements this legislation and appropriation limits total disaster assistance payments to $3 billion. Not all of the appropriations will be targeted at prevent planting acres. The legislation also covers losses in 2018 and 2019. All of this suggests low per acre payments.

Third, a farmer could sell forages from prevent planting acres. The Risk Management Agency (RMA) relaxed foraging stipulations on prevent plant acres for this year only (see farmdoc daily, June 25, 2019). After September 1, cover crops can be grazed, hayed, or made into baleage and silage, a needed relaxation for requirements given the challenges that dairy and livestock producers will face this year in meeting forage needs. However, only a very small number of grain producers in predominately grain areas like Illinois will be able to sell forages to dairy and livestock producers.

There simply are not livestock producers close enough for most grain farmers to have an economical market for forages produced from cover crops.

Given current estimates, taking prevent planting payments will be a losing financial proposition, particularly for soybeans. On most farms, prevent planting was taken because it was simply impossible to plant crops, or because the prospect of planting results in much lower returns than taking the prevent planting payment.

Impacts of Lower RP Coverage Levels

Many farmers take RP at an 85% coverage level and the returns presented above use RP 85% coverage levels. In 2018, 55% of the corn acres insured in LaSalle County, Illinois were at an RP 85% coverage level (see 2019 Crop Insurance Decision Tool, available for download in the farmdoc website). Still, many farmers have lower coverage levels.

Table 4 shows the impacts of lower coverage levels on farmer returns. For corn, farmer returns decline from -$93 per acre at an 85% coverage level to -$106 per acre at an 80% coverage level. No crop insurance payments occur at 80% and lower coverage levels given the yield and price estimates shown in Table 1 and used in this analysis. Return increases as coverage levels are reduced from 80% (-$106 per acre) to no insurance (-$87 per acre). These returns increase, though still significantly negative, because the insurance premium is declining. Farmer returns for soybeans show the same relationship as crop insurance payments are not occurring at 80% and lower coverage levels.



Coverage level has a more pronounced effect on prevent planting net returns. For corn, the prevent planting net return is reduced from -$15 per acre at an 85% coverage level to a -$128 per acre at a 55% coverage level. Lowering the coverage level reduces the prevent planting payments, thereby resulting in the lower returns.

June Acreage Report Heightens Uncertainty

by Todd Hubbs, University of Illinois Extension
link to farmdocDaily article and video

On June 28, the USDA released the Acreage and Grain Stocks reports. While the Grain Stocks report provided support for both corn and soybeans, the Acreage report indicated higher than expected corn acres and lower than expected soybean acres. The acreage numbers injected a substantial amount of uncertainty into both markets that appears set to stay in place throughout the summer.


The 2019 June USDA Acreage Report rocked the corn market. University of Illinois Agricultural Economist Todd Hubbs explores those numbers in this interview with ILLINOIS Extension Farm Broadcaster Todd Gleason.

A dramatic drop in principal crop acreage provided one of the many surprises in the Acreage report released on Friday. Driven by much lower soybean and wheat acreage, total principal crop acreage came in at 309.3 million acres, down 6.1 million acres from the March Prospective Planting report. Principal crop acreage estimates decreased by 10.3 million acres from 2018 totals. Significant increases over last year’s acreage occurred in corn (2.57 million acres) and barley acreage (314,000 acres). The vast majority of crops witnessed acreage decreases from last year. Soybean acreage led the way with a 9.2 million acre decrease. Wheat acreage came in down 2.19 million acres.

An extraordinary year for corn production took another unexpected turn on Friday. Corn producers reported they intended to plant 91.7 million acres of corn this year. Corn planted acres came in 1.1 million acres lower than March planting intentions, but well above expectations due to delayed planting. When compared to March planting intentions in major producing states, the June survey revealed higher corn acres in Kentucky (220,000 acres), Kansas (200,000 acres), and Nebraska (300,000 acres). Acreage lower than March intentions in South Dakota (1.2 million acres) and North Dakota (350,000 acres) offset gains seen in other areas of the western Corn Belt. Surprisingly, the major producing states in the eastern Corn Belt saw slight to no changes from the March intentions.

The USDA reported 16.7 percent of the corn acreage (15.3 million acres) remained unplanted as of the survey period and indicated an intention to re-interview 13 of the 18 major corn-producing states in July for the August production report. The prospect of considerable prevented planting acreage in the eastern Corn Belt places the 91.7 million acres reported in the June report in question. The shift out of soybeans and most feed grains may indicate an expansion of the base corn acreage intended for planting in 2019. A lack of clarity about prevented planting acreage reported in the June survey window remains a concern and points toward further downward revisions in the August Crop Production report.

The corn stocks report provided some positive news for corn use. June 1 corn stocks came in at 5.2 billion bushels, nearly 103 million bushels lower than last year and 130 million bushels smaller than the average trade guess. Estimation of total disappearance during the quarter is 3.41 billion bushels. Estimated third quarter feed and residual use come in at 1.13 million bushels. Estimates of feed and residual use during the first three quarters of the marketing year sits at 4.615 billion bushels. To reach the projected 5.3 billion bushels of corn projected for feed and residual this marketing year, feed and residual use in the fourth quarter must equal 685 million bushels. Based on current stocks estimate, it appears feed and residual use this year is on track to hit the current USDA projection.

Soybean producers intended to plant 80 million acres of soybeans. The soybean acreage intentions came in below market expectations. Soybean planted acres fell by 4.6 million acres from the March planting intentions. At the time of the survey in early June, producers indicated that 41.2 percent of the intended soybean acreage (33 million acres) remained unplanted. Soybean acreage came in lower than last year’s totals in every state that reported in the June survey. The most substantial adjustments came in South Dakota (1.25 million acres), North Dakota (1 million acres), Iowa (900,000 acres), and Minnesota (900,000 acres). The substantial drop in soybean acreage may indicate issues with planting, but the large totals left to plant place the soybean acreage estimate in question as well. USDA plans to re-interview 14 of the 18 major soybean-producing states in July.

The June 1 soybean stocks estimate indicated a record 1.79 billion bushels, up 571 million bushels from last year. The stocks estimate came in 71 million bushels below market expectations. To meet the current USDA projection for soybean ending stocks, 720 million bushels of use is necessary for the fourth quarter. Despite the continued uncertainty in trade negotiations and record stocks, June 1 soybean stocks are neutral for soybean prices as soybean consumption maintains a pace to meet USDA projections for the marketing year.

Corn futures prices saw a dramatic drop with the release of the Acreage report. Soybean prices drove higher on the lower supply expected under reduced acreage. Uncertainty regarding corn and soybean acreage looks to continue through the August production report. If the corn acreage total ends up at the reported level in the June Acreage report, the prospect for corn yield moves to the forefront of supply expectations this year. By re-interviewing many major producing states for both corn and soybean acreage, USDA may be signaling revisions to come.