The U.S. Department of Agriculture recently updated its World Agricultural Supply and Demand Estimates (WASDE), with the midpoints of 2013/2014 price estimates being $4.80 per bushel for corn and $10.75 per bushel for soybeans. 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 land owner and a farmer. Take an operator and land return of $350 per acre and a cash rent of $300 per acre. In this case, the farmer receives $50 per acre ($350 operator and land return - $300 cash rent). When cash rents exceed operator and land returns, the farmer faces losses.
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 bushel per 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 per acre. Soybeans are expected to yield 56 bushels per 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 per acre.
Operator and land returns are less for the remaining two land productivity classes. Low productivity farmland has a 183 bushel per acre corn yield and 53 bushels per acre soybean yield. Operator and land return for low productivity farmland is $291 per acre (See Table 1). Lower productivity farmland has 160 bushel per acre corn yield, a 50 bushel per acre soybean yield, and a $211 per acre cash rent.