For most of us, finances seem to ebb and flow. There are times when things are easy and times when things are tighter.
It’s no different for farmers.
Central Illinois farmers have had several years of more plentiful times – better grain prices, slightly lower expenses and really good crops.
Some think this year could be different.
Average grain farm incomes in 2014 likely will be much lower than 2013 incomes, according to Gary Schnitkey, farm management specialist with the University of Illinois Department of Agricultural and Consumer Economics.
He says corn prices near $4.20 per bushel combined with above average yields could result in average incomes on grain farms in Illinois around $45,000 per farm, slightly below the average for the years from 1996 through 2005.
A scenario that would result in average incomes near $134,000 per farm, the 2013 level of average income, would be above average yields combined with corn prices near $4.80 per bushel.
That difference — $4.00 corn or $4.80 per bushel corn – will make all the difference in farmers’ incomes.
In the past, net incomes for grain farms enrolled in Illinois Farm Business Farm Management averaged $51,000 per farm for the years from 1996 to 2005. During this period, the lowest year’s average income of $18,000 per farm occurred in 1998, while the highest income of $94,000 per farm occurred in 2004.
Higher commodity prices since 2006 led to higher incomes, said Schnitkey. From 2006 through 2008, net farm incomes averaged $185,000 per farm. Because of lower corn and soybean prices, and much higher costs, incomes fell to $93,000 per farm in 2009. Higher commodity prices then caused higher incomes in 2010 through 2012, with average incomes in 2011 and 2012 exceeding $250,000 per farm.
From 2012 levels, incomes fell more than half to $134,000 per farm in 2013. Two factors caused the decrease between 2012 and 2013. First, grain prices declined. The corn price received for the 2012 crop averaged $6.93 per bushel, compared to $4.65 for the 2013 crop. Soybean price for the 2012 crop averaged $14.66 per bushel, compared to $13.25 for the 2013 crop. Second, crop insurance payments were lower in 2013 as compared to 2012 levels. The 2012 drought caused high crop insurance payments, with crop insurance payments accounting for about one-third of gross revenue in 2012. Crop insurance payments were much lower in 2013.
So what’s ahead for 2014?
Schnitkey projects grain prices prices and yields will result in much lower incomes for 2014. The USDA projects yields for 2014 at 10 bushels per acre higher for corn than in 2013. Soybean yields for soybeans are projected 3 bushel per acre higher than 2013 yields. This yield scenario is for an above average yielding year, certainly within the prospects given weather up to this point. However, yields are far from certain. Hot, dry weather during the upcoming critical yield-determination weeks, or other adverse events, could result in much lower yields.
Schnitkey also predicts corn and soybean prices are likely to be around $4.20 per bushel for corn and $10.75 per bushel for soybeans. That compares to last year’s $4.65 average price for corn and $13.25 average price for soybeans.
If Schnitkey’s projection comes true, average net income is projected at $45,000 per farm, considerably below any average income level since 2006. Farm income would be closer to incomes from 1995 to 2005, the period before the commodity price increase, with the $45,000 projected average being lower than the 1995 – 2005 average of $51,000 per farm.
In addition, crop insurance payments are projected lower in 2014, depending on harvest prices. The bottom line is Schnitkey believes farm incomes in 2014 likely will be considerably below those in recent years. Corn prices in the low $4.00 range likely will result in incomes below $50,000. Corn prices in the high $4.00 range will result in average incomes above $100,000.
Farmers who can lock in a price above $4.80 will be the fortunate ones.