April 11, 2002
AVERAGE PRICES RECEIVED FOR CORN AND SOYBEANS, 1995
Average prices received for corn and soybeans by farmers enrolled in Illinois
Farm Business Farm Management (FBFM) are reported in this paper. Also reported
are average Loan Deficiency Payments (LDPs) and Market Loan gains received in
Illinois. Farmers can use this information to evaluate their marketing programs.
Average Prices for Corn Between 1995 to 2001
Table 1 shows average corn prices computed from records of farmers enrolled
in Illinois FBFM who received the majority of their gross revenue from grain operations.
Prices are gross, not including actual or imputed deductions for storage, drying,
or interest costs. Gains or losses from hedging transactions (futures and options)
are included in the gross price. Prices are reported for three regions of the
state: northern (roughly above Interstate 80), central (between Interstates 80
and 70), and southern Illinois (below Interstate 70). Average prices for the state
also are reported.
Prices are stated for a crop year and are divided into "new crop"
and "old crop" prices. To be classified as new crop grain, payments
for the grain had to occur in the year of production. Payments for old crop grain
occurred in the year after production. For example, farmers in northern Illinois
averaged $2.68 per bu. for new crop grain in 1995. In Table 1, this price is reported
as the new crop price for 1995. Northern Illinois farmers received $3.43 per bu.
for 1995 old crop grain (i.e., grain produced in 1995 on which payment was received
in 1996). This price is reported in Table 1 as the old crop price for 1995. Also
reported is an average price for the crop year. In northern Illinois, the average
price for the 1995 crop year was $3.20 per bu.
Several items of note for corn prices shown in Table 1:
- Corn prices declined dramatically between 1995 and 1999. Average price for
Illinois was $3.24, $2.82, $2.50, $2.10, and $1.97 in 1995 through 1999, respectively
(see Table 1).
- Corn prices stabilized at a low level. The average Illinois price was $1.97
in both 1999 and 2000 (see table 1). New crop prices for 2001 suggest that average
prices for 2001 will be within $.10 per bu. of 1999 and 2000 prices.
- Prices are higher in southern regions of the state. Average prices between
1995 and 2000 were $2.41, $2.43, and $2.50 for northern, central, and southern
Illinois, respectively. Regional differences vary across years. The largest difference
between northern and southern Illinois occurred in 1996 ($.18 per bu.) and the
smallest occurred in 1998 ($.03 per bu.).
- Regions reported in Table 1 are large and pricing patterns can
vary within each region. Hence, pricing across the state may be more complex than
depicted in Table 1.
- New and old crop prices are similar. In northern Illinois, new crop prices
averaged $2.35 between 1995 and 2000 while old crop prices averaged $.09 higher
at $2.44. New crop prices averaged $.04 below old crop prices in central Illinois
($2.40 for new crop versus $2.44 for old crop). In southern Illinois, new crop
prices averaged $.06 below old crop prices ($2.44 for new crop compared to $2.51
for old crop). These gains in price from holding grain into the following year
must more than offset storage and interest costs of holding grain into the next
calendar year for holding grain to be profitable. In many cases, holding costs
exceed the gain. Therefore, a strategy of routinely holding unpriced grain into
the following year is not warranted given the above prices.
Average Prices for Soybeans between 1995 and 2001
Table 2 shows prices for soybeans. Soybean averages are calculated in a similar
manner as those for corn.
Notable points from Table 2 are:
- Soybean prices declined dramatically between 1996 and 2000. Average Illinois
price was $7.55, $6.55, $5.05, $4.83, and $4.69 in 1996 through 2000, respectively
(see Table 2).
" Unlike corn, soybeans prices do not show any signs of stabilizing in
2001. New crop soybean prices in 2001 are lower than 2000 new crop prices. Northern
Illinois' 2001 new crop price is $.50 less than the 2000 price ($4.73 for 2000
compared to $4.23 in 2001 (see Table 2)), central Illinois' 2001 new crop price
is $.42 less than the 2000 price, and southern Illinois' new crop price is $.24
less than the 2000 price. Significant increases in price could occur in 2002;
however, 2001 new crop prices do not suggest that average 2001 prices will be
above 2000 prices.
" Averages of old and new crop prices for 1995 through 2000 across all
regions are within $.20 of one another. In northern Illinois, new crop prices
averaged $5.78 and old crop prices averaged $.18 higher at $5.96. New crop prices
averaged $.11 above old crop prices in central Illinois ($5.86 for new crop versus
$5.97 for old crop). In southern Illinois, new crop prices averaged $.10 below
old crop prices ($5.92 for new crop compared to $6.02 for old crop). Similar to
corn, storage and interest costs of holding grain into the following calendar
year will often exceed gains in prices, suggesting that holding storage strategies
are not profitable.
