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.

2019 Crop Budgets Suggest Dismal Corn and Soybean Returns

Even with cost-cutting and savings measures, University of Illinois Agricultural Economist Gary Schnitkey says, for the moment, it seems unlikely farmers will have positive returns on rented farmland in 2019. Todd Gleason has more…

What Makes a Top Third Farm

There are just two items that make the difference between a top third farm and an average farm. This University of Illinois study was on a small set in McLean County. This was done to limit the influences of weather and a few other factors. Gary Schnitkey says he wanted to know why some farms made more than others. Turns out, the answer is pretty simple say the ag economist, “What we found were distinct cost differences between the two groups. This was a $45 per acre difference between the average group and the high return group. The $45 came primarily in two items; machinery depreciation and interest cost.”

The more profitable farms tended to have lower machinery and non-land interest cost. The two are related.

If you buy more machinery, you have more depreciation and likely more interest costs. Other differences included storage costs, with high profit farms storing less at elevators and their cost of hired labor was lower, too. Over all, these farms usually had lower costs, but these are the cost groups that stood out.

A couple of notes. The most profitable farms expanded acreage at a faster pace than those in the average group. They also had higher average yields for soybeans and did a better job of marketing soybean.

2017 Projected Incomes on Illinois Grain Farms

Net incomes for Illinois grain farms are projected to be lower this year than last. If this University of Illinois estimate holds, writes agricultural economist Gary Schnitkey on the farmdocdaily website, the weakening financial position of farms in the state will worsen. The last half decade has really changed the financial picture for farmers says Schnitkey, “So we had high incomes from 2010 to 2012 and every year since 2012 we’ve been on a downward trend through 2015. This is when we hit a $500 per farm average net income on Illinois grain farms enrolled in FBFM. This is very low and the lowest through the entire period we’ve examined. Obviously this is not enough to maintain the financial position of farms.”

Schnitkey evaluated FBFM net income records going back to 1996. FBFM stands for Farm Business Farm Management and is a record keeping service for farmers. The service has not yet summarized net incomes for 2016. However it is projecting a substantial rebound.



It appears net income for grain farms in the service will average somewhere between forty and fifty-thousand dollars. There are three primary reasons for this says Schnitkey, “What lead to it was higher than trend line yields. USDA estimates the statewide corn yield at 197 bushels per acre. Just three bushels off the record yield set in 2014 of 200 bushels. Soybean yields averaged 59 bushels. It is a record setting yield. Both of those record setting yields lead to higher incomes in 2016 along with very good ARC County payments.”

Those are two of the three factors leading to a better 2016. The high yields and sizable ARC County payments - that’s the farm safety net from Washington D.C. - aren’t likely to be repeated this season. The third factor very well could be repeated. It is lower input costs including cash rents and fertilizer. It won’t be enough thinks Schnitkey.

Quote Summary - For 2017 we used trend yields and commodity prices of $3.80 for corn and $9.90 for soybeans that resulted in lower incomes for the year. Probably something in the $20,000 range per farm.

Schnitkey cautions it is very early in the season, and that at this same time last year 2016 was projected to be a very, very bad year. It rebounded. It is also important to note that while higher than 2015 incomes, the projected 2016 incomes do not result in the building of financial reserves on most Illinois farms. Schnitkey believes most farms will continue to see the erosion of working capital, potentially leading to the need to refinance outstanding operating loan balances.

2016 Gross Farm Revenue & Income

It looks like this year is going to be better than last year for farmers in central Illinois. Todd Gleason explores how gross income has changed for row croppers in the middle of the prairie state.



The gross revenue for corn is $292 per acre. It is tallied from three income sources. The crop is worth $262. There was a $20 farm safety net payment from the ARC-County program and a $10 crop insurance indemnity. The total, again $292, is lower than last year says University of Illinois Agricultural Economist Gary Schnitkey, “Even though we are putting in a very high yield, we are using 231 bushels to the acre for the corn average - the same as in 2014, revenues will be down for corn in 2016 as compared to 2015”.



Schnitkey calculated the gross revenue figures for the farmdocdaily website.

The soybean figures add up in a similar fashion. The gross revenue is estimated to total $718 per acre. It’s a figure much higher than the 2015 gross says the agricultural economist, “We are including very high soybean yields for 2016. Record-breaking yields, in fact, of 73 bushels to the acre. The price is above $9.50, and this may actually turn out to be low as prices continue to climb. Overall, revenue on soybeans will be up from last year and much higher than total costs. So, our bright spot for the 2016 year will be revenue and income from soybeans”.



All in all, on the highly productive soils of central Illinois, 2016 will go down as a high-yield low-income year. Another year in which farmers just-get-by says Gary Schnitkey.

Quote Summary - Get-by year, but better than it could have been without the high yields. Most farmers will maintain equity, but may see some working capital declines. The declines will be more pronounced on farms working a higher percentage of cash rented land. It is better than 2015, but still not up to sustainable levels for the long-run. We need to see higher returns, particularly for corn prices in the future.

There are a series of graphics detailing 2016 central Illinois row crop farm gross income on the farmdocdaily website.

