Research & Data

Illinois farms still in the red after grain price boost – report

The recent rise in grain prices after Latin American weather concerns is not enough to put Illinois farmers in the black.

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Bean field in front of a red barn and silos just west of Peotone, Illinois on August 21, 2011. Three exposures were blended together to create a high dynamic range (HDR) image using Photomatix software.

Illinois’ cash-rent grain farmers are likely to remain in the red even after crop price rises, a report from the University of Illinois at Urbana-Champaign has found.

A speculative corn and soybean buying spree by hedge funds anticipating shortfalls due to South American bad weather has led to hopes a price rise could bring reprieve for US grain producers.

At $3.80 and $9.75 per bushel, respective fall-season bids for corn and soybeans have reached high enough prices to generate net positive income for landowners or share rent-paying farmers. Cash-rent acres with evenly split corn and soybean production are still projected to lose $50 per acre, better than the $68 per acre loss projected under the US Department of Agriculture’s (USDA) February pricing estimates.

Most Illinois farms have a mix of cash and share-rented acres combined with smaller parcels of owned land, meaning cash-rent losses undermine net profits on share-rented and owned acres.

In the short term, continued losses could add downward pressure to farm values and increase the likelihood of cash-strapped operators demanding lower rents for a third year in a row. Illinois farmland is among the most valuable in the US, according to the USDA data. Rents there appear to reflect overall US farmland rents.

Growers in US Midwest and South, have seen incomes drop by more than half over the last three years, Georgia’s Republican Representative Austin Scott said to a congressional panel last week.

Prices would have to top $4.20 per bushel for corn, and $10.25 for soybeans for working capital on the typical Illinois farm to stabilise, according to the report. It describes this scenario as “optimistic”, and says any prices below $4 and $9 will force farmers to continue reducing operating costs.

Iowa State University’s Dermot Hayes told Agri Investor in February that downward pressure on US farmland prices had probably so far been masked, because tenants absorb losses first. He said financial pressures will eventually mean lower rents, which would in turn translate to lower valuations.