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Crop Revenue: Thriving on Less
As the markets have been telling us for months, returns to corn and soybeans will be sharply lower for 2013 and 2014 crops. University of Illinois ag economist Gary Schnitkey gave his latest projections of just how low during a webinar Wednesday morning. Yet, he told listeners that he's confident most farmers in Illinois will weather the new environment.
"We're looking at roughly half the revenue in 2013 and 2014 compared to 2011 and 2012," Schnitkey said.
Using a marketing year average projected price of $4 a bushel for corn and $11 per bushel for soybeans, he shows corn returning $277 an acre for the 2013 crop and a projected $247 an acre for this year's crop. That's a return to management and land, meaning that those expenses are excluded. The corn return for 2014 is well under half of the 2011 return of $630 an acre and just under half of the 2012 return of $570.
For farms paying $300 and more an acre for rent, "the operations have a negative return," he said.
The returns for soybeans are a bit better – $307 an acre in 2013 and $288 an acre this year.
(Slides and a link to a YouTube video of the webinar should be available soon at this farmdoc web page.)
In calculating those returns for a central Illinois farm, Schnitkey's average marketing year prices of $4 for corn and $11 for soybeans are more optimistic than USDA's projections of $3.90 for corn and $9.65 for soybeans. But the projection doesn't reflect the recent rally in prices that brought some corn futures contracts to $5.
"January of this year we hit lows of $4.40, and since then we've been on a nice increasing pace," Schnitkey said. Yesterday's close for new-crop corn futures was $4.86 a bushel, higher than the $4.62 a bushel insurable value for crop insurance that's determined by new-crop futures during the month of February.
"It would be a good time to think about hedging some of that grain for fall delivery," Schnitkey said.
Schnitkey said that the the ratio of soybean-to-corn futures prices suggests soybeans will be more profitable this year. In recent months, the ratio has been ranging from almost 2.6 to 2.35.
"We are now projecting soybeans to be more profitable than corn for both 2013 and 2014," he said. That's unusual, he pointed out. From 2000 to 2012, corn was more profitable than soybeans in 11 of those 13 years.
Schnitkey cautioned that projecting profitability at this time of year doesn't have a good track record. "We have relatively little skill in doing that," he said.
In response to a question, Schnitkey said he doesn't expect wide changes in farmers' plans to plant corn or soybeans in Illinois and the central Corn Belt, and that changes could be greater on the fringes of the Corn Belt.
To thrive in the new environment, Schnitkey had several suggestions.
• It's important to push a pencil on input costs.
• If it costs $20 an acre for a rescue treatment this summer, for example, you'll need a 5-bushel improvement in yield to break even if corn is worth $4 a bushel. At $5 a bushel, you needed only a 4-bushel boost.
• Cutting back on machinery and other capital purchases "is likely something we need to be looking at," Schnitkey also said.
In recent years, machinery capital purchases in Illinois have risen from $40 an acre to $100 an acre, he said.
And, if corn prices are $4 and below this fall, there will be more need to adjust cash rents downward for 2015, he said.