Neither you nor your ancestors had a year quite like 2007. High yields and high prices offset high production costs, and as a result returns to labor and management were higher for farmers in almost all soil types. This comes as no surprise to your corner of the Cornbelt, but your neighbors were having the same type of year and the statistics are there to show it.

Taking a slice out of the middle of the Cornbelt, economist Dale Lattz at the University of Illinois examined the farm records of 2,748 grain and livestock operations. In addition to the grain operations, hog returns were lower because of feed costs, but dairy returns were higher despite high feed costs, and that resulted from higher milk prices.

Farm wages, formally known as return to operator labor and management, averaged $171,507. Find yours by taking your net farm income, then subtracting a fair return to your equity in machinery and land. The statewide average was nearly $100,000 higher than 2006 and about $88,000 above the five year average. The labor and management return statistic has fluctuated as low as $38,707 in 2005, up to the $171,507 of 2007.

So what contributed to your farm wage:

1) The average corn yield was the highest on record, and the average soybean yield was the fourth highest. The year end inventory price of corn was $3.75 and soybeans were $10.00. However, average sales prices were above those inventory prices. Crop returns average $657 per acres, and were an all time high.
2) Grain farms averaged a return to labor and management above $183,000, compared to dairy farms at $117,000, beef farms at $55,000, and hog farms at $52,000.
3) Government farm program payments contributed very little, and were the least since 1996; and totaled 3-4% of gross farm income. Compare that to 20% for 2005.

And what reduced your farm wage:

1) Per acre crop costs averaged $144.87, about $20 more than 2006. That was due to higher costs for fertilizer, seed, and pesticides. Fertilizer prices are up 70% from 2003, seed up 53%, but pesticides were down 1%. Fuel and oil averaged $21.03 per acre, twice the amount in 2003.
2) Costs per bushel increased for both corn and soybeans, and the statewide average was $542 and $416 respectively. Farms producing 190 bushels per acre averaged $2.85 cost per bushel and $8.14 for soybeans on farms averaging 51 bushels per acre. Over the past five years, the average cost is $2.66 for corn and $7.34 for beans.
3) All livestock enterprises experience substantially higher feed costs than previously, and were the main reason for hog returns that were lower than 2006. Farrow to finish producers averaged $7-8 per head below breakeven levels. Dairy returns were $2,360 above feed costs per cow, helped by milk prices that were 38% higher than 2006. Slaughter cattle prices received were $18 per CWT lower than the price paid for replacement cattle, and returns were the least for the past five years.

And what are the prospects for 2008:

1) Grain prices continue to be high into the fall delivery period.
2) With high yields, earnings should continue to be good.
3) Significant cost increases, particularly for fertilizer, will occur.
4) Increased cash rent payments will cut into operator revenue.
5) High feed costs will continue to challenge feeding operations.
6) Accurate financial planning will be required, along with risk management tools.

Summary:
With high yields and high prices, 2007 brought the highest farm income ever with an average return to labor and management about $100,000 more than 2006. However a trend toward higher grain production costs and livestock feeds can easily shift the record revenue to lower levels. Economists are warning about higher production cost for 2008, along with higher cash rents and higher feed costs. They urge farmers to closely monitor cash flow and use risk management tools.