April 28, 2016

The Farm Safety Net: The Good and Not So Good

USDA recently announced that they project net farm income to decline for a third straight year in 2016, and is expected to be the lowest since 2002. Government payments are to rise to $13.9 billion which if realized would represent approximately 25 percent of net farm income. U.S. net farm income has declined 56 percent from its recent peak of $123.3 billion in 2013.

  • Authors: Michael Boehlje and Michael Langemeier
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April 26, 2016

2016 Net Farm Income Projections Under Different Price Scenarios

Recent increases in corn and soybean prices have cast a more optimistic light on the potential for higher 2016 incomes. In this article, net incomes for different price scenarios are examined given that yields are at their expected levels. Even given recent increases, prices near current fall delivery bids will result in working capital deterioration on many farms. Given expected yields, prices need to be above $4.20 for corn and $10.25 for soybeans before working capital stabilizes on typical grain farms. Again all of these projections are made using expected yields. A key period for understanding 2016 net income levels will occur in August 2016 when a clearer picture of yields and prices emerges.

April 25, 2016

Weekly Outlook: Are Large Corn and Soybean Price Swings Finished or Just Started?

Corn and soybean prices have traded in a wide range since last summer. July 2016 corn futures traded to near $4.70 in early July 2015, declined into harvest, and then bottomed at $3.51 following the release of the recent USDA Prospective Plantings report. July 2016 soybean futures traded near $10.31 in early July 2015, dropped sharply into harvest, and traded between about $8.60 and $9.30 from harvest through early April 2016.

April 22, 2016

The New Era of Corn and Soybean Prices Is Still Alive and Kicking

There is no shortage of doom and gloom about grain price prospects at the present time. Prices have indeed fallen to quite low levels compared to the high prices that occurred over much of 2008-2013. For some, this is proof that the high prices of 2008-2013 were a temporary spike, albeit a rather long-lasting one, instead of a shift to a permanent and higher level of prices. This flies in the face of our long-argued position that corn, soybean, and wheat prices moved to a new era of higher average nominal prices beginning in late 2006. The new era replaced the previous era that spanned from January 1973 through November 2006. We argued that the new era of prices was primarily driven by demand shifts associated with rising biofuel production, particularly corn-based ethanol. Our projection of new era average prices and price ranges was based on an extremely simple analysis. This method turned out to be surprisingly accurate but it lacked a strong foundation in more fundamental supply and demand projections. In this article, we use our recently developed models of the relationship between the year-ending stocks-to-use ratio and marketing year average prices for corn and soybeans to provide a more rigorous economic foundation for the original new era grain price projections. These models are particularly useful in helping to frame the ongoing debate about long-term average grain prices.

  • Authors: Scott Irwin and Darrel Good
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April 21, 2016

Du Pont Financial Analysis

The Du Pont financial analysis model is a useful method of illustrating the relationship between the asset turnover ratio, the operating profit margin ratio, return on assets, and return on equity. This model is also helpful when stress testing. In this article, a case farm in west central Indiana is used to examine the relationships between profitability and financial efficiency ratios, and to examine the impact of a change in revenue, variable costs, or owning rather than leasing 150 acres on financial performance.