Winter Budgeting Could Determine Profitability In 2014

University of Illinois economists expect corn prices to average $4.60 a bushel for the foreseeable future.

Published on: Oct 29, 2013

Come out ahead
If there's one overarching theme for 2014, it's "proceed with extreme caution." Knorr and Schnitkey have several tips for when folks sit down to put together budgets.

First, don't forget to lock in 2014 crop sales to match fertilizer purchases. Knorr stresses that farmers do everything possible to lock in profit now. Break-even prices are not a given for next year.

When pre-selling the 2014 crop, Knorr recommends selling corn. The potential for a soybean rally is much greater than a corn rally.

Both analysts expect cash rent to stay steady or soften slightly. "Anyone who pays higher cash rent for 2014 is taking on a huge risk," Knorr adds.

Lastly, ratchet down capital purchases to match reduced income.

"In the 1980s, revenues fell, but capital purchases stayed high," Schnitkey explains. "The key is reducing capital purchases as income falls."

And lower incomes are almost a certainty. Despite the worst drought in decades, most farmers saw healthy incomes last year.

Schnitkey notes Farm Business Farm Management data indicate Illinois farmers brought in an average income of $295,000 in 2012. Don't expect a repeat.

"I expect annual incomes for 2013 will be in the $140,000 to $150,000 range," Schnitkey notes.

Lowered expectations and effective planning will determine who comes out ahead in 2014.