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48109

Typical Illinois Farm 2015 Net: Loss of $5 an Acre

Last week, University of Illinois economist Gary Schnitkey released his estimates of 2015 and 2016 crop budgets that show production costs and returns to the operator and land. Tuesday, Schnitkey showed what the projected net income may be in 2015 after subtracting land costs. He came up with a $5-an-acre loss on crop production alone.

For a 1,500-acre Illinois grain farm with high productivity land, Schnitkey used an operator and land return of $244 an acre. If the land is rented for cash, subtracting the average central Illinois rent of $285 an acre for top ground shows a loss of $41 an acre. A share-rent arrangement of 50% of revenue and direct costs with a $25-an-acre supplemental cash payment has a lower land cost of $243 an acre, netting the operator $1 per acre. Owning the land has the highest net return of $99 an acre, after subtracting $30 an acre in property tax and $115 an acre interest on land debt (but no principal payment). 

“Most farmers have a combination of cash rented, share rented, and owned farmland,” Schnitkey writes. “In central Illinois, commercial-size farms have an average of 47% cash-rented farmland, 39% share-rented farmland, and 14% owned farmland. Given these percentages and per-acre net incomes in Table 1, net income from farming operations in 2015 is projected at -$5 per acre…”

Even if Schnitkey’s assumptions about prices and yields hold up, that $5-an-acre loss won’t be the actual income of his example farm, however.

“Farms often receive modest amounts of income from activities closely related to farming operations including revenue from patronage dividends and relatively small amounts of custom work. Many farms typically have between $10 and $15 per acre of related income,” he writes.

When he adds that income to the farm’s crop production loss, net income for the year is $7,450. It’s a dramatic downturn from his estimated income of $103,500 for the farm in 2014. The change is due in part to lower returns to the operator and land in 2015 and a marketing gain of about $20 an acre in 2014 that is unlikely this year.  

Schnitkey said last week that the prices he used for the crop budgets he posted on July 7 were relatively high at that time. “Projected prices for both 2015 and 2016 are $4.20 per bushel for corn and $10.00 for soybeans,” he said then. “Relative to current market levels, the prices used in 2015 budgets are optimistic.”

He used yields of 196 bushels an acre for corn and 57 bushels an acre for soybeans. That, too, remains an uncertainty this early in the year. “At this point, it is difficult to determine whether yields will be above or below expectations for 2015. Clearer indications of 2015 yields will be obtained in August,” Schnitkey wrote last week.

This week, he reminds readers that actual net income on farms could differ from his example.

“Farms with higher percentage of their acres in cash rent likely will have lower incomes,” he writes. “As yields and prices can vary from projection, actual incomes could vary dramatically from those given in this paper. Overall though, substantial decreases in incomes should be expected for 2015.”

For the full reports, visit:

Schnitkey, G. "Projected 2016 Crop Returns: Continuing Need to Adjust to Lower Returns." farmdoc daily (5):124, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 7, 2015.

Schnitkey, G. "Projected 2015 Net Income on a 1,500 Acre Grain Farm." farmdoc daily (5):127, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, July 14, 2015.

 

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