Commodity Prices Resulting in $50,000 Net Farm Income

Impacts of rental arrangements on breakeven commodity prices

Differences in rental arrangements also impact commodity prices necessary to generate $50,000 net farm income. Higher levels of share rent lower prices while higher levels of cash rents increase prices. If the farm has 85% share rent and no cash rent, crop insurance purchases will guarantee the farm at least $50,000 of net farm income. If the farm has 85% cash rent and no share rent, commodity prices resulting in $50,000 of net farm income are $3.72/bu. for corn and $8.56 for soybeans.

Farms that have all cash rent farmland without owning or share-renting farmland will have higher breakeven prices. Take the above example farm, but have it cash rent 100% of its farmland. At the same time, eliminate $300,000 of long-term debt, which is presumed to finance a land purchase. In this case, a $4.41 corn price and $10.17 soybean price generates $50,000 net farm income. Increasing the cash rent amount results in the following break-even prices:

$4.42/bu. for corn, $10.17/bu. for soybeans given $280/acre cash rent

$4.65/bu. for corn, $10.70/bu. for soybeans given $320/acre cash rent

$4.89/bu. for corn, $11.25/bu. for soybeans given $360/acre cash rent

 

Summary

For a typical farm, $3.70/bu. corn and $8.51/bu. soybeans will generate $50,000 of net farm income. The rental situation of the farm has a large impact on these breakeven commodity prices. Renting more farmland using cash rental arrangements and having higher cash rents will increase break-even commodity prices.

Current commodity prices suggest that 2012 will be a profitable year. In the future, commodity prices close to those presented in this paper are likely to happen.

 

Read the article at farmdoc Daily.