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Cash rents, insurance key to 2013 income

Crop insurance and high grain futures prices combined to kick general farm incomes higher in 2012. Now, as the page turns to 2013 on the calendar, what can we expect in the next 12 months?

It's a foregone conclusion that the answer to that question lies in the drought and whether it continues to gain strength or fade. But a lot of the groundwork for 2013 farm incomes may already be laid, one economist says.

The drought in 2012 caused grain prices to surge, boosting incomes to levels higher than they would have, generally, had moisture levels been closer to normal. While the prices -- and the revenue protection levels they afforded via crop insurance -- have been good to a lot of farmers' pocketbooks, that could change in the next year because of the speed at which different sectors of the ag economy adjust to one another, says University of Illinois Extension agricultural economist Gary Schnitkey.

"One unfortunate aspect of this drought increase may be that cash rent levels likely will continue to increase in 2013. These increases likely are larger than would have occurred without the drought," Schnitkey says. "When corn and soybean prices return to more normal levels, the necessary downward adjustments in cash rents may be more painful and protracted than had the drought not occurred, particularly for cash rents in the higher range."

Though there will likely be a lot of highs and lows in grain prices in the next year, there will be one key date, and one not too far off. Per-bushel insurance coverage levels for Revenue Protection (RP) and Group Risk Income Plans (GRIP) will be set in early February, at which time Schnitkey says "much of the downside risk will be determined.

"Projected prices near $6.00 per bushel for corn and $12.50 per bushel for soybeans would result in guarantees at or above 2012 levels, again providing many farms with the opportunities to insure positive incomes by taking high levels of crop insurance," he says. "Farms most at risk for low and negative incomes are grain farms that cash rent a large portion of their farmland at high rent levels. These farms cannot assure themselves positive incomes in 2013 even if they take high levels of crop insurance."



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