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Income picture looks bleak with big crop, lower prices


By STEVE BINDER
Illinois Correspondent

URBANA, Ill. — Ag finance experts are painting a pretty bleak income picture for 2015 and beyond, although hopes for a still-burgeoning export market could kick market prices back up.
But for now, with corn futures hovering around $3.75 per bushel as of last week’s market close, the main shining light for any kind of price boost is from stronger demand overseas for U.S. corn.
And even if corn prices stick in the $3.75 per bushel range, one Illinois economist is urging growers to set aside big equipment purchases and as much cash as possible for the foreseeable future.
When Gary Schnitkey, agricultural and consumer economics professor at the University of Illinois, first developed projected 2015 budgets in July, he based them on current commodity prices of about $4.30 per bushel for corn, $10.50 for soybeans and $5.50 for wheat.
His new budget projections have prices at $3.80 for corn, $10 for beans and $5 for wheat, and those much-lower prices combined with comparatively low cash rents will mean tight financial conditions for growers.
“These new prices result in very low returns and indicate the need to conserve cash,” Schnitkey wrote in his report.
“In perspective, the low prices projected for 2014 and 2015 may be below the long-run average, just as the prices from 2010 through 2013 were above the long-run average,” he concludes. “Swings in prices have occurred in the past and are likely to occur in the future. These swings also cause swings in profitability. The long-run profitability of agriculture likely has not changed. Now a period of low returns likely is occurring, just as above average returns occurred from 2010 through 2013.”
Overall, with the adjusted commodity prices, Schnitkey predicts that average corn returns will come in about $300 per acre lower than average levels between 2009 and 2013.
And cash rents, he wrote, are near $300 per acre, well above the operation return for corn-after-soybeans of about $191 per acre.
The expected low returns “suggest the need to conserve cash” by delaying big equipment purchases, possibly lowering the amounts of inputs used, using less expensive seed and obtaining lower cash rents.
As the harvest season continues, an increased demand for U.S. corn could temper price declines, several market analysts said. And with surging chicken and hog stocks, combined with lower grain prices, some believe feed demand will grow.
“While we talk about the bearish issue of supply, I feel lower prices will attract demand for feed and residual use,” said Rich Nelson, director of research at northern Illinois-based Allendale Inc.
“We feel there’s a lot of livestock demand waiting to buy this extremely cheap valued and good corn.”
Jody Lawrence, head of Tennessee-based Strategic Trading Partners, agreed that demand for corn will increase in the coming months, but U.S. growers also will battle an improving U.S. dollar overseas.
“The U.S. export market will have to fight a surging dollar to get rid of the extra stocks,” he said. 
10/9/2014