Farmers, Lenders Work Together to Help Farms Stay Profitable Even With Tighter Margins

As Lee Brooke sits on the porch of his farmhouse north of Clarinda, Iowa, the fifth-generation farmer and his wife, Darla, welcome home two of their grandchildren who step off the school bus that delivers them only a few yards away. The kids chatter about their day, and Brooke proudly shares that his newest grandson was born less than three weeks ago.

Brooke farms with his son, Logan, 27, and hopes someday Logan's newborn son will be the seventh generation to farm this land of rolling hills with a mix of cropland and pastures in southwest Iowa.

Brooke, 63, has been building up and making changes on this farm that his great-great-great-grandfather first started in 1869, only a half-mile away from where he and Darla now live. By the time Brooke's great-great-great-grandfather passed away in the early 1900s, it was about 1,200 acres. But, with 12 children, the original heritage farmland was divided among them. Brooke's mother's grandfather, the youngest of the 12, managed to get the homeplace.

Through the generations, Brooke's ancestors worked to gain back some of the original land. His mother, at 91, still owns 200 acres of the original homeplace, and Brooke finally got a chance to buy back 160 acres of the original land that joins it in 1998. He says he felt emotional buying the land. "When I had a chance to do this, it's like, you've got to do this," he says. "You don't get to do this very often."

PRECIOUS FARMLAND

Land remains precious, especially to the 95% of U.S. farms that remain family farms. The 2022 Census found there are fewer farms, but very large farms increased by 65%. Overall, U.S. farms declined 8% (almost 159,000 farms) to 1.88 million farms between 2017 and 2022.

The USDA's National Agricultural Statistics Service recently reported the value of all agricultural real estate -- which includes land and buildings -- rose an average of 4.3% in 2025 to $4,350 per acre. Cropland value nationally averaged $5,830 an acre, up 4.7% from 2024; while pasture's average was $1,920 an acre, up 4.9% from a year ago (visit www.nass.usda.gov for more information). Also, the national average cash rent increased by $1 per acre to $161.

Iowa has almost 84% of its land in farmland. The state ranks second in the Top 10 farming states by cash receipts and third by total number of farms. In 2025, Iowa's overall farm real-estate value rose 3.9% to an average of $9,790 per acre, and the average value of cropland increased by 5.1%. The average rent is $274 an acre for nonirrigated and $267 for irrigated. This compares to 2024 when it was $276 for nonirrigated and $271 for irrigated.

As farmers remain eager to purchase or rent land, it remains critical to obtain enough financing for land, working capital, operating loans, equipment, input costs, labor, insurance programs, livestock, buildings, etc. Rising land costs, low prices on grain, sharply higher input prices and market instability because of tariffs and various wars in the world make profit margins even tighter for farmers.

"I think everybody's a little nervous," says Dan Comer, regional president for the Southwest Region of Bank Iowa, in Clarinda. "You have $4 corn, and you raise 200 bushels ... that's $800 gross per acre. You have $300 (to pay per acre) in cash rent. That leaves $500 an acre to put your crop in and take it out with not much left. Fertilizer costs, seed, technological costs, your power costs, all continue to rise and eat into profitability."

Weather can always be a wild card. This year started with varying degrees of drought stretched through the heart of the country from the Plains all the way to Texas.

Troy Nielsen, 57, and his son, Drew, 32, farm near Shenandoah, Iowa. They worried when the state began the season almost totally under drought. "I've never planted so deep in my life," says Troy, as Drew adds, "It was like pixie dust, it was so fine." They planted their corn and soybean seeds an inch deeper than usual. But, while rains transformed Iowa into being almost totally drought-free by early September, saving the Nielsens' crops with timely rains, the states south and east of Iowa will see increasing dryness and drought concerns entering fall, according to the U.S. Drought Monitor Map. In fields where the summer turned hot, wet and humid, diseases, such as southern rust, tar spot and sudden death syndrome, have emerged.

