Articles

    What’s ahead for grain prices, leases for 2017?

    Dr. Gary Schnitkey, professor of Agricultural and Consumer Economics at the University of Illinois Champaign-Urbana, looked into his crystal ball and projected what 2017 might have in store for farmers regarding grain sales and cash rent leases at Chicago Farmers’ September 12, 2016, meeting. Nearly 100 people were in attendance for the informative afternoon.

    It is a good news-bad news story. The last several years have produced good yielding crops. There has not been a shortage of crops since 2013, said Dr. Schnitkey. There have been good supplies. As a result, the $4.70 average price of corn per bushel that was driven by ethanol and hit a plateau in 2006, has fallen and continues to be below the $4.30 mark since 2013.

    Dr. Schnitkey noted that when the December contract futures of $4.30 were set in June, the weather was hot and dry. However, July and August were perfect in Illinois and Iowa for corn and soybean production. Now corn is in the $3.40 - $3.50 range and soybeans are at $9.10 per bushel, down from the high of $10. There have been record productions of corn and soybeans in the United States, said Dr. Schnitkey. “This will push down prices for 2017 and affect revenue.”

    He noted that since 2014, soybeans have been more profitable than corn because corn seed costs have increased. Also affecting revenue is the Agricultural Risk Coverage (ARC) and Price Loss Coverage. The payments in 2016 were lower than those in 2015 and it is anticipated the coverage will be lower still in 2017.  On the plus side, said Dr. Schnitkey, fertilizer costs are decreasing and this could continue into 2017. He went on to say that the average cash rents have been coming down since 2014.

    How long will prices stay low? Until a short crop occurs in the world and until then, prices will hover around $4 per bushel for corn. In planning budgets, Dr. Schnitkey suggested that farmers plug in $4.30 per bushel for corn and $10.30 per bushel for soybeans. He said if these prices do not work, it may be time to initiate variable cash rents.

    Dr. Schnitkey noted there are continued low incomes for 2016; there is potential for low returns in 2017; and to mitigate the losses, non-land costs and cash rents must continue to decline.

    “The outlook will turn around,” said Dr. Schnitkey. “You are still in a fundamentally good business.”

    To help ensure a more positive situation, Dr. Schnitkey suggested:

    • Consider planting more soybeans.
    • Lower all costs.
    • Lower cash rents and negotiate new leases in the fall; don’t negotiate during a price spike.