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"Per-acre corn and soybean returns in 2005 and 2006 are projected to
be significantly lower than returns in 2003 and 2004," said Gary
Schnitkey, U of I Extension farm financial management specialist and
co-author of the report with fellow Extension specialist Dale Lattz.
"As a result, fewer funds will be available to pay cash rents in
2005 and 2006." In addition, Schnitkey noted, fertilizer and fuel
costs have increased dramatically, causing soybean profitability to
increase relative to corn profitability. Cost increases have been
higher for corn than for soybeans. In 2005, soybean production is
projected to be more profitable than corn production by $61 per
acre. For 2006, soybean production is projected to be $10 per acre
more profitable.
"Shifting acres to soybeans may be prudent," he said.
Fertilizer costs have increased dramatically, particularly for
nitrogen. Schnitkey said that these increases suggest lowering
fertilizer rates, and experimenting with lower rates in some fields
may be warranted.
"Higher fuel prices suggest reducing fuel use," he added. "One
way may be to reduce tillage passes, particularly 'deep' tillage
passes that have high fuel use."
The complete report, "2005 and 2006 Crop Budgets: Implications
for Cash Rents and Production Decisions," is available on
Extension's Farmdoc website in the "Farm Economics: Facts and
Opinions" section. The Web address is
http://www.farmdoc.uiuc.edu/manage/
newsletters/fefo05_16/fefo05_16.html.
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"Large variable cost increases have occurred since the
2001-through-2003 period, resulting in lower profitability to grain
farming," said Schnitkey. "Over the next few years, there are no
signs that these variable cost increases, led primarily by fuel and
fertilizer price increases, will abate.
"In some cases, renegotiating cash rents to lower levels may be
warranted."
Schnitkey noted that cash rents have been increasing in Illinois,
with some "aggressive" cash rents greatly exceeding $175 per acre.
"A $175 per acre cash rent results in projected losses of $97 per
acre in 2005 and $27 per acre in 2006," he noted. "Renegotiation may
allow farmers to maintain profitability."
Looking beyond 2006, Schnitkey and Lattz believe that returns
will be, on average, closer to projected 2006 levels than to 2003
and 2004 levels.
"High returns in 2003 and 2004 were obtained because of
above-average yields, relatively high prices and large government
payments -- particularly in 2004," Schnitkey said. "These conditions
may repeat themselves but are atypical. Using historical returns as
a guide, high returns occur about one in five years.
"As a result, using 2006 projected returns when setting cash
rents seems prudent rather than actual results from 2003 and 2004."
[News release from the
University of Illinois College
of Agricultural, Consumer and Environmental Sciences]
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