Purdue News

August 1999 Even record yields won't pay farm expenses WEST LAFAYETTE, Ind. -- Grain prices have sunk so low, Purdue University agricultural economists estimate that even record-breaking yields won't be enough for farmers to meet typical expenses this year. And if yields are average, the situation is dire, say Purdue Cooperative Extension Service agricultural economists Howard Doster and Chris Hurt. "For corn and soybean farmers, normal yields will not pay the bills, even after government payments are included," Hurt says. "Using Purdue's 1999 crop budgets, average yields of 134 bushels on corn and 43 bushels on soybeans mean that farmers will lose $68 per acre." Purdue's crop budget is an estimate of the costs of crop inputs, including seed, fertilizer and chemicals, plus machinery replacement costs, land rent, and family living expenses. And if yields are less than average, the 1999 crop season could push many Midwestern farmers out of farming for good. In Indiana alone, Hurt and Doster say their calculations show that if yields fall 12 percent below average, farmers could lose as much as $89 on each acre they have planted. "Losses of this magnitude would reach a billion dollars," Hurt says. Hurt says that under the best possible circumstances -- if farmers were to harvest record-breaking yields of 150 bushels of corn per acre and 51 bushels of soybeans -- the income generated would still fall short by an estimated $26 per acre of meeting typical on-farm and family living expenses as estimated by Purdue. Hurt says this shortfall would occur for farmers who take full advantage of the current federal safety net, the loan deficiency payment program, or LDP. The LDP pays farmers the difference between the loan price and the lower posted county price. Indiana loans vary by county, but Hurt says they average about $2.52 per bushel for wheat, $1.93 for corn, and $5.40 for soybeans. Hurt adds that typically the best time to do LDPs is when cash prices are the lowest, which historically has been when harvest is about 70 percent complete during the second to the fourth week of October. "But because the LDP program will not bring revenues high enough to cover expenses, farmers will be looking for any cost-reducing strategies they can find, such as postponing machinery purchases or reigning in family expenses," Hurt says. "However, given the lean years we've had back to back, all those cost-cutting strategies may already be in place, and some farmers may be out of options." At least for now, Indiana corn and soybean condition ratings remain quite high, although some areas are starting to show dry weather stress, according to the Indiana Agricultural Statistics Service at Purdue. Previous Indiana yield records are 147 bushels for corn and 47 bushels for soybeans, but Hurt says new records are still a possibility given the excellent beginning to the crop season. "Higher yields will help the financial situation, but they can't return the state's farmers back to a break-even situation," he says. "And just as record-high yields could move farmers somewhat closer to a break-even year, low yields would be devastating." Thirty-six bankers surveyed by Purdue's Department of Agricultural Economics in October 1998 said that if market conditions didn't improve for farmers in '99, up to 9 percent of their clients could face the loss of their farms. They also said that the best ways for farmers to cope would be to find off-farm employment, sell excess assets, reduce inputs for 1999 production, and negotiate lower cash rents. Sources: Chris Hurt, (765) 494-4273, hurt@agecon.purdue.edu Howard Doster, (765) 494-4250, doster@agecon.purdue.edu Writer: Amy Raley, (765) 494-6682, ahr@aes.purdue.edu Purdue News Service: (765) 494-2096; purduenews@purdue.edu To the Purdue News and Photos Page