By TIM ALEXANDER Illinois Correspondent
PEORIA, Ill. — Lower grain prices and lower gross farm revenues in 2014 are a harbinger of 2015 gross revenue falling below total farm costs for producers, even if anticipating that above-average yield trends will continue. That is the deduction of Gary Schnitkey, a professor of agricultural economics with the University of Illinois Department of Agricultural and Consumer Sciences (ACES), who advised farmers attending the U of I 2014 Farm Economics Summit in Peoria Dec. 16 to tighten their belts when planning next year’s budget. Further, he suggests crop producers plan to conserve cash flows as part of a total reevaluation of their family living expenditures, in light of lower projected gross farm revenues in 2015. “Non-land costs must be cut, including expenditures for fertilizers, pesticides, seed and machinery,” said Schnitkey, who offered farmers in attendance those and other suggestions – or adjustments – to adapt in order to help lower their 2015 costs. They include: •Lowering or eliminating capital purchases •Lowering fertilizer and seed costs •Lowering cash rents (re-negotiate?) •Reducing other cash flows, such as family living expenditures •Planting soybeans instead of corn, at least in 2015 The ag economist went into detail as to why he expects crop revenue in 2015 to maintain the same level as this year, using projections for northern Illinois as an example. First, given a 220-bushel corn yield during 2014, along with a price of $3.40, 2014 revenue is projected at $748 per acre, or $253 below the $1,001 average for the years 2011-13. Flash forward to 2015, when corn yields are projected at 195 bushels in northern Illinois. With a $3.80 price projection (40 cents above the 2014 projection), crop revenue comes to $741 per acre in 2015, roughly the same level as 2014 revenue. Second, grain farms enrolled in Illinois Farm Business Farm Management during 2013 had an average income of $127,000 per farm, but are projected to average less than $100,000 this year. And at this point, net incomes for 2015 are projected below 2014 average net incomes. “In the end, those who thrive and prosper do have to watch costs, and do have to watch cash flows,” Schnitkey said. A huge increase in non-land costs for corn and soybeans, combined with lower commodity prices over the past couple of years in particular, have conspired to diminish gross farm revenue, he continued. Non-land corn costs have progressively increased over those of soybeans since 2000, rising from around $250 an acre to upwards of $600 projected for 2014 and 2015. Soybean non-land costs have increased less dramatically in the same time period, rising from under $200 to just over $300. Breaking down non-land costs for corn in central Illinois, Schnitkey illustrated how fertilizers rose by $111 an acre from 2006 to 2013 to top out at $193, along with seed by $69 an acre, to $114; crop insurance by $16, to $27; and pesticides by $26, to $66 – while machinery depreciation shifted from $43 an acre to $63. “Considering fertilizers, seed, machinery depreciation and pesticides, those four items have accounted for over $200 of the $300-plus increase” in non-land costs for corn since 2006 for central Illinois farmers, Schnitkey said. “So if we’re looking at what happens to costs moving forward, those four items are where your focus needs to be.” Those anticipating lower fuel expenses in 2015 because of plunging crude prices shouldn’t be overly optimistic, the economist continued. “Even if we could halve our fuel costs, it’s not going to be a game changer,” he said. “Historically, fuel costs are not high on the list of non-land costs for farming.” Schnitkey thinks a key to reducing non-land expenses for Illinois farmers in the 2015 crop year could be a switch, or return, to more soybean acreage because of lower production expenses. Total family living expenses per tillable operator rose from about $84 per tillable acre in 2004 to more than $120 in 2013, further accentuating the need for belt-tightening for the current and 2015 crop year. The slides for his presentation, and those from other presentations during the Farm Economics Summit, may be accessed online at www.farmdoc.illinois. edu/presentations/IFES_2014 |
