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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.

Expected Harvest Prices for Corn & Soybeans in 2020

farmdoc Daily Soybean article
farmdoc Daily Corn article

The farmdoc team at the University of Illinois has created a model projecting the average fall price for corn and soybean futures in October. University of Illinois Agricultural Economist Gary Schnitkey says, at USDA’s current projected yields, it puts December corn futures at $3.10 and November Soybean futures at $8.36.

Given current yield estimates, a statistical model suggests that the harvest price for crop insurance in Midwest states will be near $3.10 per bushel. Higher yields, above current estimates, would be expected to result in lower prices and vice versa. Thus, higher prices could happen if 2020 yields are lower than the trend. Conversely, an above trend yield would likely result in lower prices. A harvest price below $3.00 per bushel is a distinct possibility with above trend yields.

Given current yield estimates, a statistical model suggests that the harvest price for crop insurance in Midwest states will be near $8.36 per bushel. Higher yields, above current estimates, would be expected to result in lower prices and vice versa. Thus, higher prices could happen if 2020 yields are lower than the trend. Conversely, an above trend yield would likely result in lower prices. A harvest price below $8.00 per bushel is a distinct possibility with above trend yields.

Profitability & IL Corn/Soybean Acreage Shifts

by Gary Schnitkey, ILLINOIS Extension
link to farmdocdaily article

At its recent Agricultural Outlook Forum, the U.S. Department of Agriculture (USDA) released estimates of 2020 planted acres in the United States, with both corn and soybean acres increasing from 2019 levels (see Grain and Oilseed Outlook, February 21, 2020). When compared to 2018 plantings, USDA is projecting a 2020 shift to more corn acres and fewer soybean acres across the United States. Projecting this shift across the U.S. seems reasonable. However, most of those shifts likely will occur outside of the corn belt. Estimated 2020 profitability in Illinois suggests relatively even acres of corn and soybeans in Illinois.


A University of Illinois agricultural economist says corn is likely to be more profitable than soybeans this year across the state. However, as Todd Gleason reports, historical relationships do not suggest large acreage shifts in the state.

Projected Acreage Shifts in the U.S. For corn and soybeans, USDA is projecting higher acreages in 2020, partly because 2019 acres were reduced because of prevented plantings (see Figure 1). Corn acres are expected to increase 4 million acres from 90 million acres in 2019 to 94 million acres in 2020. Soybean acres are projected to increase by 9 million acres from 76 million in 2019 to 85 million in 2020. Wheat acres are projected to remain the same in 2019 and 2020 at 45 million acres.



Given the prevalence of prevented planting acres in 2019, comparing acreage shifts from 2018 to 2020 provide a better illustration of recent trade difficulties impacts on expected acreage. These trade difficulties lowered soybean prices while corn prices remained roughly the same. National Market Year Average (MYA) prices for soybeans reported by the National Agricultural Statistical Service (NASS) were $9.47 per bushel in 2016 and $9.33 per bushel in 2017, the two years immediately preceding trade difficulties. Soybean prices are not projected to average above $9.00 from 2018 through 2020: $8.66 per bushel in 2018, a projected $8.70 in 2019, and a projected $8.80 in 2020.

While soybean prices decreased, corn prices increased. MYA prices for corn were $3.36 per bushel in both 2016 and 2017. MYA price averaged $3.55 in 2018 and are projected at $3.80 in 2019 and $3.60 in 2020. These price changes caused corn returns to increase relative to soybean, leading to incentives to plant more corn acres. Between 2018 and 2020, corn acres are projected to grow 5 million from 89 million in 2018 to 94 million in 2020. Soybean acres are projected to decrease 4 million from 89 million acres in 2018 to 85 million acres in 2020.

Illinois Corn and Soybean Acres Because of prevented plantings, both corn and soybean plantings in Illinois were down in 2019 from 2018 levels. Corn plantings were 10.5 million acres in 2019, down from 11.0 million in 2018. Soybean planted were 10.0 million acres in 2019, down from 10.8 million acres in 2018.

