Gary Schnitkey
University of Illinois schnitke@illinois.edu
www.farmdocdaily.illinois.edu
www.farmdoc.illinois.edu

1. Farm income will be down considerably in 2015, and 2016 likely will be a repeat of 2015 if significant cost cuts do not occur
2. Non-land costs plus cash rents exceed gross revenue, need to cut costs
3. Many farmers are financially strong and could postpone cost cutting decisions, but should not
4. Environment is different today than in last 20 years www.farmdocdaily.illinois.edu

www.farmdocdaily.illinois.edu
www.farmdoc.illinois.edu

Yield per acre
Price per bu
Operator and land return
Land costs
Farmer return
2009
192
$3.62
$198
209
-$11
2010
168
$5.07
$456
215
$241
2011
174
$6.24
$630
248
$382
Year
2012 2013
126
$6.93
$611
270
$341
197
$4.52
$358
290
$68
2014 2015P 2016P
231
$3.75
$268
293
-$25
196
$3.65
$164
288
-$124
198
$3.85
$240
258
-$18
Yield per acre
Price per bu
Operator and land return
Land costs
Farmer return
2009 2010 2011 2012 2013 2014 2015P 2016P
55 60 56 50 58 64
$10.03
$11.47
$12.75
$14.66
$13.25
$10.25
64
$8.90
58
$8.90
$289
209
$80
$444
215
$229
$446
248
$198
$430
270
$160
$429
290
$139
$286
293
-$7
$235
288
-$53
$195
278
-$83

Projected 2015 and 2016 levels back to 1998-2002 levels www.farmdocdaily.illinois.edu

www.farmdocdaily.illinois.edu
www.farmdoc.illinois.edu

www.farmdocdaily.illinois.edu

Non-land Costs, Corn and Soybeans,
Central Illinois www.farmdocdaily.illinois.edu

Operator and Land Returns and Cash
Rents, Central Illinois
700
600
500
400
300
Corn
Soybeans
Cash Rent
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015P 2016P

2016P
Crop revnue (196 x $3.65)
Crop Revenue (198 x $3.85)
ARC
Gross Revenue
2015P
715
40
755
762
30
792
Difference
47
-10
37
Need a $100 costs for average levels in 2015
Cash rent
Fertilizers
Seed
Mach. depreciation
Pesticides
Machine repair
Crop insurance
Drying
Hired labor
Fuel and oil
Machine hire/lease
Building depreciation
Interest (non-land)
Insurance
Misc
Building repair and rent
Storage
Utilities
Light vehicle
Total Costs
Farmer return
258
125
122
64
60
25
24
23
18
17
12
12
12
10
9
5
2
810
7
5
-18
288
156
125
68
60
25
24
23
17
20
12
12
11
10
9
5
2
879
7
5
-124
0
0
1
0
0
-30
-31
-3
-4
-3
0
0
1
0
0
0
0
-69
0
0
Costs cuts have to come from
• Machinery
• Fertilizer
• Seed
• Cash rent

www.farmdocdaily.illinois.edu

Mar
Apr
May
June
July
Aug
Month
Sept
Oct
Nov
Dec
Jan
Feb
----------------------------------- Year ------------------------------
2008-12
771
2013-14
687
2014-15
715
2015-16
664
793
800
777
767
758
678
684
670
650
655
718
725
728
729
730
652
653
752
744
746
725
712
658
720
754
756
717
732
733
732
730
730
708

www.farmdocdaily.illinois.edu

• Focus of next session
• Need to be reduced
• Some follow a strategy of not losing farmland
• Cash rent levels need to work given $4.50 corn and $10.50 soybeans (not there in 2016) www.farmdocdaily.illinois.edu

Many Farmers are Financial Strong
Can Postpone Decisions www.farmdocdaily.illinois.edu
www.farmdoc.illinois.edu

Working Capital Losses Per Acre in
2015
Owned land = -$11 per acre
Cash rent land = -$171 per acre
Share rent land = -$72 per acre farmdocDaily article on October 8, 2015 titled “Significant Reduction in Working
Capital Likely in 2015 on Grain Farms” www.farmdocdaily.illinois.edu

Working Capital, 1996 through 2014
• Current assets relative to current liabilities
• First line of defense for cash shortfalls
• Measures: 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐫𝐚𝐭𝐢𝐨 = 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐚𝐬𝐬𝐞𝐭𝐬 𝐜𝐮𝐫𝐫𝐞𝐧𝐭 𝐥𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
Working Capital Per Acre
800
700 working capital = current assets – current liabilities
600
500
400
300
200
100 www.farmdocdaily.illinois.edu
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Year

Strong, but weakening, financial position (e.g., current position)
Evaluate current position now and at end of 2015
(current ratio and/or working capital)
If current ratio is less than 2.0, no choice, cut costs
If still strong position, can delay cutting costs www.farmdocdaily.illinois.edu

1. Since 1980s, macro events lead to strengthening financial statements
Interest rates
Farmland price www.farmdocdaily.illinois.edu

www.farmdocdaily.illinois.edu

1. Since 1980s, macro events lead to strengthening financial statements
Interest rates
Farmland price
2. The 2006 price increase made a lot of aggressive cash rents look smart www.farmdocdaily.illinois.edu

1. Since 1980s, macro events lead to strengthening financial statements
Interest rates
Farmland price
2. The 2006 price increase made a lot of aggressive cash rents look smart
3. Its difficult to identify potential good demand surprise www.farmdocdaily.illinois.edu

Pork Consumption in China and U.S.
70,000
60,000
50,000
40,000
30,000
20,000
10,000
China
United States
0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 www.farmdocdaily.illinois.edu

1. Since 1980s, macro events lead to strengthening financial statements
Interest rates
Farmland price
2. The 2006 price increase made a lot of aggressive cash rents look smart
3. Its difficult to identify potential good demand surprise
4. There is likely no increase in government payments.
www.farmdocdaily.illinois.edu

1. Farm income will be down considerably in 2015, and 2016 likely will be a repeat of 2015 if significant cost cuts do not occur
2. Non-land costs plus cash rents exceed gross revenue, need to cut costs
3. Many farmers are financially strong and could postpone cost cutting decisions, but should not
4. Environment is different today than in last 20 years www.farmdocdaily.illinois.edu