Grain Farm Income & Cash Rent Outlook

by Todd E. Gleason



Urbana, Illinois - Wednesday morning September 7, 2016 University of Illinois Extension Agricultural Economist Gary Schnitkey presented a webinar looking forward into 2017. The discussion centered on farm profitability, projected income, and cash rents. You may the watch the webinar. What follows is a summary of the hour long content.





The USDA WASDE monthly average corn price is $4.67 from 2006 to 2016. The price of corn has been below this average since the fall of 2013 & Gary Schnitkey believes it is likely to continue to stay below this average through the 2017/18 crop year.

Each year USDA tracks the average marketing year cash price. This price is updated monthly in the World Agricultural Supply and Demand Estimates report. The average cash price for corn from 1975 to 2005 is $2.33, $5.95 for soybeans. This is a long term national average cash price. The USDA projected estimates for this marketing year (2016/17) are currently $3.15 and $9.10. The USDA estimate for the 2015 crops is $3.60 and $9.05. This last set can be used to compute expected ARC County payments to be delivered this fall.







Here is a [link](http://farmdoc.illinois.edu/fasttools/index.asp) to the FarmDoc Fast Tools web page from which you may download an Excel spreadsheet to project ARC & PLC payments.

The following tables detail gross revenue per acre for highly productive central Illinois farmland. These are actual, as derived from the Illinois Farm Business Farm Management records, and projected revenues.







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Operator and land returns have been declining for both corn and soybeans for several years. However, returns from soybeans have been out performing corn since 2013. Schnitkey predicts this will continue through 2017. It would be the fifth year of higher returns for soybeans than corn. Raising corn on cash rented farmland has been a loser since 2014.

Total income on all Illinois corn and soybean farm (all types of owned & cash rented combined) for 2016 projects a breakeven income year.




Schnitkey says farmers will face three key decision making factors as they consider cash renting farmland for 2017, and that it might be better to give up some of the land based on these considerations.




Across the board the University of Illinois agricultural economist says farmers might need to rethink crop rotations. Soybeans have proved better for several years, and it may be time to adjust to this reality. This or it needs to get cheaper to plant corn. Back in 2000 it costs $63 less to sow and harvest an acre of soybeans. This year the difference was more than $200 an acre of non-land costs in favor of soybeans over corn.



Last week the professional farm managers in Illinois suggested they'd be lowering cash rents by about $20 next year (ISPFMRA Survey). Gary Schnitkey's number is a more conservative $17 an acre based on the fact not all land is professionally managed. Neither of these would be enough to make a cash rented farm break even given $3.50 corn and $9.00 soybeans (2017 | by expected corn yield across Illinois).



So what's the impact on the price of farmland? Well, says Schnitkey, if interest rates stay low the price of farmland will drop by approximately the same percentage change as the cash rent drops. Because cash rent changes very slowly, this is good news for farmland owners, bankers, and producer owners.





Each Tuesday Gary Schnitkey posts a new article to the FarmDocDaily website. Periodically he and the other agricultural economist at the University of Illinois hosts webinars. You may register for upcoming webinars and watch those that have already concluded on this page.

Farm Economy Beginning to Show Signs of Stress

This is the third year of a financial crunch on the farm. It follows on the heels of a series of tremendous seasons since 2006. The extra money, from then, is now starting to run out.

The financial stress in the ag sector may really begin to show this fall if low commodity prices persist says the Director of the TIAA CREF Center for Farmland Research on the Univeristy of Illinois campus, Bruce Sherrick.

Quote Summary - It is already affecting cash rents and land prices some. However, on a percentage basis not as much as the current cash prices (would suggest) for delivery within this year at least.

Sherrick says a a couple of things have happened which explain this buffering. The last several years have been really quite good for agricultural incomes. So, farmers have pretty strong balance sheets. It is easier to weather a downturn, says Sherrick, after a few good years, than a bad year after a few bad years, “We are seeing, clearly, working capital crunches beginning to hit people. This is the first year that is material, and lenders are seeing and uptick in volume. As we’ve adjusted to more normal stocks, we are into a period were we think, ”this might be the last year were people can really just stand for what’s going on without making some major changes in how they manage cash rents, or inputs, or financial structures".

This does not mean the price of farm land will plummet. Long term interest rates are very, very low and the rate of turnover in farmland is supper small.

Money is cheap and farmland for sale is scarce.

Quote Summary - If you look at the number of acres that sell, maybe around 2% transfer per year within the agriculturally intense states. Only half of that moves outside of a family. The market is thin, and this helps buffer or slow down changes in farmland values because of changes in short term farm income. The low interest rates help people pay for a longterm investment with a stable cash return that can be rented for perhaps 3% of its value on a cash basis.

Farm land doesn’t look like such a dire situation, then, when you step back from it. It also has shown, very reliably says Bruce Sherrick, a positive correlation with inflation. Even if the price of commodities stay relatively low, it may be that the price of farmland, as an owned asset, will help farms stay afloat.

Working Capital on the Farm

Low commodity prices are quickly eating into the reserves farmers built up over the last several years. Todd Gleason has more on agriculture’s ‘working capital’.

