GRAIN FARM INCOMES IN
2000 AND PROSPECTS FOR 2001
Projected net farm incomes for 1,037 Illinois grain farms suggest that 2000
incomes will be slightly lower than 1999 incomes. These 1,037 farms are enrolled
in Illinois Farm Business Farm Management (FBFM) and have an average of 833 tillable
acres. Average net income on these farms was $33,180 per farm in 1999. Projected
2000 net income is $32,414, about $750 lower than 1999 income.
Lower 2000 net incomes result primarily because of higher expenses. Fuel costs
rose dramatically in 2000. Overall, crop expenses are projected to be 4 percent
higher in 2000 as compared to 1999 expenses. Other expenses are projected to be
1 percent higher. Offsetting expense increases are higher yields in 2000. Average
corn yield in Illinois is projected at 153 bu. per acre in 2000, up by 14 bu.
over the 1999 yield of 140 bu. per acre.
The 2000 income continues a string of low average incomes occurring in 1998
($13,827 average net income) and 1999 ($33,180). At these income levels, about
75 percent of the 1,037 farms will see net worth declines. For most of these farms
to have net worth gains, net income needs to be above $50,000, close to the average
income for the decade of the 1990s.
Moreover, some farms will see substantial net worth declines during 2000 due
to a variety of factors. Not all farmers, for example, have higher yields in 2000.
The Illinois Agricultural Statistical Service reports that the average yield in
the East district (comprising Livingston, Kankakee, Ford, Iroquois, Piatt, Champaign,
and Vermilion counties) is 144 bu. in 2000, down by 9 bu. over the 1999 average
yield of 153 bu.
Overall, 2000 incomes suggest that most farms will maintain their financial
position. Some farms will see their financial position erode because of lower
yields and higher expenses. A small minority of farms will see their financial
Incomes for 2001
Substantial improvements in grain prices would cause 2001 net income to be
above 2000 levels. If prices do not improve, four factors suggest that 2001 income
will be below 2000 income.
First, above average yields may not occur in 2001. Trend-line yield projections
indicate that the expected yield for Illinois in 2001 is 140 bu., 13 bu. below
the average state yield in 2000. If Illinois returns to average yields, without
significant price improvements, average net income for the 1,037 grain farms will
decline by about $8,000 per farm.
Second, expenses in 2001 are likely to increase over 2000 levels. While fuel
prices increased in 2000, many farmers did not feel the full brunt of the increase
because fuel was purchased before price increases occurred. All fuel purchases
for 2001 crop production will occur at higher prices. In addition, other operating
costs likely will increase. Nitrogen fertilizer costs will be significantly higher
in 2001 as compared to 2000. Drying costs may be higher due to higher fuel prices
and potentially higher grain moisture levels at harvest. Projections suggest these
cost increases could lower average income for the 1,037 farms by $4,000 per farm.
Third, Agricultural Marketing Transition Act (AMTA) payments are scheduled
to decline in 2001. The 2000 rate for corn is $.334 per base bushel. The 2001
rate is scheduled to be $.26 per bu. This decline will cause net incomes for the
1,037 farms to decline by about $3,000 per farm.
Fourth, Market Loss Assistance (MLA) payments may not be at 2000 levels. In
2000, MLA payments are $.363 per base corn bu., $.637 per base wheat bu. and $.1408
per documented soybean bu. A continuation of MLA payments requires legislation
to be passed by the U.S. Congress. If no payments occur, average income for the
1,037 farms will decrease by about $16,000 per farm.
The above projections suggest that 2001 incomes will be low. The potential
for low incomes means that performing cash flow projections for the upcoming year
is critical. Cash flow planning will point out potential cash flow problems and
suggest areas where adjustments can be made.
Potential areas for adjustments include reducing operating costs. Given low
commodity prices and higher costs, it may be prudent to reduce fertilizer application
rates. Moreover, low commodity prices may signal the need to switch from higher
to lower priced inputs. For example, use of non-biotechnological altered seeds
may be advisable for the 2001 year.
Obviously, an increase in grain prices would dramatically change income prospects.
There are some prospects that this may occur. When this will occur is best addressed
by outlook analysts. At this point, we suggest using loan rate prices in making
2001 cash flow projections. This will give the “worst case” scenario for prices.
Planning for the worst and having higher prices result will be a pleasant surprise.
Income projections for Illinois grain farms are more fully reported in a paper
entitled “ Estimated 2000 Farm Income and Financial Position of Illinois Grain
Farms”. This paper is available at farmdoc (http://web.aces.uiuc.edu/farmdoc).
It is in the management section under newsletters and reports.
Projections of per acre yields are available
at the Illinois Agricultural Statistical Service web site (http://www.agr.state.il.us/agstats.htm).
An Excel spreadsheet for performing cash flow projections is available at farmdoc.
The spreadsheet is in the finance section under FAST tools (http://web.aces.uiuc.edu/farmdoc/finance/business.html).
For market outlook, see the marketing section
at farmdoc (http://web.aces.uiuc.edu/farmdoc/marketing/index.html).
Issued by: Gary Schnitkey,
Dale Lattz, and Paul
Department of Agricultural and Consumer Economics