FARM INCOME EXPECTATIONS

In early September, USDA's Economic Research Service released an updated look at farm income and finances, and projects net farm income to rise nearly 41% in 2025 -- at $179.5 billion for 2025, $52 billion higher than 2024 -- despite financial challenges crop producers face. "If the net farm income holds, it would be the second highest recorded, following $197.7 billion in 2022," reports DTN Senior Ag Policy Editor Chris Clayton. However, he explains the higher numbers are mainly because of an injection of government payments and high livestock prices. "The top driver for higher net farm income would be direct government payments, which are projected at $40.5 billion in 2025, a $30.4-billion increase from 2024. Government payments are the highest since 2020, the height of the pandemic," he says.

SEEING MORE STRESS

Jim Plagge, Bank Iowa CEO, says more financial stress is being seen this year, although even higher levels were expected. His bank has 24 locations, with 21 of those in rural Iowa. The renewal season for farm financing usually starts in November after harvest and wraps up in March. "We thought we'd see more problems in this last renewal," he says. "I was expecting that we would have to restructure some debt." His bank worried farmers wouldn't have enough crop proceeds to pay off their operating line of credit that was used to pay expenses to put the 2025 crop in; the bank was prepared to help farmers with carryover debts to ensure their long-term viability.

Other bankers shared Plagge's concern, according to the annual Agricultural Lender Survey done in August 2024 by the American Bankers Association and Farmer Mac, and released late last year. The lenders' top concerns for producers (from highest to lowest) were their liquidity, farm income levels, other inflationary pressures, total leverage, land rents, farm labor cost and availability, weather, recession risk, third-party financing, food price increases/demand destruction and water availability.

AgAmerica's "2025 Economic Outlook for U.S. Agriculture" report projects debt levels to rise, and short-term variable loans to carry more risk, and adds that economists expected modest return from the economic downturn to start in 2026.

But, Plagge says farmers aren't needing to restructure. "Everybody pretty much hung in there. I won't say it was a tremendously profitable year, but we didn't see any significant financial disasters." He adds that starting about five years ago, his bank even began to see farmers using their lines of credit less extensively than previous years.

Yet, for 2025, Plagge says Bank Iowa still projects it to be a bit of a tough year. In cash-flow projections for producers, relying on Farm Service Agency (FSA) numbers, the bank projected $4.30 per bushel on corn and $10.40 on soybeans. "Those prices now look too high," he notes. "You can forward-contract new-crop corn for $3.70 and new-crop beans for $9.50." The average yields the bank projected in early 2025 across its portfolio was for 197-bushel corn and 56-bushel-per-acre soybeans. "We certainly expect those yields to be achieved, and barring any sort of disasters between now and harvest, I think they could be exceeded substantially."

USDA's August "World Agricultural Supply and Demand Estimates" report forecast a record corn crop of 16.7 billion bushels (bb), with record yields of 188.8 bushels per acre (bpa), and soybean yield up to 53.6 bpa and 4.292 bb of new crop. This led the farmgate price for the 2025-26 corn crop to be lowered 30 cents to $3.90 a bushel, while the national average farmgate price for soybeans was unchanged at $10.10 per bushel.

So, even though the lower prices would be a concern in a normal year, the higher yields will help farmers pay bills -- even though a robust crop could cause prices to drop even more.

TRADE CONCERNS

Concerns about tariffs for U.S. agricultural exports are leading Bank Iowa to encourage some sort of forward contract and hedging to offer more stability or certainty for what farmers' revenue is going to be, Plagge explains.

As for cattle, the low inventory nationally and high prices have challenged cow/calf producers to decide whether to sell their cattle, retain heifers or be conservative in their replacement plans.

"There are varying degrees of how aggressive producers are in forward-contracting or hedging. We basically monitor the liquid equity per head, and if they're in a strong position, then we don't dictate what their marketing plans do," Plagge says.

IMPORTANCE OF PLANS

Developing business plans is still crucial to getting financing from lenders, as well as helping ensure success of your farm.

Plagge stresses it's important to have debt structured properly, such as the length of time and what to use it for. "Oftentimes, what we see with farmers who are in financial trouble is they just don't have structure to anything."

The Brookes carefully expanded their pasture, hay ground and row crops to now close to 3,500 acres, leased and owned in southwest Iowa. Of that 3,500, son, Logan, owns 160 acres and rents 500. The family owns about 40 to 50% of the land, does some custom work, runs a 270-head cow/calf operation and feeds them out.

