Minding Ag's Business

Farmers are preparing for a third year of corn and soybean prices that won't pay the bills. As purchases for the 2025 season begin, more farmers are making appointments with their bankers and studying input supplies financing deals.

Few farmers will be able to self-fund their input costs like they did in 2023 and 2024.

"I don't know how many guys are going to be able to pay in cash this year," said Illinois farmer and AgMarket.Net founder Matt Bennett, adding that growers he talks to are weighing a variety of strategies to minimize expenses without jeopardizing yield.

At the late-summer farm shows, Bennett said few people seemed to have prepurchased fertilizer, but he wasn't sure how many were reevaluating their application plans compared to those waiting to see if prices keep going down.

Fuel and fertilizer prices are expected to soften for the 2025 growing season, according to initial projections from the University of Illinois Farmdoc team.

"Across regions of Illinois, projected corn and soybean returns improve relative to 2024 but remain negative for 2025," wrote ag economists Nick Paulson, Gary Schnitkey, Bradley Zwilling and Carl Zulauf in a recent blog post. "Central Illinois returns to high-productivity land for corn are projected at -$73 per acre for 2025 compared with -$161 for 2024. Similarly, projected returns to soybeans for 2025 are -$50 per acre compared with -$53 for 2024."

While interest rates could continue to decline in 2025, higher borrowing levels could offset the potential for significant per-acre cost reductions.

Break-even costs, including cash rent for farmland, across Illinois are forecast to range between $4.60 to $4.66 per bushel of corn and $11.01 to $11.56 per bushel of soybeans. "Production costs remain above pre-2020 levels," they wrote. "History would suggest further cost adjustments may continue to occur but will do so gradually over multiple years."

One of those that will take time is cash rent. The Farmdoc budgets account for a $20-per-acre cut in 2025, but Purdue ag economist Michael Langemeier said any rent reductions that occur will be small, below 5%.

"You really need two or three years of low net returns to land before the market seems to say ... perhaps we need to do an adjustment of cash rent. This makes sense, because it takes awhile to convince someone it's a new normal," he said, adding that it might take until 2026 before rents move broadly.

One thing that's different from the last downcycle is how quickly farmers could burn through their capital. Illinois farmers have more of it following record incomes from 2020 to 2022.

"However, farmer returns since 2023 have also been significantly more negative than the roughly break-even returns experienced, on average, from 2014 to 2019," the Illinois economists warned. "There exists the potential for rapid erosion of accumulated resources and resulting financial stress. This is particularly true for farms who are highly reliant on cash-rented acres, which tend to be younger operators who have not yet been able to establish a meaningful owned farmland base or adequate working capital to help in smoothing negative income shocks."

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

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