Profit margins on corn and soy farms are historically pretty volatile, and farmers can expect the next couple of years to be especially hard. A new analysis from Purdue University shows that some farmers are particularly vulnerable to financial stress as the downturn continues.
Profits were looking great for farmers in 2021 and 2022, on the order of 30% or so. But profits were way down last year, and it’s not looking much different for the next couple of years. Many farmers might not even break even.
Michael Langemeier is an ag economy professor at Purdue University. He’s also director of the Center for Commercial Agriculture. He co-authored the article, which was published through the website farmdoc daily. He said that with crop prices dropping, thin margins usually follow.
“The supply is stronger than demand right now,” he said. “We have the capacity in the United States and around the world to really efficiently produce crops, and so there's periods where we have very high production, and it takes a while for the demand to catch up.”
The report also finds that newer farmers and farmers who rent their cropland are most vulnerable to narrow profit margins. They typically have a harder time paying off loans and securing new loans from the bank for the next season. They’re not able to lean on as many assets compared to farmers who have been in the business for a while, or who own land they can use as leverage.
The costs of production for farmers are high, and the prices of crops aren’t rising to close that gap.
While Langemeier is concerned about these numbers, he said there are some things farmers can do now to prepare.
“One of the things that farmers need to do is to figure out where they're at,” he said. “If they have not kept their cash flow up to date, if they have not calculated net farm income, if they have not updated their balance sheet for a while, do so. That's one of the first steps. Make sure that you really know where you're at, so you know how to navigate these rough waters.”
He said farmers should be extra cautious about how they’re spending their money. He expects there to be some relief coming from the federal government, but that could take at least another year.