URBANA — Doug Thompson nodded his head knowingly Monday during a farm income outlook session.
It's not that he can see the future; he's already living the forecast.
The Atlanta farmer related to a number of facts in a presentation in Urbana by University of Illinois farm management specialist Dale Lattz. He and fellow U of I economists have predicted the average Illinois farmer's farm net income will range from $39,000 to $45,000.
That compares to near-record 2004 net income of $90,651.
The projected range for 2005 also falls $7,300 to $13,300 short of the five-year average net farm income of $52,300.
"2005 income will be below trend, but it's a lot better that we thought it would be," said Lattz, noting crops produced respectable yields despite drought conditions, but production costs also increased.
"The average farmer also will show a positive change in net worth, primarily due to off-farm income and increasing land valuation of 10 percent. Off-farm income by itself would not have been enough to offset higher costs."
Lattz said 2005 represents the first year since 2001 in which government farm payments exceeded average net farm income. Lattz projected the average Illinois farmer will receive $54,365 in government payments for 2005.
Lower yields and increased input costs restricted farm income this year, said Lattz. For example, seed, chemical and fertilizer costs increased 8 percent, or $7,250 for the average farmer. Fuel costs escalated 50 percent, or $5,900; machinery costs bounced 5 percent higher, or $1,400; and other costs jumped 3.5 percent or $2,750.
The farm economist estimated 10 percent more farms than in 2005 will operate next year under stressed financial conditions and 4 percent more farms will be vulnerable. He noted, however, that the bulk of Illinois farms — 64 percent — will operate under strong or stable financial conditions.
"We estimate farm income next year will be similar to this year largely because we're predicting average yields and higher input costs. That's a bit of a red flag for next year. Cash flow will be tight. We will need above average yields and/or higher prices," said Lattz.
Thompson said he's already made plans to control costs for next year. In fact, he said financial management duties for his Logan County operation never end.
"Financial management is a long-term thing. We've done a lot to keep costs down. We've been all no-till for years. That reduces fuel and machinery costs," said Thompson. "We've continued using a 50-50 crop rotation (half the acreage planted to corn, half to soybeans) to spread risk. We've used variable rate fertilizer application for 10 years. If the soil tests show that an area doesn't need fertilizer, I don't put any on."
Thompson also invested in an auto steer system for his tractor. He uses strip-till methods that require highly accurate seed placement in a narrow band of soil. Increased planting accuracy should prevent expensive skips and other seed population inaccuracies.
Lattz's projections during Monday's standing-room-only farm income workshop are based on farms enrolled in the university's Farm Business Farm Management program. Study methods involve sampling farms in the program, projecting yields and prices, adjusting expenses and predicting net farm income.
Last year's 2004 net farm income projection was $90,000 to $95,000. The final average totaled $90,651.
The average farm for this year's study measured 908 acres. Corn prices were estimated at $1.80 per bushel and soybeans at $5.40 per bushel. The study further assumed 2005 yields of 145 bushels per acre for corn and 46 bushels per acre for soybeans.
Net farm income does not include off-farm income, income and self-employment taxes nor payments for operator labor.
Crop insurance protection added on average $3,000 to 2005 net farm income.