CHAMPAIGN, Ill. – Grain farm incomes in 2013 and 2014 are projected to be lower than the previous three years due to a drop in corn and soybean prices.

The good news is after several years of dramatic increases, lower fertilizer costs will somewhat offset commodity price declines.

With the decline in income, Gary Schnitkey, University of Illinois agricultural economist, said farmers may need to renegotiate their lease arrangements, reduce their capital expenditures and perhaps reevaluate whether it’s in their best interest to continue farming land at high lease rates.

“One cost farmers shouldn’t cut back on is crop insurance,” Schnitkey said at the Illinois Farm Economics Summit.

Although the projected 2014 net income is significantly below the 2010-2012 level, it still is higher than average incomes during the 2001-2006 time period.

For most farms, lower incomes will not cause financial stress since most farms have built financial reserves during the past several years. “There will be some farms that face financial stress. At-risk farms are those that have over 90 percent of farmland cash rented and those with cash rents $25 or more higher than the county averaged. Overall, there are only 4 percent of the farms in that category,” Schnitkey said.

That 4 percent will have to lower cash rents to avoid large losses in 2014.

“We’re looking at a lower-income period, similar to the late 1990s. Most farms will do fine. There will be some that have to make adjustments by reducing expenditures and decrease cash rents that are above average,” Schnitkey said.

The average prices projected for 2013 are $4.50 and $12.50, for corn and soybeans, respectively. Projections are $4.60 and $11 for 2014.

Corn prices from 1975 to 2005 averaged $2.33 per bushel, and soybeans were $5.95. The averages rose to $4.78 and $10.60, respectively, between 2006 and 2012. Prices averaged $6.89 for corn and $14.40 for soybeans in 2012.

Schnitkey used cost estimates based on central Illinois farms enrolled in Farm Business Farm Management as an example of costs versus income.

In 2006, non-land costs — fertilizer, seed, machinery depreciation, crop insurance, drying, fuel and non-land interest — for producing corn in central Illinois on high-productivity farmland were $302 per acre and increased to an average of $452 per acre in 2010. Non-land costs fell to $402 in 2011 before jumping to $581 in 2012.

Non-land costs for corn are projected at $537 per acre for 2014, down $44 from 2012 levels. This cost decrease is primarily caused by lower fertilizer prices.

Anhydrous ammonia averaged about $685 per ton in Illinois in late 2013, down nearly $200 from the 2012 average. Diammonium phosphate costs are near $510 per ton this past fall compared to an average of $611 earlier in 2013. Potash prices are near $450 per ton, down from a $580 average in 2012.

Fertilizer costs have increased by $83 per acre and seed by $63 per acre from 2006 to 2012. During that same period, machinery depreciation costs have increased by $35 per acre and crop insurance by $14 per acre.

Using trend line yields and projected average corn and soybean prices, Schnitkey projected the operator and farmland returns for highly productive farmland in central Illinois.

For an average corn yield of 182 bushels per acre at $4.55 per bushel, the 2013 net return is projected at $275 per acre.

Soybean returns are estimated at $338 per acre in 2013 on 52-bushel per acre yields at a $12.80 per bushel.

Using those same yields and prices, a farm with 66 percent corn and 33 percent soybeans would have an income of $295 per acre.

Schnitkey used a 196 bushels per acre corn yield to estimate 2014 net income on central Illinois farmland with high productivity. With corn priced at $4.60 per bushel, the income is projected at $365 per acre.

For soybeans with an average yield of 57 bushels per acre and sold at $11, the net income would be $288 per acre in 2014.

Under those same yield and price scenarios, the average income is projected at $339 per acre for a farm planted with 66 percent corn and 33 percent soybeans.

Some of the highest income was tallied in 2011 with soybeans averaging $444 per acre and corn $630 per acre. Those incomes were based on 174 bushels per acre and 56 bushels per acre corn and soybean yields, respectively, and prices of $5.24 and $12.71.