Before you get started, you’ll want to read these posts:
You’ll notice that I didn’t write an update to this post in 2016. That’s because, it was just too plain depressing to write about.
But, you’re owed a realistic picture of what the farming economy looks like for farmers today. And the truth is, we’re on the cusp of what will likely become a financial crisis.
In order to grow a crop, farmers must buy things like seeds, equipment, chemicals and fertilizer. These are called input costs. For 2017, the University of Illinois estimates farmers will pay $521 per acre to keep the lights on and put some corn in the ground.
But the crop that they are growing will be worth something, right?
The University of Illinois estimates a 200 bushels per acre yield for corn. And in Illinois, our 2016 average yield was 197, but the U.S. average was 175, so although 200 is a good estimate compared to the trend, it could be high. It could also be low! That’s the fun of farming … you just never know!
So 200 bushel per acre times $3.50 per bushel which is a good average number based on the market right now equals an income of $700 per acre.
$700 – $521 = $179 per acre
If you read those first articles like I asked you to, you know that many farmers don’t own all their land. In fact, its pretty common for farmers to rent 50-75% of the ground their farming, and I’d say that it’s much more common for younger farmers to rent up to 100% because they are just starting out and haven’t purchased any farm ground yet.
Cash rent gets expensive. The average cash rent in Illinois according to the U of I was $221. This will vary considerably across the state. In central Illinois where my family farms, it’s not uncommon for cash rent to be $300-$400 per acre. In southern Illinois where the ground isn’t as good, $100 cash rent is reasonable.
But if we stick to the average $221 from 2016 …
HOW MUCH DID THIS FARMER BANK?
If she’s farming 1,500 acres, she lost $63,000.
If she’s farming 1,000 acres, she lost $42,000.
If she’s farming 500 acres, she lost $21,000.
You get the idea.
WHAT’S A FINANCIAL CRISIS?
There are farmers all over the country that are struggling to show a positive cash flow right now. On their balance sheet, based on the predictions, the prices, the costs, the yields, they can’t make any money. They would literally be better off to not put a crop in the ground and save the effort.
But livestock would starve. We’d have to import more petroleum. Fuel needs and hunger usually start wars. No one wants that.
Still, banks are largely unwilling to loan farmers money when a basic balance sheet shows such a significant loss. Would you loan someone money knowing they were going to lose all of it and then some!?
And of course, there’s a chance that crazy weather would lower yields over the country and impact market prices and change the entire game. So farmers – the eternal optimists – are definitely going to plant a crop if there’s any way they can figure out how to afford it.
ARE FARMERS RICH?
Not in 2017. Not at all. The cool thing about farmers is that they are savers. They’ve invested in their farms during good times, to be able to cut their costs to the bare minimum during these sorts of economic climates.
They’ll make it through. And thanks to them, so will you.
ICGA/ICMB Marketing Director