All good things come to an end. To prepare for the eventual end of commodity grain glory days, your best move may be to run the numbers through available decision-making tools and evaluate options to reduce high-rent hangovers.
A period from 2006 and ending sometime in the future likely “will be viewed as the 'golden age' for crop farm incomes," says Gary Schnitkey, University of Illinois agricultural economist. Knowing how to respond to $3.50 corn and $8.50 soybeans “will be a worthwhile planning activity," he says. "Building financial reserves now is a good way to be able to withstand those times. The farms particularly vulnerable to price downturns have a percent of their farm base cash rented. Find ways to lower cash rents when periods of low prices are on the horizon."
Schnitkey says current projections place 2012 corn and soybean prices around $5/bu. for corn and $11/bu. for soybeans; substantially below 2010 and 2011 prices. But even with normal yields and no unexpected cost increases, grain farm income could still average around $150,000/farm and make 2012 another good income year.
"On the other hand, further price declines could limit profits and increase financial stress," Schnitkey says. Prices could vary over the next five years, he says, “with a long-run average close to $4.50/bu. for corn and $10.50 for soybeans. That would result in $86,000 net income, much closer to the $66,000 average from 2001 to 2006 than the $177,000 from 2006 to 2010."