Net farm incomes are projected for a 1,200 grain farm given four sets of prices:
1) Projected 2012 prices ($5.40 for corn, $11.60 for soybeans),
2) Long-run prices ($4.50 for corn, $11.60 for soybeans),
3) Low price year ($3.50 for corn, $10.50 for soybeans), and
4) Poor price year ($3.00 for corn, $7.00 for soybeans).
These projections aid in evaluating risks that farmers face from price changes.
For each price scenario, incomes are projected with and without insurance. For the “with insurance” case, Revenue Protection policies with 80 percent coverage levels are used with projected prices of $5.80 per bushel for corn and $12.00 per bushel for soybeans. These projected prices are near current futures prices for 2012 harvest-time contracts. The with insurance case represents risks during the 2012 cropping year, given that projected prices are near $5.80 for corn and $12.00 for soybeans. In 2012, large price declines likely will be buffeted by higher crop insurance payments.
Without insurance represents cases in which prices have adjusted downward by the time projected prices are set so that crop insurance does not provide as high of level of price protection. In the low price scenario, for example, the projected price for corn would have adjusted so that a $3.50 corn price does not generate crop insurance payments at normal prices levels. This could occur after a large yielding year, resulting in adequate supplies and stock building, yielding low prices expectations during the crop insurance price discovery period during February.
Incomes are generated using 2012 budgets, as shown in Table 1. Budgets show returns for 2012 prices, as well as long-run prices. In income projections, two-thirds of the farmland is assumed in corn and one-third in soybeans. The farm is assumed to own 10 percent of farmland, share-rent 30 percent, and cash rent 60 percent. This land tenure represents the typical breakdown across northern and central Illinois. Cash rent is set at $275 per acre. The farm has $480,000 of debt.
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Projected Net Incomes
With projected 2012 prices of $5.40 for corn and $12.00 for soybeans, net farm income is projected at $222,100 with and without insurance (Table 2). Prices used in this scenario are near those implied by current prices of harvest-time futures contracts. These prices, along with expected yields of 187 bushels per acre for corn and 54 bushel per acre for soybeans, result in an above average income year.