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"Increased risk during the upcoming year suggests caution in
increasing cash rents," said Gary Schnitkey. "Much larger farmer
margins will need to be in place for similar risk levels as
compared to the 2001-2005 period." Schnitkey's conclusions are
based on his study, "Consider Higher Costs and Additional Risk
When Negotiating 2008 Cash Rents," which is available
online from U of I Extension.
As a result of higher expected commodity prices, Schnitkey
expects cash rents to rise in the 2008 cropping year.
"While higher commodity prices will increase farmland
returns, caution should be exercised in increasing cash rents,"
he noted. "Higher production costs and lower government payments
will offset some of the revenue increases from higher commodity
prices.
"Moreover, additional risk associated with crop farming
suggests that farmers should receive a larger portion of the
returns. If cash rents increase so that a farmer receives the
same margin in 2008 as in 2001 through 2005, farmers will be in
much riskier positions."
In central Illinois, for example, Schnitkey said farmer
margins need to more than double for farmers to be in the same
risk position in 2008 as compared with 2001-2005.
The study compares actual revenues and costs from 2001-2005
compared with projected 2008 returns. 2001-2005 represents a
period of lower commodity prices. During that period, central
Illinois farmers received an average of $2.22 for corn and $5.89
for soybeans.
"Projected 2008 prices based on Chicago Board of Trade
futures contracts are significantly higher than 2001-2005
prices," he said. "A $3.50 corn price and an $8.50 soybean price
are used in 2008 budgets. Given higher projected prices, crop
revenue will be above 2001-2005 averages.
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 |
 "But offsetting some of the projected crop revenue gains are
higher costs."
Total non-land costs for corn production are projected at $314
per acre in 2008, an increase of $57 per acre from the 2001-2005
level.
"The largest increases come from fertilizer at $27 per acre, seed
at $11, crop insurance at $5, fuel and oil at $5, and crop insurance
also at $5," Schnitkey said.
Total non-land costs for soybeans are projected at $199 per acre
in 2008, an increase of $28 per acre, with the highest increases
coming in seed ($9), fertilizer ($8), fuel and oil ($5), and
interest ($5).
Lower projected government payments also cut into the higher
projected revenue. Exact commodity programs will not be known until
the new farm bill is passed, so Schnitkey assumed a continuation of
the 2002 farm bill levels of support. Due to the way the program
operates, he expects government payments to decline by $27 per acre
in 2008.
"Farmers will face additional risk for three reasons," he said.
"First, price variability likely will be higher over the next
several years. Second, risk will increase because federal commodity
programs will not provide as much downside price protection.
"Finally, revenue for crop insurance must fall more in periods of
high prices before insurance programs are received."
Schnitkey's study includes a number of tables showing the impact
of the 2008 projected crop revenues and costs compared with the
2001-2005 period. Data used in the study came from local Farm
Business Farm Management associations across the state.
[Text from file received from
the University of
Illinois Extension] |
