What is in this article?:
Prices in the high $4 range for corn and high $10 range for soybeans are being projected for next year. Much more will be known about price levels once clearer expectations of 2013 corn and soybean yields are reached. If prices are in the high $4 range for corn and $10 range for soybeans, returns will be lower than in recent years. As a result, cash rent levels may need to be re-evaluated, particularly for situations in which the current cash rent is above average.
The USDA recently updated its World Agricultural Supply and Demand Estimates (WASDE), with the midpoints of 2013-2014 estimates being $4.80/bu. for corn prices and $10.75 for soybean prices. These prices are significantly below prices in recent years, suggesting that agricultural returns may be lower in 2013 and 2014. These lower returns then may lead to the need to re-evaluate cash rents. Herein, returns at a $4.80 corn price and a $10.75 soybean price are examined by calculating operator and farmland returns for three different farmland productivities. These returns then are compared to current cash rent levels.
Operator and Farmland Returns
Operator and farmland returns – equaling gross revenue minus non-land costs – represent the amount of return that can be split between a landowner and a farmer. Take an operator and land return of $350/acre and a cash rent of $300/acre. In this case, the farmer receives $50/acre ($350 operator and land return - $300 cash rent). When cash rents exceed operator and land returns, the farmer faces losses.
Like what you're reading? Subscribe to CSD Extra and get the latest news right to your inbox!
As shown in Table 1, operator and land returns are calculated for three different farmland productivities: high, low and lower. High and low productivities are based on yields and costs from central Illinois farms summarized by Illinois Farm Business Farm Management (FBFM). "Lower" productivity has corn and soybean yields below central Illinois averages summarized by FBFM.
For high-productivity farmland, corn yield is expected to be 195 bu./acre, resulting in $936 gross revenue given a $4.80 corn price. Subtracting $563 of non-land costs gives an operator and land return for corn of $373/acre. Soybeans are expected to yield 56 bu./acre, resulting in $602 of gross revenue at a $10.75 soybean price. Subtracting $350 of non-land costs from $602 gross revenue gives $252 of operator and land return for soybeans. Herein, two-thirds of the acres are assumed to be planted to corn and one-third to soybeans. This crop mix gives $333 of operator and land return/acre.
Operator and land returns are less for the remaining two land productivity classes. Low-productivity farmland has a 183-bu./acre corn yield and 53-bu./acre soybean yield. Operator and land return for low productivity farmland is $291/acre (See Table 1). Lower-productivity farmland has a 160-bu./acre corn yield, a 50-bu./acre soybean yield and a $211/acre cash rent.