" Prices are higher for southern regions of Illinois. Average prices between
1995 and 2000 were $5.91, $5.96, and $5.99 for northern, central, and southern
Illinois, respectively. Regional differences varied from year to year. The largest
difference between northern and southern Illinois occurred in 1998 ($.13 per bu.)
and the smallest occurred in 1996 ($.00 per bu.).
" Regions reported in Table 1 are large and pricing patterns can vary
within each region. Hence, pricing across the state may be more complex than depicted
in Table 2.
Proportion of New Crop and Old Crop
Average prices for crop years are much closer to old crop prices than to new
crop prices. For example, the average soybean price in northern Illinois for 2000
was $4.67 (see Table 2). This price is $.02 different than the old crop price
of $4.65 while it is $.06 different than the new crop price of $4.73. The average
price for a crop year is weighted by bushels in the new crop and old crop categories.
In the 2000 crop year, 21 percent of soybean receipts occurred in 2000 while 79
percent occurred in 2001. Hence, the new crop price receives 21 percent of the
weight and the old crop receives 79 percent of the weight when calculating the
crop year average: The $4.67 crop year average equals 21 percent of the $4.73
new crop price and 79 percent of the $4.65 old crop price.
Table 3 shows new crop as a percent of total production. In 1995, 31 percent
of corn production in northern Illinois fell into the new crop category. This
means that 69 percent (100 percent minus the 31 percent was new crop) of the receipts
for 1995 production occurred in 1996 and, therefore, was classified as old crop.
In all years, new crop makes up between 13 percent (soybeans in central Illinois
in 1999) and 33 percent (corn in southern Illinois in 1996). Overall, new crop
makes up a smaller proportion of total production in central Illinois as compared
to northern and southern Illinois. Between 1995 through 2000, central Illinois
averaged 17 percent of its corn production as new crop compared to 21 and 23 percent,
respectively for northern and southern Illinois (see Table 3).
The most striking feature of the percentages in Table 3 is how low they are.
In all years, farmers delayed sales of grain into the next year for the majority
of their crop. There could have been tax considerations that caused the delay
to be preferable. However, prices shown in Tables 1 and 2 do not suggest that
delaying sales was an advantageous strategy given that storage and interest cost
were incurred by delaying sales.
LDPs and Market Gains
LDPs and Market Loan gains have been important sources of revenue for Illinois
grain farms. Table 4 reports average receipts from LDPs and Market Loan gains.
As reported in the first row of Table 1, LDPs were received on 679 million bushels
of corn in 1998 and the average LDP was $.18 per bu. The average market gain was
$.28 per bu. on 156 million bushels.
Also shown in Table 4 are effective rates. Effective LDP rates represent the
average increase in per bushel revenue accounted for by LDP and Market Loan programs.
Effective LDP rates equal total payments from the LDP and Marketing Loan programs
divided by total production in Illinois. In 1998, the effective rate was $.11
per bu. (see Table 4). This rate, plus the Illinois average price of $2.10, yielded
$2.21 revenue from grain sales, LDPs, and Marketing Loan programs.
The average Illinois price plus the effective LPD rate for corn was $2.21,
$2.20, and $2.23 in 1998, 1999, and 2000, respectively. All of these prices were
above the state average loan rate of $1.95, indicating that on average farmers
received more revenue than the loan rate during the last three years. Similarly,
per bushel soybean revenue exceeded the state average loan rate of $5.45. The
average Illinois price plus the effective rate is $5.51, $5.71, and $5.63 for
1998, 1999, and 2000, respectively (see Table 4).
Total revenue above loan rates occurred because most farmers took LDPs relatively
soon after harvest and priced grain later in the marketing year. During the 2001
marketing year, for example, LDPs and Market Loan receipts were taken on 76 percent
of Illinois corn production and 90 percent of soybean production by the end of
January. (In the 2000 marketing year, LDPs or market loans were taken on 93 percent
of corn production and 99 percent of soybean production). For the last three years,
prices increased after harvest, resulting in market prices that averaged higher
than prices used to determine LDPs.
This strategy of taking LDPs and holding grain was profitable in the last two
years. However, the strategy does have risks. If prices decline after harvest,
farmers can receive market prices below prices used to set LDPs. Hence, it is
possible that total revenue could average below loan rates.
The above information provides benchmarks useful for comparing a farm's pricing
performance to average performance. For farmers enrolled in Illinois FBFM, prices
comparable to those shown in this paper can be found on the second page of the
Economic Management Analysis (EMA) report.
Overall, farmers receive revenue on a majority of their crop in the year following
production. Prices reported in this paper do not justify this practice. There
are factors that cause holding grain into the next year a wise practice. Delaying
revenue recognition for income tax is one such factor. Another factor is that
spreading sales over a marketing year will reduce risk. The spreading sales for
risk factor generally results on about 50 percent of the receipts occurring in
the year of production. On average, receipts in the new crop year are much lower
than 50 percent. Farmers should evaluate whether holding grain has been profitable
on their individual farms.
Issued by: Gary Schnitkey
and Dale Lattz, Department of Agricultural
and Consumer Economics