CCFB News» October 2018

Returns projected well below cash-rent rates again next year.

USDA projects net farm income will decline by $9.8 billion (13 percent) this year, compared to 2017, to the lowest level since 2009.And, while lower commodity prices are a key factor in the projections (receipts are projected to drop by $2.5 billion for milk and $1.9 billion for cash corn), another driver of the sobering economic outlook involves rising input costs and debt levels.

USDA estimates farm-production expenses could grow by $3.5 billion this year, to $359.2 billion nationwide, led by a $1.4 billion increase in fuel/oil costs, a $1 billion rise in interest expenses and $787 million more for hired labor.

“Since 2012, fertilizer costs on corn land have fallen on a per-acre basis but rose in the spring of 2018, especially urea and anhydrous ammonia,” said Mike Doherty, Illinois Farm Bureau senior economist and policy analyst. “Overall, fertilizer prices may continue to rise in 2019, partly due to rising global energy prices.

“Another area for concern is rising gasoline and diesel (prices) since last year, with fuel returning to year 2015 levels,” Doherty said. In Illinois, USDA reported farm-production expenditures jumped 6 percent from 2016 to 2017, to $16.8 billion (see graphic for breakdown). On a per-farm basis, the largest expense in 2017 was rent, at slightly more than $50,000 per farm.

Looking ahead, the University of Illinois estimates nonland costs on central Illinois farmland could grow from an average of $563 per acre for corn to $586 per acre next year, while soybean costs could increase $15 per acre to an average of $369 per acre.

If realized, operator and land returns for 2019 could total just $201 per acre for corn and $199 for beans, both well below the statewide average cash rent of around $260 per acre.

“Returns for 2019 are projected at low levels, likely requiring large downward adjustments in cash-rental rates on farmland,” Gary Schnitkey, U of I farm management specialist, noted.

The margin squeeze, along with higher interest rates, caused farm sector debt to increase 1 percent this year to $388.9 billion, with real estate debt up 1.2 percent, according to USDA.

A recent report on the farmdoc daily website noted debt per tillable acre in Illinois jumped from $258 in 1991 to $357 by 2003. Debt per tillable acre increased another $300 per acre since 2003.

“The importance a farmer puts on monitoring their debt level is becoming increasingly important in this period of lower farm returns,” U of I economists noted in the report. “With lower crop prices and higher inputs, we will continue to see the increase in debt per acre.”