Except for 2019, total acres in corn and soybeans in Illinois have remained about the same since 1990 at about 21.7 million acres. Prevented plant acres reduced this total in 2019 by 1.2 million acres. While total acres in corn and soybeans have remained the same, shifts in corn and soybean acres have occurred over time.

From 1998 to 2003, corn and soybean acres were relatively near one another, with corn acres exceeding soybean acres by less than 1 million acres (see Figure 2). During the 2007–2014 period, corn use in ethanol increased, resulting in higher corn prices relative to soybean prices, increasing the profitability of corn relative to soybeans, leading to more corn acres and fewer soybean acres. From 2007 to 2012, corn acres exceeded soybean acres by at least 2.0 million acres, with the largest difference of 4.9 million acres occurring in 2007. The build of ethanol capacity ended in the mid–2010s, while Chinese demand for soybeans continued to grow until 2018. Corn profitability fell relative to soybeans, and farmers switched acres from corn to soybeans. In 2018, 11.0 million corn acres were planted in Illinois, only 200,000 acres more than 10.8 million acres of soybean plantings. In 2019, corn acres were 10.5 million, 500,000 more than the 10.0 million of soybean planting. USDA has not projected state levels of corn and soybean production for 2020.



Profitability of Corn and Soybean in Illinois Historical shifts in corn and soybean acres in Illinois have been related to the relative profitability of corn and soybeans. Figure 3 shows corn returns minus soybean returns from Central Illinois farms having high-productivity farmland enrolled in Illinois Farm Business Farm Management (FBFM). Positive values indicate that corn was more profitable than soybeans. Conversely, negative values indicate that soybeans are more profitable than corn.



From 2000 to 2002, corn and soybean returns were roughly the same (see Figure 3). Corn-minus-soybean returns were $30 per acre in 2000, $13 in 2001, and -$6 in 2002. During this period, corn and soybean acres were relatively near one another.

From 2003 to 2012, corn returns exceeded soybean returns in all years, except 2009 (see Figure 3). Corn returns were over $50 higher than soybean returns in 2006, 2007, 2008, 2011, and 2012. During this period, corn acres in Illinois grew while soybean acres declined.

From 2013 to 2018, soybeans were more profitable than corn (see Figure 3). Soybean returns exceeded corn returns by more than $50 per acre in 2016, 2017, and 2018. During these years, farmers switched acres back to soybeans.

In 2019, corn was more profitable than soybeans by $34 per acre. Responses to 2019 profitability differences are somewhat clouded because of late and prevented planting. Both corn and soybean acres were down in 2019. In a late planting year, one expects soybean acres to increase relative to corn acres because soybeans traditionally have lower yield declines than corn in a late planting year. In 2019, corn acres may have declined more had not there been expectations of higher corn prices in June.

In 2020, corn is projected to be $21 per acre higher than soybeans. This difference between corn and soybean profitability is not large, suggesting that large acreage shifts will not occur. The $20 per acre projected difference in 2020 is roughly the same as realized differences from 2000 to 2002. During those years, corn acres exceeded soybean acres by only a small margin. Given 21.7 million acres of corn and soybean plantings in Illinois, having 11.0 million acres of corn and 10.7 acres of soybeans seems reasonable.

Summary At this point, corn is projected to be more profitable than soybeans in Illinois. However, historical relationships do not suggest large acreage shifts in Illinois. Corn and soybean acres in Illinois likely will be near one another. Major shifts in acres to corn from soybeans across the United States likely will come from outside the corn belt.

References U.S. Department of Agriculture. “Grains and Oilseeds Outlook.” Agricultural Outlook Forum 2020. Released February 21, 2020. https://www.usda.gov/oce/forum/2020/outlooks/Grains_and_Oilseeds.pdf