According to the University of Illinois FarmDoc Daily from yesterday, farm incomes might end up higher than originally expected in 2018 but are forecasted to dip to a new low in 2019.
Here’s the chart Dr. Gary Schnitkey and Dr. Krista Swanson shared yesterday:
Higher returns are projected for 2018 due to three key factors:
- Market Facilitation Program (MFP) payments. MFP payments are expected to total $1 per acre for corn and $116 per acre for soybeans. These payments are $.01 per bushel for corn and $1.65 per bushel on soybeans, the full loss estimated by U.S.D.A. as associated with trade disruptions (for more detail, see farmdoc daily, August 28, 2018). So far, farmers can receive a “first” payment of $.005 per bushel for corn and $.825 per bushel for soybeans. Sonny Perdue, the Secretary of Agriculture, announced that a second round of MFP payments would be coming in December and that the second rates would likely be the same as the first rates (see Successful Farming). Hence, projections in Table 1 include the full rate in determining returns. With the first round of payments ($.005 per bushel for corn and $.825 per bushel for soybeans), operator and land return was estimated at $291 per acre. The second round of payments increases operator and land return by $29 per acre to $320 per acre.
- Exceptional yields across central Illinois. Current 2018 projections have yields in central Illinois at 233 bushels per acre for corn and 70 bushels per acre for soybeans, well above trend yields for this region.
- Significant pre-harvest hedging on soybeans. Both the corn and soybean budgets for 2018 have prices well above current cash bids. For example, soybean price for 2018 is projected average $8.50 per bushel while current cash bids are at or below $8.00 per bushel. The higher price is based on a significant portion of the 2019 crop being priced in the spring.
Projections are much lower for 2019, with operator and land return projected at $180 per acre, a $140 drop from the 2018 projection. At an average cash rent of $261 per acre, farmer return would be -$81 per acre. The -$81 per acre projected loss for 2019 more than offsets the $56 positive return in 2018. Losses at this level would result in serious deterioration of financial position on many farms.
Four items cause a sharp decline in 2019 projected returns:
- Yields are projected at trend yields for 2019. The 2019 projected yields are 210 bushels per acre for corn and 63 bushels per acre for soybeans. Both these yield levels are well below the trend yields experienced in recent years.
- Soybean prices are projected at $8.50 per bushel, well below the $9.63 per bushel average from 2015 to 2017. Much of this decline in prices can be attributed to trade disputes occurring between the United States and China.
- No MFP payments. The MFP payments for 2018 production will add greatly to 2018 incomes.
- Rising costs. Energy and fertilizer prices have increased resulting in higher corn and soybean costs.
You will not want to miss the chance to read this article in its entirety here.
Schnitkey, G. and K. Swanson. "What Could Change the 2019 Corn and Soybean Return Outlook?." farmdoc daily (8):200, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 30, 2018.