While 2012 farm incomes are projected to be positive, commodity prices resulting in $50,000 are within the realm of possibility. Several years of above average yielding years in the United States or around the world could result in near $4.00 corn and $9.00 per bushel soybean prices. Destruction in demand could also yield prices in this range.
Also note that the $3.70 corn and $8.51 soybean prices are well above prices that occurred prior to 2006. Between 1975 through 2005, corn prices averaged $2.40 per bushel for corn and $6.10 per bushel for soybeans. Commodity prices near these levels would cause financial stress today.
Impacts of Rental Arrangements on Break-Even Commodity Prices
Differences in rental arrangements also impact commodity prices necessary to generate $50,000 net farm income. Higher levels of share rent lower prices while higher levels of cash rents increase prices. If the farm has 85 percent share rent and no cash rent, crop insurance purchases will guarantee the farm at least $50,000 of net farm income. If the farm has 85 cash rent and no share rent, commodity prices resulting in $50,000 of net farm income are $3.72 per bushel for corn and $8.56 for soybeans.
Farms that have all cash rent farmland without owning or share-renting farmland will have higher breakeven prices. Take the above example farm, but have it cash rent 100 percent of its farmland. At the same time, eliminate $300,000 of long-term debt, which is presumed to finance a land purchase. In this case, a $4.41 corn price and $10.17 soybean price generates $50,000 net farm income. Increasing the cash rent amount results in the following break-even prices:
$4.42 per bushel for corn / $10.17 per bushel for soybeans given $280 per acre in cash rent,
$4.65 for corn per bushel / $10.70 per bushel for soybeans given $320 per acre in cash rent,
$4.89 for corn per bushel / $11.25 per bushel for soybeans given $360 per acre in cash rent.
For a typical farm, a $3.70 per bushel for corn and $8.51 per bushel for soybeans will generate $50,000 of net farm income. The rental situation of the farm has a large impact on these break-even commodity prices. Renting more farmland using cash rental arrangements and having higher cash rents will increase break-even commodity prices.
Current commodity prices suggest that 2012 will be a profitable year. In the future, commodity prices close to those presented in this paper are likely to happen.