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Iowa 2020 corn profits rely on payments, expert says
Last Tuesday, the Food and Agricultural Policy Research Institute released an estimate of a record $32.8 billion in direct payments that will go to farmers this year.
Friday, an Iowa State University (ISU) farm management specialist told landowners that all of any profits farmers earn this year on corn will be due to those payments and that even with federal help, soybeans will lose an average of $15 an acre.
“A lot more money is coming from the government than probably any time in the last 20 years,” says Steve Johnson, a farm and ag business management specialist with ISU.
At a Farmland Owners Update webinar, Johnson said he estimates that Iowa farmers, on average, will receive about $95 an acre in federal payments for the 2020 corn crop. It will take nearly all of that to reach Johnson’s projected net return to the farmer of $86.60 an acre for corn.
For soybeans, he estimates smaller federal payments of $32 an acre. Even with those, the net return on beans is projected at a negative $15 an acre.
“If they’re paying average cash rent, they’re not making any money,” Johnson said of his outlook for soybeans.
He estimates the average cash rent in Iowa this year at $222 per acre, which has changed little over the past four years.
As farmers and landowners negotiate rents for next year, Johnson said he believes 2021 could be even more challenging.
“I do think we’re going to see more interest in flex rents,” Johnson said. With the many types of flex rents, the landowner usually takes a lower fixed payment than with cash rents, in exchange for sharing a percentage of the farm’s positive returns.
“I do believe there will be some interest in lowering that fixed rent,” Johnson said.
This early in the season, Johnson’s estimates are estimates, of course. For corn, he used an estimated yield of 198 bushels and a price of $3.20 per bushel. For soybeans, the yield is pegged at 55 bushels an acre with an average selling price of $8.20 per bushel. Those yields are the same as Iowa’s 2019 average yields and prices are national average cash prices released by USDA in the June 11 supply and demand report. Total non-land costs for corn are estimated at $420 an acre and for soybeans at $266 an acre. Those crop costs are coming from the ISU Estimated Cost of Crop Production publication released in January 2020 for corn following soybeans and soybeans following corn rotations.
Johnson expects federal payments to come from two main sources, the farm bill programs of ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage) and from extraordinary payments meant to cushion losses from the economic effects of the coronavirus. That program is the CFAP (Coronavirus Food Assistance Program) for 2020, but the payment being made now reflects the 2019 production and unpriced bushels as of January 15.
“There likely will be a large PLC payment,” Johnson said. “It will be on corn for the 2020 crop but not received until October 2021.”
Sign-up for either ARC or PLC for 2020 is still underway – until June 30 — but most farmers have already opted for PLC for corn base acres and likely ARC-CO on soybeans. The season average price for corn, projected in USDA’s most recent supply and demand estimates, is $3.20, well below the $3.70 reference price that triggers PLC payments. The soybean price of $8.20 is only 20¢ under the soybean reference price of $8.40.
For corn, Johnson estimates a PLC payment of $65 an acre. The rest of expected federal payments will be from CFAP, at about $30 an acre. Soybeans could trigger a $10-per-acre PLC or ARC-CO payment and CFAP would bring another $12 an acre. He expects another CFAP-like payment could be coming but will likely use the 2020 planted acres.
Sign-up for the CFAP program, through your local Farm Service Agency, is still underway. The deadline is August 28.
CFAP isn’t the only corona virus-related program that farmers might be able to use.
Another is the Paycheck Protection Program, designed to help small businesses keep employees on the payroll and meet other costs.
At the landowner webinar, Kristine Tidgren, director of ISU’s Center for Agricultural Law and Taxation, covered the highlights of the nearly $700 billion program.
As of Friday, $130 billion hadn’t been spent, Tidgren said.
“Loans can be made through June 30 and this is money available,” Tidgren said.
Eligibility is determined in part by last year’s payroll and self-employment income. For farmers, that self-employment income is reported on their income tax Schedule F. Because many farmers didn’t report income last year, PPP, administered by the Small Business Administration, hasn’t been as useful as CFAP, Tidgren said.
Still, you can apply up through June 30 at your bank or Farm Credit System lender that is participating in the program.