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Profit outlook slips for 2012 crop

The recent slide in grain prices has 2012 crop revenue projections slipping.

Nearby corn futures prices have fallen by around 90 cents in the last 3 months. That dip, at least in central Illinois, translates to a $182 decline in per-acre profits, according to University of Illinois ag economist Gary Schnitkey. In addition, soybean per-acre profits are seen dipping by $108 per acre given the recent slide in prices.

"Given a corn-soybean rotation that is split 50% between each crop, returns have declined an average of $145 per acre," Schnitkey says.

What's that mean for 2012 acreage? Schnitkey says it likely means there could be less incentive for farmers to increase corn acre. But, as of right now, it's a little too early to make that decision.

"This narrowing of returns reduces incentives to plant more corn. If more corn acres are needed, relative prices between corn and soybeans likely will need to adjust.

Commodity prices obviously are volatile. It is likely that futures prices will change over the next several months, resulting in changed implications from those given above," Schnitkey says. "Perhaps the most critical time period will be during the month of February, when futures prices are used to set projected prices for crop insurance.  Once these crop insurance prices are known, much more will be known about the downside risk farmers face for the 2012 crop."

But, in the long run, just because prices have slipped doesn't mean farmers won't see profits in 2012.

"While price declines have reduced expected returns, November prices still result in returns above historical averages. For a 50-50 corn and soybean rotation, the average operator and farmland return in 2012 is projected at $379 per acre (average of $426 for corn and $331 for soybeans)," Schnitkey says. "From 2000 to 2010, the average operator and farmland return for a 50-50 rotation has averaged $230 per acre. Except for farms with high cash rents, November prices still suggest a profitable year."



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