Illinois Corn / Soybean Farms, Revenue for 2016 Likely Lower than in 2015

University of Illinois agricultural economist Gary Schnitkey indicated this week at the farmdoc daily blog (“Corn and Soybean Revenue Projections for 2016 and 2017“) that, “While considerable uncertainties still exist, revenue projections for 2016 and 2017 are provided in this article for the average of high-productivity farms located in central Illinois. The 2016 revenue projections provide an indication of whether 2016 will be a better or worse income year than 2015, a year in which net incomes on many grain farms were extremely low. The 2017 projection provides information useful when making cash rent, input purchase, and crop choice decisions for 2017. Overall, revenue for 2016 likely will be lower than in 2015. Continued low revenues should be expected for 2017, meaning that cost cutting must continue.”

Dr. Schnitkey also noted that, “When making 2017 decisions, it seems prudent to expect low revenues into 2017, with a fairly good chance that revenues will be lower in 2017 as compared to 2016. Hence, there will be a continuing need to cut costs, particularly for those operations with low amounts of working capital.”

Meanwhile, a recent news release from Purdue University stated that, “Indiana farmland values have continued their downward trend of last year, with average declines of 8.2 to 8.7 percent depending on land quality, according to the 2016 Purdue Farmland Value Survey. Declines of this size have not been seen since the mid-1980s.

Over the past two years, the average farmland value has fallen about 13 percent. The declines are largely the result of tighter profit margins from low commodity prices.

Cash rents – the amount a farmer pays to rent land to farm – also declined for the second consecutive year.”

The Purdue news release also pointed out that, “This year’s decline in cash rents across all land qualities was the largest since 1987. Over the past year, cash rents declined by an average of 9.8 percent to 10.9 percent. Top land had an average cash rent of $257 per acre, average land $204 per acre and poor land $157 per acre.

“The survey respondents indicated that they believe there will be a continuation of low grain prices, low and stable long-term interest rates and low inflation rates. If they prove to be correct, the authors said there is likely to be slower growth in farmland earnings and that producers’ per-unit cost of production would need to be lowered further.”

More broadly with respect to “farm income,” the U.S. Department of Agriculture’s Economic Research (ERS) Service recently explained that, “The roughly 2.05 million U.S. family farms vary widely in size and by the share of household income from farming. Farm income contributes little to the annual income of farm households operating residence farms–those with annual gross cash farm income (GCFI) less than $350,000 and where the principal operator is either retired or has a primary occupation other than farming. In contrast, farm income is a secondary source of income for households with intermediate farms—those with annual GCFI less than $350,000 and a principal operator whose primary occupation is farming.”

The ERS update added that, “For commercial farms with annual GCFI greater than $350,000, farm income is a primary source of income. In 2014, 40 percent of residence farms had positive income from farming activities, which contributed only 7 percent to total household income for the typical (or median) household reporting positive farm income. For households of intermediate farms, 56 percent had positive farm income, which comprised 27 percent of their total household income. Most commercial farms–85 percent–had positive farm income, and farm income typically accounted for 77 percent of total income for these households.”

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