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The economic pinch

Producers may need to make some difficult decisions and make changes in their farm business in 2025.

David Kohl, Contributing Writer, Corn+Soybean Digest

May 22, 2024

2 Min Read
The economic pinch
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The evidence of an economic pinch has been illustrated in the year-end economic data summaries in the FINBIN database from the Center for Farm Financial Management at the University of Minnesota. I prefer this database and other state and private farm record summaries over national statistics as these farms and producers are generally in the top two-thirds of performers and the records are much more accurate as they make accrual adjustments.

Declines across performance gradients

The summary data, which represents over 3,000 farms in over 20 states with various enterprises, has been segmented into three groups based on net farm income: the top 20 percent, the median, and the bottom 20 percent. A sharp decline of median net farm income was observed in all three groups.

For the top 20 percent of farms, the decline in net farm income was from over $700,000 to approximately $300,000. This sharp decline is similar to the reduction in net farm income observed in the years following the commodity super cycle of 2007 to 2012. It will be interesting to observe whether the net income will level off like it did for the six years after the sharp declines experienced post super cycle.

Changes may be ahead

The economic difference now will be the stubborn, inflated costs and higher interest rates not observed in the previous period. It will be interesting to see how the top 20 percent of profitable producers adjust pricing, risk management, cost, and interest rate strategies. Difficult decisions may be ahead for 2025 and beyond when it comes to rent and lease agreements, capital expenditures, and strategies for crop and livestock expenses. Usually, the top 20 percent of profitable producers are the first to adapt to changes.

Examining the median and bottom 20 percent of profitable producers reveals the margin squeeze. Median net farm income was approximately $45,000. For the bottom 20 percent of profitable producers, net farm income was negative $93,000.

These results would suggest that capital expenditures may be very limited. In the case of the bottom 20 percent of producers, the refinancing of losses often accumulated on operating lines of credit to longer-term payback and terms may be a loan request much more prevalent in the months to come.

In the previous period of squeezed margins post commodity super cycle, these refinancing requests were often accepted as a result of increasing land values due to low interest rates. This economic period may not provide this luxury, resulting in some possible tough decisions in the farming sector both for the borrower and lender. Now that the economic pinch is here, can these businesses stand a prolonged economic punch?

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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