Negative Returns & Down Pressure on Cash Rents

Original Article

Todd Gleason talks with University of Illinois ag economist Gary Schnitkey about cash rents. As it stands today farmers on highly productive land in central Illinois are likely to loose about $70 for every cash rented acre planted to corn.




by Gary Schnitkey
Univeristy of Illinois

Surveys conducted by the Chicago Fed and the Illinois Society of Professional Farm Managers and Rural Appraisers indicate that 2015 cash rents have decreased between $20 and $25 per acre from 2014 levels. If these reductions occur, the majority of farmers still will have negative returns from cash rent farmland given current corn and soybean price levels. At a $3.75 per bushel corn price and a $9.50 soybean price, cash rents need to decrease from 2014 averages by around $70 per acre before farmer return is zero. Even given mid-$4.00 prices for corn, farmers will not have positive returns given cash rents at 2014 averages.

Operator and Land Returns

Table 1 shows estimates of 2015 operator and land returns. Operator and land returns represent the returns that can be split between the landowner and farmer. If operator and land returns are $300 per acre and cash rent is $250 per acre, the farmer will have a $50 per acre return. Operator and land returns are based on revenues, yields, and costs shown in the 2015 Crop Budgets and are averaged over the corn and soybean crops.

Operator and land returns are given for four different regions: Central Illinois with high-productivity farmland (Central-High), Northern Illinois (North), Central Illinois with low productivity farmland (Central-Low) and Southern (South) Illinois. In Table 1, regions are arrayed from the highest yielding on the left (Central-High) to the lowest yield region on the right (South). Operator and land returns decrease with lower yields. Even though these are Illinois specific regions, returns shown in Table 1 are generalizable to a wider geographical area.

There are five price scenarios in Table 1. The first is a $3.75 per bushel corn price and $9.50 per bushel soybean price, slightly above current bids for delivery of 2015 grain. These prices are used to determine crop revenue given the expected yields for each region. For example, the expected yields for the Central-High region are 198 bushels per acre for corn and 57 bushels for soybeans (see Table 1). Gross revenue also include ARC/PLC and crop insurance payments, both of which decrease with higher prices.

At a $3.75 corn price and a $9.50 soybean price, the operator and land return for the Central-High region is $226 per acre (see Table 1). The average cash rent in 2014 is $293 per acre, implying a farmer loss of $67 per acre ($226 operator and land return - $293 cash rent). Other regions have similar levels of loss: -$77 per acre for the North region ($188 operator and land return - $265 cash rent), -$73 in the Central-Low region ($170 operator and land return - $243 cash rent), and -$71 in the South region ($92 operator and land return - $163 cash rent). Note that $20 to $25 per acre decreases in 2015 cash rents do not lead to positive farmer returns given that cash rents started at average levels.

Longer-Run Price Levels

Current price levels may be below long-run prices. Previous analyses (farmdoc daily, February 27, 2013) suggest that longer run prices may be around $4.60 per bushel for corn and $10.60 for soybeans. Obviously these higher prices will result in higher operator and land returns, as is illustrated in Table 1. Take the $4.50 corn price and $11.00 soybean price. These prices give $298 per acre of operator and land return in the Central-High region. Note that the $298 operator and land return is near the 2014 cash rent of $293 per acre. At this price level, the operator and land returns for all regions are near the average 2014 cash rent levels. The nearness suggests that cash rents would need to decline if long-run prices are in the $4.50 per bushel range for corn and $11.00 per bushel range for soybeans. In the past several years, increases in cash rents likely overshot levels supported by long-run prices.

Note that the above analysis is based on non-land costs remaining at current levels of roughly $600 per acre for corn and $370 per acre for soybeans. These cost levels are at historically high levels (farmdoc daily, March 29, 2011). Decreases in fertilizer, seed, and chemical costs could reduce the need for decreases in cash rents.

Setting 2016 Cash Rents

Table 1 can be used to gain a feel for the relative size of downward pressures placed on cash rents in 2016. Given that costs do not change, operator and land returns shown in Table 1 will be accurate for 2016.

Expected 2016 commodity prices during the fall of 2015 will have a bearing on pressures place on cash rents. If corn and soybean prices respectively remain near $3.75 and $9.50 per bushel, cash rents will need to decrease by around $70 per acre from 2014 average levels before farmer returns are near zero. Obviously larger decreases would be needed before farmer returns become positive. Pressures will be reduced with higher price expectations. Take the price scenario having respective corn and soybeans prices of $4.25 and $10.50 per bushel. Under this scenario, rents would have to be decreased by $19 to $37 per acre, depending on region, from 2014 average levels to have farmer returns at $0 per acre. For farmers to have positive expected returns without cash rent of non-land costs, corn and soybean prices respectively need to be in the high-$4.00 and mid-$11.00 range.

Summary

Given current price levels, avenge cash rents levels need to decrease by over $70 per acre for farmers to have returns near zero. Continued pressures on cash rents will occur in 2016 unless significant increases in prices occur from their current levels. Unless non-land costs decrease, prices must be in the high $4.00 range before downward pressures are not placed on average cash rents.