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Projecting crop income for 2019Projecting crop income for 2019

Growers can use 2019 crop production budgets, and a three-step projection method to project their own crop income for 2019.

November 28, 2018

3 Min Read
FIRST STEP: Projecting crop income is the first step in cash flow planning for 2019.

By Robert Tigner

As the 2018 harvest finishes across Nebraska, it is time to think about next year. Recently, Nebraska Extension released 78 crop budgets to help farmers plan financially for the coming growing season.

Growers can do their own crop income projection, using these budgets and a three-step projection method.

Step 1. Yield estimate
The first step is to decide what yield to use in the financial projections. The best approximation for future yield is either trend-line yield for a state or actual production history for a farm. For Nebraska, the average yield, based on the past four-year state average yields, is:

 corn, 185 bushels per acre
 soybeans, 58 bushels per acre
 wheat, 47 bushels per acre
 grain sorghum (milo), 92 bushels per acre

The National Agricultural Statistics Service reports data to calculate the state average yield. Of course, many irrigated corn yields will be in excess of 200 bushels per acre, so the calculations will use the average and 240 bushels per acre for irrigated corn. In this case, APH can be used to project yield.

Step 2. Commodity price projection
The second step in projecting revenue is to decide on price to calculate revenue. Gross revenue (yield times price) is just as difficult to project accurately, but prices now offered for 2019 crop sales can be used. The revenue projection will use prices offered for forward-contract sales at harvest 2019 (see Table 1).

Table 1: 2019 harvest prices at Red Cloud Cooperative Producers Inc., Oct. 30, 2019

Step 3. Direct cost and overhead
The third step is calculating projected return to land and management using 2019 Nebraska Extension crop production budgets (Table 2). The return to land and management calculation is the residual income available to pay for use of land and to pay the operator who produces the crop.

Table 2. 2019 projected crop income

The calculations in Table 2 are best estimates, taking into account current price offers and a Nebraska Extension survey of crop production costs. Projected returns range from $13.50 per acre for dryland corn to $194.55 per acre for irrigated corn.

But what if 2019 harvest prices end up nearer 2018 harvest prices? Table 3 calculates returns to land and management in that case.

Table 3. 2019 projected crop income, based on low harvest prices

Some crops in Table 3 show very low returns to land ownership and to the farmer producing the crop. In the case of dryland corn, it shows negative returns. The Return to Operator and Land calculation is after property taxes are paid. This calculation is the amount left to pay for land ownership and the operator's labor and management.

News reports indicate fertilizer and fuel costs are likely to be higher in 2019 compared to 2018. Fuel prices began to rise in summer 2018, and fertilizer price increases followed. Seed corn prices are the same or slightly lower than 2018, and herbicide and insecticide prices are a mixed bag. The input survey conducted while preparing the 2019 Nebraska Extension crop production budgets confirmed these observations.

Take-home message
The takeaway is threefold. Risk management is an important factor for 2019 income. Risk management would incorporate crop insurance and a marketing plan that captures prices now offered on at least a significant portion of 2019 crops.

A second part of the risk management plan requires locking in crop production costs so you can estimate 2019 crop costs. Working with and communicating with landlords about the financial picture is a best practice for farmers. Tenants may want to change rental contracts to a flexible lease, which landlords will appreciate if they have a full understanding of the financial projections.

Third, these projections are the first step in cash flow planning for 2019. Cash flow planning allows farmers to communicate with their lender before the 2019 crop year and helps with lending and production decisions.

Tigner is a Nebraska Extension agricultural systems economist. This report comes from UNL CropWatch.

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