Plan for lower farm incomes now -- economist
Now is a good time to start adjusting to lower returns on farmland in the coming year, one economist suggests.
Grain prices, for the last few months, have been forecast to fall through the fall, winter, and into 2014, causing overall farm returns to slide, especially those for farmland, which has already seen a downturn in values in some parts of the Corn Belt in the last few months. New information from University of Illinois Extension ag economist Gary Schnitkey shows how much returns could fall and offers ways to offset those declines on the farm balance sheet.
For Illinois, average returns for a typical corn and soybean farm will range as much as $192 per acre lower than the averaged from 2010 to 2012. Two major factors will drive the decline, Schnitkey says.
"Nonland costs have increased in recent years. Projected costs in 2013 and 2014 are down from 2012 levels, but are still above the average from 2010 through 2012. Nonland corn costs in Illinois are projected at $600 per acre in 2013 and $565 in 2014, for an average of $583 per acre," he says. "The $583 projected average for 2013 and 2014 is $35 per acre higher than the $548 average from 2010 through 2012. Decreases in 2013 and 2014 costs are projected due to lower fertilizer costs."
Obviously, the 800-pound gorilla in the room when it comes to farm returns in the next year is an expected slide in grain prices. Corn prices, Schnitkey says, are expected to run around $1.34/bushel lower in the next year than they did, on average, from 2010 to 2012. The dip in soybean prices isn't expected to be as steep; Schnitkey sees a likely 86-cent-per-bushel average decline through next year.
"Commodity prices in 2010 through 2012 were above what many agricultural economists believe to be long-run commodity prices. Long-run averages around $4.60 for corn and $10.60 for soybeans seem reasonable," he says. "Prices used in 2013 and 2013 projections are close to long-run prices. Hence, return levels like those projected in 2013 and 2014 likely are better representations of average returns in the next several years than return levels for 2010 through 2012."
So, what's the best strategy for dealing with these downturns? "Lower returns will require adjustments by farmers," Schnitkey says. "Machinery and other capital purchases likely will have to be reduced. In addition, cash rents may have to be reduced in certain situations to reflect the projected lower returns for 2013 and 2014."