Spring Price Rally Narrows Working Capital Losses

June 23, 2016 12:00 PM
Spring Price Rally Narrows Working Capital Losses

While this spring’s rally in corn and soybean prices is certainly cause for celebration, growers can’t afford to become complacent, according to agricultural economist Gary Schnitkey of the University of Illinois.

According to his recent article in farmdoc Daily, many operators still face the prospect of losing money this year, particularly on rented farmland.

Last year, growers could expect a loss of -$1 on owned farmland, -$101 on cash rent land, and -$62 for share rent farmland. Thanks to 35-cent increase per bushel in corn futures for fall delivery and a $2.35 jump per bushel of soybeans for fall deliveries, farmers who own their land are looking at a big swing in financial fortune. As recently as March, this group was facing a loss of -$16 per acre; as of June, they are now projecting a gain of $45 per acre.

Those who rent their ground either through cash rents or a rent-share agreement will likely see narrowing losses, but still negative changes in working capital: -$46 per acre for cash rent land and -$36  per acre for rent-share land.

Still, those numbers do represent a significant improvement. “If 2016 losses are as large as 2015 losses, many farmers would see working capital levels back to 2000-05 levels, minimal levels of working capital. More vulnerable farmers would see operating credit severely limited such that 2017 production will not be possible without significant cuts in non-land costs and in cash rents,” Schnitkey warns.

He says farmers must continue to negotiate for lower costs, whether they are talking with seed dealers, landlords, machinery dealers, or family members.

‘Recent increases in prices result in lower projected working capital losses, which are very welcome and extremely helpful for stabilizing the financial position of farmers,” Schnitkey says. “However, working capital losses are still negative for rented farmland. Cost cuts likely will be needed to avoid working capital losses in 2017.”

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Spell Check

AgWeb Editor
Mexico, MO
7/5/2016 08:36 AM

  Some of the comments on this article were deleted because they were not in line with AgWeb’s code of conduct. Comments insulting any person or groups of people are not permitted on this site, and will be removed as they are discovered.

Farmville, NC
6/23/2016 10:44 PM

  Really!! Do you really think we can keep farming with these prices?? Wake up and hope you don't choke on your next meal!!

battle creek, MI
6/24/2016 12:08 AM

  Me thinks it "Sounds like the economan thinks the landlords needed to have the rent amount pounded down on them. " Just remember boys, pound a little to hard and you may just "loose the land base" to a more efficient operator, and you might not have ANY LAND to farm next year, and you might have a hard time ever getting it back in the years ahead.


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