Corn and soybean farmers in the Midwest are likely to earn far less money this year than they did last year, with some economists predicting that incomes could be less than one-tenth of what they were in 2014.
“Overall, substantial decreases in income are projected for 2015,” Gary Schnitkey, professor and agricultural economist at the University of Illinois, wrote in farmdoc Daily. “For a 1,500-acre grain farm, net income is projected at $7,450 in 2015, down from $103,500 in 2014.”
Schnitkey’s math is pretty straight forward. The price of corn, which has been hovering around $4 per bushel in July, is low compared to the five year average. Schnitkey said he anticipates prices will remain low for the duration of the year.
In addition, most farmers won’t be able to make up for low prices by selling lots of corn because yields are projected to be average -- at best -- as a result of heavy rains that continue to batter the Midwest.
Schnitkey said grain prices have risen slightly in response to projections that global supplies could be lower than expected. But unlike the 2012 drought that caused extreme price spikes, he doesn’t anticipate a shortage in the grain supply. The world’s major corn and soybean production regions have had average or above-average yields this year.
“The Brazilian crop is always a big driver of incomes in the Midwest,” Schnitkey said. “Their crops came in reasonably well over this past year.”
Farmers are also being squeezed by the stubbornly high cost of everything it takes to grow grain, such as seeds, fertilizer, chemicals, and land.
“We often don’t see those input costs come down very quickly,” he said. “Land values have moderated, maybe declined a bit, but not a lot.”
Farmers who cash rent land -- that is, pay a fixed fee to a landowner in exchange for raising a crop on it -- will have even lower net incomes this year. In Illinois, where the average rent for an acre of land is $285, Schnitkey projects farmers will lose $27 for every acre they farm. He said cash rents will be a good barometer for what the market will look like in the near future.
“The big item to look at this fall will be what happens to cash rents in 2016,” he said. “Cash rents will need to go down for 2016 unless we want to see a repeat of 2015.”
The slim profits Schnitkey projects producers will eke out in 2015 won’t even come from selling a crop but from the other work many farmers do in addition to growing grain.
“Many farms have some sort of agricultural-related business like seed sales, chemical sales, chemical applications, or custom farming in which the farmer is performing harvesting, combining, planting, or tillage operations for another individual,” Schnitkey said. “They provide income, and that income’s going to be significant this year.”
According to Schnitkey’s article, it’ll be the difference between making or losing money this year.
Farming isn’t a year-to-year business and Schnitkey said most farms have the assets and savings to weather this year’s storm, but beginning farmers who often have more debt than more established producers could see their operations dip into the red in 2015.