Troy Nielsen's great-grandfather made tough choices during the Depression. The great-grandfather had a tract of 100 acres in southwest Iowa that he was paying on and owed $50 per acre but gave it back to the bank to save his home and 240 acres he owned since 1917. The land he retained later went to Troy's uncle.

As for Troy, 1988 was a drought year and tight on money. His father became ill in 1989, when Troy was 21 -- the same year Troy got married. His dad died in 1990, leaving behind machinery debts and hospital bills to pay. "The bank, to this day, I appreciate them," Troy says. "The owner of the bank said, 'Troy will pay it off,' and I never forgot that."

Determined, Troy worked off-farm construction jobs, farmed on weekends or at night on land he rented from one of his relatives, and entered partnerships or other renting/buying opportunities on hog barns and land. Eventually, he was able to become a full-time farmer and purchased his first land in 1993. This path taught him to be careful with finances and planning. It also prepared him for the hog price crash in 1998. In the early years, Troy kept machinery to a minimum: two tractors, a combine, two heads, a planter. Enough to plant and harvest. He hired out the spraying and trucking until he bought a truck in 1995, and he hauled grain to supplement income.

Troy became the owner of the 240 acres that his great-grandfather once owned in the early 2000s, and as for the land that had been lost during the Depression, Troy finally bought that 100 acres in 2002. It's where Troy now resides.

His son, Drew, started to help when he was in high school, eventually coming home to farm full time after attending Iowa State University. Drew applies to this day what he learned from his grain-marketing and business-management classes.

Drew and Troy own three semis, have a self-propelled sprayer and invested in some needed used machinery. Troy and his wife, Kelly, own close to 1,800 acres and rent another 1,200 to 1,400. Drew owns 40 acres and rents 1,000. The Nielsens also custom-farm 1,000 acres. To manage costs, they've cut back on fertilizers and bag grain. They use various insurance programs to reduce risk -- Risk Management Agency policies, such as Agricultural Risk Coverage (ARC) or Price Loss Coverage (PLC); wind and hail insurance; and occasionally Band Revenue Protection.

Lee Brooke and his son, Logan, also plan to reduce their fertilizer applications. They use hog and cattle manure where they can, hang on to equipment longer, treat their own seed for planting and carefully manage their capital costs with only necessary equipment replacements being made.

The Brookes and the Nielsens stress the importance of being honest with lenders, building up trust, checking out different lending options and not being afraid to change lenders, if needed.

PRECISION TECHNOLOGY

While today's economic environment has farmers buying more used than new equipment and maintaining and holding onto their equipment longer, they have been investing in newer precision technology for their tractors, sprayers or planters, often with the help of a dealer, bank or other lending options.

Both the Brookes and the Nielsens use precision technology because they see it as a good return on investment, helping them be more efficient with seeding, spraying, fertilizing and other needs.

Nathan Zimmerman, eastern regional sales manager for Ag Leader, says his company has different financing options for farmers. In the U.S., the company saw "a pretty decent jump in financing activity in 2024." Ag Leader offers financing options in partnership with two finance companies.

Zimmerman says it comes down to personal preference for farmers, as well as the total cost of what they're buying and how long they want to spread out their cost. "I think when things get [financially] tight, like they are right now, they're investing in things that show an ROI [return on investment]," he says.

Besides his sales job, Zimmerman, 36, two years ago took on the responsibility of the majority of the work on the family farm he shares with his parents in central Illinois.

His friends in the banking industry who helped him get loans for farming advised him to have a business plan and an idea of estimated costs and revenue for the year ahead. He learned to know his numbers, make the investments that are necessary and be careful with the equipment he purchased. "I made some investments in some equipment, not so much that we needed it but because I needed to manage my time more wisely. So, I needed to get across more acres a little bit faster," he explains. He invested in a bigger sprayer and Ag Leader's technology to do the job, and is already seeking financing for 2026's crop inputs.

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-- You may email Elaine at elaine.shein@dtn.com, reach her on X @elaineshein or call 402-214-8531.

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