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Income, Financial Outlook, and Adjustments in 2014

Income, Financial Outlook, and Adjustments in 2014. Gary Schnitkey schnitke@illinois.edu University of Illinois. Crop Prices, Market Year Average Prices and Forecasts. Non-land Costs, Corn and Soybeans, Northern Illinois. Cost Changes Between 2006 and 2012, Central Illinois, Corn.

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Income, Financial Outlook, and Adjustments in 2014

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  1. Income, Financial Outlook, and Adjustments in 2014 Gary Schnitkey schnitke@illinois.edu University of Illinois

  2. Crop Prices, Market Year Average Prices and Forecasts

  3. Non-land Costs, Corn and Soybeans, Northern Illinois

  4. Cost Changes Between 2006 and 2012, Central Illinois, Corn

  5. Fertilizer Prices, Illinois

  6. Operator and Farmland ReturnsNorthern Illinois Farmland

  7. Operator and Farmland ReturnsCentral Illinois – High Productivity Farmland

  8. Operator and Farmland ReturnsCentral -- High Illinois Farmland

  9. Grain Farm Net Income Projections

  10. Farm Income Simulation • Grain farm with 1,200 acres • 2/3 corn, 1/3 soybeans • 187 corn yield ($4.60), 56 bu soybean yield ($11) • Tenure • Owned 120 acres (10%) • Share rent – 360 acres (30%) • Fixed cash rent – 720 acre (60%) • $260 per acre acre cash rent • $500,000 debt • Costs in 2013 budgets

  11. Alternatives • Note: • Buffering capability of small amount of owned farmland • Need to monitor cash rents

  12. Reactions • Realize lower crop insurance safety net • Reduce capital expenditures • Evaluate cash rents

  13. “Only” Crop InsuranceLook Different at Lower Prices • Projected price – average of Dec. (corn) of Nov. (beans) CME futures contract in February, used to set insurance guarantees. • Harvest price – average of Dec. (corn) Nov. (beans) CME futures contract in October, used to calculate insurance revenue.

  14. Insurance Premiums and Guarantees Revenue Protection premium in Sangamon County, enterprise units Based on a $4.60 projected price and .22 volatility for 2014.

  15. Sources of Income, 2003 to 2011, Illinois FBFM Grain Farms 03 ->---->---->---->---->11 03 ->---->---->---->---->11

  16. Uses of Funds, 2003 to 2012Illinois FBFM Grain Farms 03 ---->---->----11 03 ---->---->----11 03 ---->---->----11

  17. Reduce Capital Costs • As a percent of total investment, average cash flows are relatively constant • When returns decline need to reduce outflows • Perhaps biggest key to avoiding financial stress • Cash flow likely will lag income changes Cash Flows as a % of Gross Revenue (by year)

  18. Cash rents by county • Released by USDA, September 7, 2013 • 2013 cash rents • Average cash rents

  19. Average Versus Professionally Managed, 2013

  20. At Risk Farms • Most farms will do fine • At risk farms • Over 90% of farmland cash rented • Cash rents $25 or more higher than the county average

  21. Question for Some Farms Some farms have most farms near average cash rents and some at high cash rents How long will high cash rent farmland be subsidized by other farmland?

  22. Summary • Lower Incomes, but most farms will do fine • Reactions • Realize crop insurance guarantees are lower • Reduce capital expenditures • Reduce cash rent

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