Ask a farmer what their profit levels from crop farming were in 2020, and the answers can range from “excellent” to “pretty good” to “disappointing.” Any of those answers could be correct, depending where the farms are located and how a variety of 2020 weather conditions affected crop production across the Midwest. There was also considerable variation grain marketing decisions and the level of government farm program payments during the year that likely affected farm profitability. Following is a brief overview of how these three major factors most likely impacted final farm profitability in 2020.
2020 crop yields
Mother nature” was not kind to large number of producers in central Iowa in 2020. The August 10 derecho storm with winds over 100 mph severely damaged crops in a widespread area across the middle of Iowa, as well as portions of Nebraska, Illinois and Indiana. In the hardest hit areas, crops were a total loss, while other portions of the region had significant yield reductions. In addition, the storm caused considerable structural damage to farm grain handling systems, livestock buildings and commercial ag facilities.
Portions of Iowa, Nebraska, South Dakota and southwest Minnesota got extremely dry late in the 2020 growing season, which also reduced the excellent yield potential that crops had earlier in the growing season. Parts of south-central Minnesota were impacted by excess rainfall during two or three high-rainfall events in late June and July, which caused considerable drown-out damage in some fields. Areas near the Minnesota River received 150-200% of the normal growing season rainfall for those locations in 2020. In many of these areas, 2020 corn and soybean yields were just “average,” once the drown-out areas in fields were factored in.
On the other hand, growers in some areas of Minnesota, as well as in northeast Iowa, the eastern Dakotas and portions of Wisconsin, had 2020 crop yields that were among the best ever. USDA is projecting Minnesota to have a record statewide average corn yield of 202 bushels per acre in 2020, which exceeds the previous record yield of 194 bushels per acre in 2017. By comparison, the 2020 corn yield estimate for Iowa is 184 bushels per acre, which is the same as Wisconsin. Illinois is projected at 195 bushels per acre, Indiana at 189 bushels per acre, Nebraska at 185 bushels per acre and South Dakota at 165 bushels per acre.
USDA estimated Minnesota’s 2020 statewide average soybean yield at 52 bushels per acre; however, many areas of southern Minnesota that avoided the excess rainfall and late-season drought exceeded 60 bushels per acre. The USDA projections for 2020 soybean yields in other states were Iowa at 54 bushels per acre, Wisconsin at 53 bushels per acre and South Dakota at 47 bushels per acre, with Nebraska, Illinois and Indiana all at 58 bushels per acre.
Grain marketing decisions
As in most years, the grain marketing decisions that were made by farm operators will have a big impact on the final profit levels for their crop enterprise in 2020. Grain markets had some wild swings during the year. Local cash corn prices in some areas were favorable in January and early February, due to very tight local basis levels, following the poor 2019 corn crop in portions of the region. Once the COVID-19 outbreak became widespread in the U.S. in March, local corn prices dropped dramatically, due to disruptions in both the livestock and ethanol industries. Late in the year, both corn and soybean prices unexpectedly rebounded to some of the highest levels in the past few years, largely driven by enhanced export sales to China, as well as late-season reductions in U.S. crop yields.
Local cash corn prices in southern Minnesota were $3.60-3.70 per bushel in January and early February of 2020, prior to the market disruptions from the coronavirus outbreak; however, the local corn prices quickly dropped to below $3 per bushel by early April. Local cash corn prices remained near $2.80-3 per bushel until late August. Many farmers had a considerable amount of their 2019 corn crop unpriced in on-farm storage on January 1, 2020. If they sold a majority of the corn inventory in January or February, their profit margin looked much different than if they liquated the stored corn in June or July this past summer. For example, a farmer who sold 100,000 bushels of corn in January at $3.65 per bushel grossed $365,000, compared to only $290,000 if the corn was sold in July at $2.90 per bushel. That results in a difference of $75,000 to the bottom line.
Both Chicago Board of Trade (CBOT) and local soybean prices had a dramatic price increase from September 1 until the current time, which was largely driven by the enhanced export sales to China and early-season soybean production challenges in South America. CBOT nearby soybean futures rose more than $3 per bushel from mid-August until mid-November. Local cash soybean prices in southern Minnesota rose from below $8.50 per bushel in mid-August to current levels near $11 per bushel. Once local soybean prices reached $9 per bushel, which was the highest level in a couple of years, farmers began selling their soybeans at harvest or right after. A majority of the soybeans in many areas were sold at a local price of $9-$10 per bushel, rather than the current $10.50-$11 per bushel range.
The local cash price for corn in southern Minnesota has been in the $3.75-3.95 range in recent weeks; however, similar to soybeans, some farmers started pricing their 2020 corn crop near $3.50 per bushel as opposed to current price levels. There is still a considerable amount of unpriced corn in storage on farms across the Midwest. Grain marketing decisions are often overlooked as a major factor that impacts farm profitability; however, these decisions can easily amount to a difference of $30-60 or more in gross income per acre in any given year.
2020 government payments
There was also a wide variation in the level of government farm program payments that farmers received in 2020. This included two rounds of CFAP payments due to COVID-19, a final 2019 MFIP payment, as well as the normal 2019 farm program payments. USDA estimated that government payments will make up nearly 40 percent of U.S. net farm income in 2020. The first round of CFAP payments were highly variable for grain farmers. Producers who had most of their 2019 corn and soybeans in inventory in late January received fairly significant CFAP1 payments, while farmers who sold most of their grain in 2019 or early 2020 received very little or no CFAP1 payments. The level of 2019 ARC-CO farm program payments for corn and soybeans that producers received in October 2020 also varied considerably from county to county across the Midwest.
For many crop producers in the Upper Midwest, especially in Minnesota, Wisconsin and the eastern Dakotas, 2020 will be a much better profit year than either 2018 or 2019; however, there was considerable variation in those profit levels. For farm operators in central Iowa and some other portions of the Midwest with reduced crop production, 2020 will be an average to below-average profit year. Farmers need to closely monitor grain markets in the coming weeks to take advantage of pricing opportunities for remaining 2020 grain inventory, which could still have an impact on final farm profit levels for the year.