Economist says farmers should prepare for lower incomes in 2019.

Krissa Welshans, Livestock Editor

December 31, 2018

2 Min Read
Trade issues to continue affecting crop prices
Comstock/Stockbyte/Thinkstock

The trade dispute between the U.S. and China is a major factor affecting 2018 and 2019 incomes, according to University of Illinois agricultural economist Gary Schnitkey, who recently presented at the 2018 Illinois Farm Economics Summit (IFES).

Schnitkey explained that U.S. soybean prices have declined due to retaliatory tariffs placed on U.S. exports to China. 

“From 2015 through the first part of 2018, soybean prices averaged in the high $9 range. Since the trade dispute, soybean prices have been below $9/bu., with some cash prices being below $8/bu.,” he noted.

Even with the negative impacts on soybean prices, however, Schnitkey said 2018 net incomes on many grain farms could still be above 2017 levels. Factors contributing to higher 2018 incomes include:

  • Exceptional yields, specifically for Illinois farmers, which will raise incomes.

  • Opportunities to price grain at higher prices during the spring. Both soybean and corn prices fell dramatically in late May after tariffs began being placed by the U.S. and Chinese governments. Many farmers price a portion of expected production in spring.

  • Market Facilitation Program (MFP) payments, which will add significantly to income.

Outlook for 2019

For 2019, Schnitkey said incomes could average negative for many farms if corn prices continue to be near $3.50/bu. and soybean price average around $8.50/bu.

“In this price scenario, average net income on Illinois grain farms could average near -$60,000 if yields return to trend levels. Exceptional yields like those in the last several years could cause incomes to be near $0, or roughly 2015 levels,” he said.

There is also a possibility that incomes could reach levels seen in recent years.

“A combination of higher prices and another round of MFP payments would increase 2019 incomes. Other scenarios could occur resulting in higher incomes,” he said.

Still, Schnitkey said it seems prudent to plan for low 2019 incomes.

“If possible, saving cash flow from 2018 income will serve as a buffer for low incomes in 2019,” he suggested.

 Additionally, he said preparing two different 2019 cash flows using two yield projections could help, including:

  1. Five-year average yields -- These yields will most likely be relatively high given recent record-breaking yield years.

  2. Approved yields for crop insurance -- These yields will be lower than the five-year average yields in most cases.

“If the cash flows, given these lower yields are negative, contingency plans should be made to cover these losses,” Schnitkey said.

He also explained that it is important to discuss the economic situation with landowners.

“If soybeans less than $9/bu. continue into the future, significant downward adjustment in cash rent will need to occur,” he said.

About the Author(s)

Krissa Welshans

Livestock Editor

Krissa Welshans grew up on a crop farm and cow-calf operation in Marlette, Michigan. Welshans earned a bachelor’s degree in animal science from Michigan State University and master’s degree in public policy from New England College. She and her husband Brock run a show cattle operation in Henrietta, Texas, where they reside with their son, Wynn.

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