Farm Financial Challenges Ahead

​As we enter the final months of 2024, some farmers in the Upper Midwest could be facing serious financial challenges by the end of the year. Harvest prices for the 2024 corn and soybean crop are at the lowest level in the past five years, which are below break-even price levels for a majority of farm operators. In addition, some crop producers in many portions of Southern Minnesota, Northwest Iowa, and Southeast South Dakota could be dealing with the “perfect storm” financially, due to reduced crop yields in 2024 resulting from late planting, excessive rainfall, and flooded fields. On the other hand, several of the primary corn and soybean production areas are anticipating above average crop yields in 2024, which will likely keep market prices at depressed levels through the harvest season. The combination of reduced crop yields, low commodity prices, and continued high input costs, could spell financial disaster for some Midwest cop producers.  
Most crop input expenses were higher in 2024 compared to expense levels in 2023 and other recent years. Input costs have increased for seed, crop chemicals, repairs, custom work, and labor. Interest expense, machinery depreciation and other overhead costs have also increased in 2024 compared to recent years. The one exception is fertilizer expense, which declined 15-20 percent from the record-high U.S. fertilizer prices in 2022 and 2023. In most areas, land rental costs are also 10-25 percent higher than a few years ago. Now crop producers are facing the prospects of much lower commodity prices, along with reduced crop yields in some areas due to weather challenges, will likely result in some of the lowest profit margins in the past decade.
Following three years in a row of strong profit levels (2020-2022) for crop production in the Upper Midwest, there were already signs in 2023 that pointed to more challenging farm profit scenarios in the future. USDA is projecting total U.S. net farm income to decline by over 25 percent in 2024, as compared to 2023 net farm income levels. This followed a decline of 16 percent in U.S. net farm income from 2022 to 2023. If the USDA projection holds true or gets worse for 2024, it would represent the largest two-year (2022-2024) decline in history for U.S. net farm income. USDA is also estimating net cash income on U.S. farms in 2024 to decline by over $92 million from net cash income levels two years ago in 2022. If the estimated 2024 U.S. cash farm income of $121.7 billion comes to reality, it would be similar to the 2016 net cash income level and would be one of the lowest levels in the past two decades.
 
Earlier this year, the University of Minnesota reported that the median net farm income for Southern Minnesota farmers in 2023 was only $40,000, which was over four times lower than a year earlier. This followed two of the highest average median net farm income levels ever recorded, which were $177,614 in 2022 and $176,426 in 2021. The very solid net farm income levels from 2020-2022 followed seven years (2013-2019) in a row of sup-par net farm income levels in the region. It now appears that we could be returning to the very low farm income levels and negative profit margins that existed for many farm operators from 2013 to 2019.
 
An analysis of actual data from the SCC Farm Business Management program and the University of Minnesota FINBIN program by Kent Thiesse, Farm Management Analyst, shows some interesting trends on profitability levels for corn production in recent years. The analysis focused on cash rented corn acres in southern Minnesota (2014-2023). The analysis takes the average corn direct input costs, cash rent costs, and overhead expenses and divides those expenses by the average corn selling price for the year to arrive at how many bushels of corn it took to cover the various expenses, as well as the bushels need to cover all expenses. The net return over all costs would be the farm operator’s “net return to labor and management”. The analysis did not include crop insurance or government farm program payment income into the “bushels needed” calculations; however, that payment income is included in the “net return over all costs” figure.
 
 
Based on the FBM data, there was a negative “net return” over all expenses for corn production each year from 2013-2018, with less bushels produced than were needed to cover all crop expenses in some years. From 2020 to 2022, corn producers benefitted from favorable corn yields and strong commodity prices, together with manageable expenses, to achieve some very solid profit levels. A combination of higher input expenses and lower corn market prices in 2023 showed that an average of 208 bushels per acre were needed to cover all costs on cash rented land. The actual average corn yield in 2023 was 203 bushels, marking that the first year since 2019 with less bushels produced than were needed to cover costs. Based on the data, there was a small average profit margin of $39 per acre in 2023 on cash rented corn acres, primarily due to favorable crop insurance indemnity payments. 
 
An analysis of estimates for the 2024 crop year, which were updated on August 1, shows signs that the profit situation for corn production could be considerably worse once all the 2024 data is collected. As of August 1, USDA is projected a national market year average (MYA) corn price of $4.20 per bushel. Based average crop input cost estimates for 2024, and average cash rental rate of $275 per acre, and the USDA MYA corn price of $4.20 per bushel, it will take an estimated corn production level of 244 bushels per acre to cover all expenses. This increases to 269 bushels per acre at a corn price of $3.80 per bushel, which was close to the farm-level price bids for harvest delivery at many locations in southern Minnesota in late August. These corn yields will not be realistic for most farmers in southern Minnesota in 2024. By comparison, it took only 154 bushels of corn in 2022 and 149 bushels in 2021 to cover all expenses.
 
Obviously, there is a wide variation in breakeven costs among farm operators in a given year, depending on final average yield and the market price received, as well as the variation in crop input costs and land expense. Just as it did a year ago in 2023, crop insurance indemnity payments will likely play a big role in final profit levels from corn production in 2024. There is also considerable variation in the type of crop insurance coverage that farmers carry, which will impact final payments. Based on current market price estimates, it is not likely that crop insurance payments will totally make up for the likely negative profit margins in 2024 in most instances.
 
The combination of higher crop input costs and land rental rates is likely to put more pressure on crop breakeven prices for 2024. Using typical crop input expenses and average overhead costs, together with a land rental rate of $275 per acre and a targeted return to the farm operator of $50 per acre, the breakeven price to cover those expenses for corn in 2024 for most farmers will likely be around $5.00-$5.50 per bushel at average yield levels. If the cash rental rate increases to $350 per acre, or for farmers with reduced corn yields in 2024, the breakeven price is likely to jump to near $6.00 per bushel. The estimated 2024 breakeven soybean price for most producers to cover the cost of production in will likely be in the $12.00 to $13.00 per bushel range at average yields. 
Based on the monthly World Supply and Demand (WASDE) Report in August, USDA is estimating the U.S. average corn price for the 2024-25 marketing year (2024 crop) at $4.20 per bushel and the average 2024-25 soybean price at $10.80 per bushel. Local cash price bids for corn in early August at grain elevators and ethanol plants in Southern Minnesota were near $3.60-$3.80 per bushel. Local cash price bids for soybeans were near $9.40-$9.60 per bushel, with slightly higher bids at soybean processing plants. A year ago, late August prices for harvest delivery were $4.80 per bushel for corn and $13.50 per bushel for soybeans.
 
If the lower corn and soybean prices continue into 2025, this may become an even bigger financial concern going forward. While fertilizer costs have modified a bit in the past year, input costs for seed, chemicals, fuel, repairs, and labor have continued at higher levels. In addition, short-term interest rates on farm operating lines of credit have remained high, and credit needs will likely increase to finance the 2025 crop inputs. If corn and soybean grain futures prices for the Fall of 2025 stay low in early 2025, crop insurance guarantees for the 2025 crop year will be much lower than in 2024. This will increase the financial risk for many farmers going forward, and will likely result in increased concern by ag lenders that provide capital for crop production.
Note - For additional information contact Kent Thiesse, Farm Management Analyst, Green Solutions
Phone - (507) 381-7960; E-mail - [email protected]