Are you farming at a loss in 2009? Even with highly productive soil and good yields, 2009 could generate an income statement with red ink at the bottom. That was not in your plan for the year, but may be a reality.

Central Illinois farmland, not unlike good productive land throughout the rest of the Cornbelt, could return a loss this year on both corn and soybeans, believe ag economists Gary Schnitkey and Nick Paulson at the University of Illinois. Their latest farm management newsletter suggests an $8 loss per acre on corn and a $15 loss per acre on soybeans for the 2009 crop. And they say that has not happened in the past two decades. The reason, of course is high production costs and low market prices.

Breaking down their calculations, Schnitkey and Paulson say non-land costs for corn are projected at $517 per acre, $89 higher than 2008, while corn prices of $3.25 per bushel were the 2009 average compared to $4.05 for the 2008 crop. They used a 200 bushel yield estimate for corn and 51 for soybeans, which came from USDA’s National Ag Statistics Service. While not yet received, the revenue estimates included a $25 ACRE payment for corn. They indicate that the final crop revenue estimates could vary, and the only factor that could make any substantial change would be commodity market prices.

The increased production expenses for 2009 are attributed to higher cost for fertilizer than in 2008 and slightly higher seed costs for corn. After deducting total non-land costs of $517 for corn, $202 remains for a return to land and operator, which means cash rent must be paid from that amount. Schnitkey and Paulson used $210 for cash rent, leaving an $8 loss. For beans non-land costs of $312 are deducted from $507 gross revenue, leaving a return to land and operator of $195. With $210 cash rent, there is a $15 loss. Again, higher costs for seed and fertilizers pushed costs higher in 2009.

The economists report that cash rent operations will have more outlay than share rent farms, and cropshare leases will have lower land costs, and therefore operator returns will likely be higher than those for cash rent farms. With the increased financial stress for cash rent farms in 2009, operators will have to draw upon equity that may have accumulated from their returns in 2007 and 2008. The economists say, “Hence, financial difficulties likely will not be widespread across grain farms in the Cornbelt.”

For 2010, operator returns will be back in the black, with a $94 net for corn and $84 for soybeans, due in part to lower land costs from lower cash rents. Additionally, non land costs are projected $77 less for corn at $440 per acre, which is attributed to lower fertilizer costs for 2010 crops. The crop budgets for 2010 prepared by Schnitkey and Paulson are based on $3.75 corn and $10 soybeans.

Looking at the trend in returns, the economists contend, “The 2009 and 2010 projection suggests that high returns of 2007 and 2008 will not occur over the next couple of years. It is likely that the high returns period experienced during 2007 and 2008 is over and crop farming now faces agricultural returns closer to historical averages.”

Profitability in 2008 is giving way to red ink in 2009 before a slight recovery to positive net returns on corn and soybeans in 2010. Higher fertilizer and seed costs raised 2009 production costs, and with lower commodity prices, the estimated returns for corn and soybeans will be negative on productive farmland. In 2010, lower cash rents, plus a return to more traditional prices for fertilizer will restore a small degree of profitability.

Source: Stu Ellis, University of Illinois