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Crop forecasts, if correct, will drive down net farm income

 

 

By STEVE BINDER

Illinois Correspondent

 

CHAMPAIGN, Ill. — Better weather conditions and expected bumper crops for soybeans and corn has this growing season so far producing a perfect storm for lower average farm incomes this year, but how much lower?

In Illinois, ag economist Gary Schnitkey crunched the numbers based on information provided by growers who are members of Illinois’ Farm Business Farm Management group. And those numbers don’t look anywhere near as good as growing conditions these days.

Assuming corn prices come in near $4.20 a bushel and soybeans fetch $10.75 per bushel – with above-average yields this year – Schnitkey projects that average incomes for Illinois farms will come in at about $45,000.

That’s a far cry from last year’s average income per farm of $134,000. And it’s even a greater divide considering that average income in 2012 exceeded $250,000 per farm, the economist said.

For grain growers to reach last year’s income level, corn prices would have to reach the $4.80-per-bushel level by December, he explained.

"A scenario that would result in average incomes near $134,000 per farm … would be above average yields combined with corn prices near $4.80 per bushel," Schnitkey wrote in his report. "This is a large range ($45,000 to $134,000), and it represents the likely range of average grain farm incomes over the next several years, with lower incomes possible if low commodity prices occur."

The ag economist emphasized that any 10-cent fluctuation in prices for corn or beans will affect the bottom-line income total, just as hot and dry weather for the rest of the growing season could drive yields lower than what is expected today.

If corn comes in at $4.65 and soybeans at $11.25 per bushel, for instance, average net incomes for Illinois farms would be projected at about $108,000.

"A change in price from $4.20 to $4.65 for corn, an increase of $.45 per bushel, has a large impact on incomes," he wrote.

On the flipside, with high yields and prices for corn and beans below $4.20 and $10.75, respectively, income levels will nosedive, noted Chris Hurt, an ag economist at Purdue University.

"We have great weather for pollination. Given the quality of this crop, we’re talking a big crop that’s getting bigger by the day," said Hurt, noting that crop ratings from the most recent NASS reports show that at this time, corn and beans are ranked near the best since 1990.

For that reason, if prices fall to about $3.50 for corn and $10 for beans, net income levels could approach the break-even point.

"I think we’ve got vulnerability to the downside," Hurt said.

Going back to 1996, Schnitkey explained, net incomes for Illinois farms have varied widely. Between 1996 and 2005, net incomes averaged $51,000 per farm. That total, thanks mostly to higher commodity prices, jumped to $185,000 per farm between 2006 and 2008. From 2009 until last year, income totals varied, falling to $93,000 in 2009 but eclipsing $250,000 in 2012.

7/30/2014