Midwest Crop Farms Face Losses
Financial Strain for Midwest Farms Could Demand Heightened Scrutiny From Bankers
MILWAUKEE (DTN) -- The typical commercial corn and soybean farm in the upper Midwest will likely show financial losses for both 2024 and 2025, based on reports from roughly 3,100 farms.
The Center for Farm Financial Management at the University of Minnesota highlighted the state of farm finances Tuesday as the American Bankers Association kicked off its annual Agricultural Bankers Conference.
Reports from the center's database of finances for more than 3,100 farms -- "FINBIN" -- projects the typical commercial crop farm in the upper Midwest with -$24,000 net average net farm income for 2024 and looking ahead projects -$12,000 for 2025. That's coming off 2023, in which the average crop farm in the upper Midwest had $95,000 in average net farm income.
Those income numbers were significantly higher in 2022, at $381,000, and 2021, at $347,000.
Based on cash rented land in southern Minnesota, FINBIN's projections follow.
CORN PROJECTIONS
Corn net returns: With an average yield of 195 bushels per acre (bpa) and an average price of $3.75 a bushel, a farmer would earn $731 an acre. But their projected expenses right now are $955 an acre, showing a negative return of -$224 an acre for 2024.
DTN's National Corn Index right now is showing the average cash price nationally at $4.06 a bushel. USDA is forecasting $4.10 a bushel for the 2024-25 crop year.
The farms show negative returns even though expenses are projected to be lower. Per-acre expenses came in at $955 an acre, down from $1,017 per acre in 2023. The big difference was an $82 drop in fertilizer costs per acre from year-to-year. The average cash rent for corn acres in the model was $271 an acre.
With the cost of production at $955 an acre and 190 bpa, the farm would need $5.02 a bushel to break even.
SOYBEAN PROJECTIONS
Soybean net returns: With an average yield of 54 bpa and an average cash price of $9.50 a bushel, soybean acres will net an average value of $513 an acre. Total average expenses for the crop came in at $672 an acre for an average net return of -$159 an acre.
DTN's National Soybean Index right now is $9.55 a bushel. USDA's projected average price for the 2024-25 crop year is $10.80 a bushel.
The costs of production for soybeans came in at $672 an acre for 2024 with cash rent averaging $269 an acre. "Other" expenses took up $227 an acre with seeds and chemicals at $126 an acre.
At $672 an acre with a 54-bpa yield, the breakeven price would need to hit $12.44 a bushel.
FARM BILL DEBATE
These financial projections come as Congress continues to grapple with passing a new farm bill before the end of the year or extending the 2018 farm bill and writing a new bill under the Trump administration and a Republican Congress. Also, lawmakers have had some preliminary discussions about a disaster package that could include specific aid for producers.
Nothing so far has been laid out for Congress to act.
WHAT'S THE ADVICE BANKERS ARE GETTING?
David Kohl, professor emeritus in agricultural economics at Virginia Tech University, told the bankers above-average producers "are still eking out a profit." Kohl warned bankers about some financial headwinds. He suggested more scrutiny needs to be placed on producers' incomes and lines of credit.
In the last down cycle, 2014-2019, producers were able to get by with low interest rates and inflated land prices. But land prices are leveling off and interest rates are higher now. That's going to put more pressure on income and expenses.
"Make cash flows relevant again," Kohl said.
Kohl noted farms are increasingly larger and more consolidated, which leads to more risk as well. Farmers facing financial pressures are more likely to turn to nontraditional lenders, which often don't have the same kind of scrutiny or collateral requirements as banks or Farm Credit lenders. Yet, multiple lenders would likely have some type of loan or credit line with those same producers.
"Be careful of the producer looking for the new lender," Kohl said.
Some situations are going to be out of the control of both producers and lenders, such as tariffs and counter-tariffs that are expected under the Trump administration, Kohl said. The federal government will be trying to balance tariff battles with the need to keep the economy going.
"That's one of the things we're really going to have to wrestle with," he said.
Kohl warned bankers that producers believe the federal government will bail them out if there is a tariff war, as happened in 2018 and 2019. But Kohl cautioned about the rising budget deficit and the need to bring that down. "You can't keep up these federal deficits," he said.
Not long after Kohl made those remarks, President-elect Donald Trump announced Elon Musk and Vivek Ramaswamy will lead a new commission focused on cutting government spending and regulation. Trump called it a "Manhattan Project" to reshape government spending. Musk has vowed to find $2 trillion in potential cuts to federal spending.
Also see, "Farm Bill and Disaster Aid Face Uncertainty as Congress Returns for Lame-Duck Session,"
Chris Clayton can be reached at Chris.Clayton@dtn.com
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