April 24, 2023
Minnesota farmers are looking back on 2022, which saw continued financial improvement despite global uncertainty, inflationary pressures and lingering drought conditions across much of the state. Crop yields were above the trend line even with the difficult growing conditions. With strong prices throughout the year for the state’s major commodities, Minnesota farms were able to improve their financial position in preparation for expected economic challenges in 2023.
Median net farm income for Minnesota farms reached $179,728 in 2022. This was another year of improved profitability after challenging financial years from 2013 to 2019. This profitability level was an 8% increase over the previous year; when adjusted for inflation, 2022 farm profits were the second-highest among the historical records. The average Minnesota farm saw continued improvement in working capital and retained earnings. Repayment capacity, solvency and financial efficiency performance remained strong.
“There was much uncertainty going into the 2022 production year for Minnesota farms. The dry conditions, inflationary pressures and market volatility were all top of mind for Minnesota producers,” says Pauline Van Nurden of the University of Minnesota’s Center for Farm Financial Management. “Many Minnesota farms used risk management techniques to lock in profits by marketing their commodities and securing inputs before costs soared. This will be harder to do in the coming year.”
This analysis includes 2,131 participants in the Minnesota State Farm Business Management programs and 109 members of the Southwest Farm Business Management Association. Participating farmers represent about 12 % of Minnesota’s farms with gross incomes over $250,000 annually.
The data are collected by FINBIN. The database FINBIN not only provides data for traditional commodity agriculture, but also several special initiatives in recent years are helping to address big questions in Minnesota agriculture. A beginning farmer program has aimed to help with farm transition, an organic benchmarking program is analyzing the profitability of these farms, and decision tools are being developed to help address the questions related to climate-smart agriculture.
“We are excited to dig into the economic impact of cover crops. We hope to expand the findings of this project over time, by tracking acres using cover crops over several years to learn more about the economic impacts of this production system. These are big questions on the minds of farmers today. We hope to help inform the decision-making process for Minnesota farmers,” says Keith Olander of the Minnesota State Northern Agricultural Center of Excellence.
Profits and expenses
The median net income for crop farms was $234,853. Cash crop sale prices during the year were again up compared to 2021. Yields for the major crops of the state were also above the 10-year average. This includes corn, soybeans, wheat and sugarbeets.
Higher crop prices translated into higher feed costs for Minnesota livestock producers. Yet earnings improved for most dairy and beef producers, while hog farm profits were down slightly year over year. In general, livestock operation profitability was bolstered by the cropping side of farming operations.
“Livestock profitability was improved in 2022. By year-end, livestock prices began to erode, and input expenses remain high. Currently, many livestock operations are operating at a loss. And, unfortunately, I expect this to continue for the foreseeable future. Hopefully, farmers were able to build a strong financial position to weather this current financial storm and all the inflationary challenges facing them,” says Nate Converse, farm business management instructor at Central Lakes College.
After receiving substantial government support related to the pandemic’s impact on ag markets, government support payments were much lower in 2022. Only 2% of gross farm revenue came from government payments. Government payments received by farms were down by more than 50% in 2022.
Prospects for 2023
There is much uncertainty related to 2023 farm profitability in Minnesota. Farmers and consumers alike share many of the same concerns. This includes the impact of inflation, rising interest rates and general economic uncertainty. The global market situation is also worrisome for Minnesota producers. Agriculture is a global market; therefore, the continued war in Ukraine, and uncertainty related to Mexico and China — two of the country’s largest export markets — are areas of concern. Much of the future concern relates to decreased commodity prices, compressed margins and interest rate increases.
The latest USDA Farm Income Forecast echoes this concern. USDA’s February 2023 forecast predicts inflation adjusted net farm income will decrease more than 18% in 2023. This is the result of decreased commodity prices and input costs remaining high. Given the global nature of agriculture and the current state of world affairs, this estimate may be overly optimistic.
“Input costs are typically ‘sticky’ for farmers. Commodity prices correct quickly, while input costs tend to stay high after they’ve increased. Over the last year, machinery costs, land rent and fertilizer have all increased. These expenses don’t look like they will come down as fast as commodity prices are expected to fall this year,” says Garen Paulson, lead field staff member for the University of Minnesota’s Southwest Minnesota Farm Business Management Association. “I encourage all farms to know their cost of production and use this in their marketing plans to try and lock in a profit for the coming year.”
Source: University of Minnesota Extension
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