Thursday, October 10, 2024

Farm Income decreases

WNIJ News

Farmers are making less money this year, which could have larger economic consequences

Harvest Public Media | By Will Bauer

Published October 7, 2024 at 4:00 AM CDT

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Corn is harvested on Sept. 26 on Nick Koeller's farm in Greenfield, Illinois.

Sophie Proe

/

St. Louis Public Radio

Corn is harvested in late September on Nick Koeller's farm in Greenfield, Illinois. Prices for corn and other crops have fallen, meaning farmers expect to make less money this year.

Crop prices have returned to more normal levels this year — down from record highs. As farmers expect less income this year, that's likely to send ripples through the larger agricultural economy.

Farmers in the Midwest and Great Plains will see decreased incomes this year, as the U.S. agriculture industry will likely have a down year compared to the last two.

Net farm income will fall 4.4% in 2024 — or $6.5 billion less than in 2023 — which is a much rosier projection than the U.S. Department of Agriculture initially predicted in February.

Amid slowing demand for crops across the globe, commodity prices for key American grains, like corn, soybeans and wheat, have fallen.

“The farm economy is in a downturn relative to what we have experienced in 2022 and 2023, which was kind of a boom in agriculture,” said Joe Janzen, a professor of agricultural economics at the University of Illinois Urbana-Champaign.

While the last couple of years had been record breakers for farm income, this year will be a return to more normal levels, economists said. That reality may mean farmers in the Midwest think twice about making big purchases this year, and that’s already trickling down to other sectors.

“We're kind of making the necessity purchases right now,” said Nick Koeller, an Illinois farmer who grows corn, wheat and soybeans not far from St. Louis. “If we need something, we're going to make it work — but we're not going to look to upgrade anything this year.”

Nick Koeller climbs down from his combine during harvest on his Illinois farm in late September. Koeller said with lower crop prices and less farm income, he'll hold off on making any equipment purchases until after harvest this year.

Sophie Proe

/

St. Louis Public Radio

Nick Koeller climbs down from his combine during harvest on his Illinois farm in late September. Koeller said with lower crop prices and less farm income, he'll hold off on making any equipment purchases this year.

Economic factors

Crop prices grew over the last couple of years following shortfalls in production in Ukraine after Russia invaded in 2022. Production also recently took a dip in Brazil. In turn, low supplies across the globe increased demand for grain.

In summer 2022, commodity prices spiked. Corn futures peaked at more than $8 per bushel. Soybeans climbed to nearly $18 per bushel, and wheat capped out at nearly $450 per ton.

Now, those figures have all fallen. Corn trades at $4 per bushel. Soybeans are south of $11 per bushel, and wheat stands around $245 per ton, according to Business Insider.

In the U.S., yields for those key commodities have been relatively strong over the past couple of years too, and this year is projected to be similar. Corn production will be down 1% from last year, but soybean growers are expected to increase production 10%, according to USDA forecasts.

“That really has made the supply of these crops increase — not only here in the U.S. but on a global scale,” said Ty Kreitman, an economist with the Federal Reserve Bank of Kansas City. “That's been putting downward pressure on prices.”

The decrease in prices will mean there will be less income on farms across the U.S.

“It's a situation that, obviously, is difficult for the farmer because they are getting squeezed. Profitability on the farm is going to be very difficult to come by,” Janzen said. “But that's not anything that U.S. agriculture is doing. It's driven largely by global commodity markets.”

Downturn for agricultural equipment

The decrease in farm income has been noticeable for agricultural equipment makers — particularly Moline, Illinois-based John Deere, which accounts for about two-thirds of high horsepower tractors in the U.S. and Canada.

Demand for Deere’s equipment, like combines and crop harvesters, has plunged recently. Overall equipment sales decreased by 20% in the latest quarter, and profits fell 42%, the Wall Street Journal reported.

“It's the first year of a downturn,” said Mig Dobre, an analyst of Deere and other equipment manufacturers for the financial services company Baird, which is based in Milwaukee. “In our opinion, this is going to stretch into 2025.”

To combat the drop in demand, Deere began laying off thousands of employees on its production line in states like Iowa. Chief Executive John May contends the agriculture machinery giant is being proactive and responding sooner than the company had in the past by cutting excess costs in lieu of the decreased farm income.

Deere is not alone in its struggles, Dobre said. Competitors Case IH and New Holland, both owned by CNH Industrial, and AGCO, which owns Massey Ferguson, are all feeling the same pressures from the greater farm economy.

CNH projected lower profit forecasts amid slowing demand for its tractors and combines earlier this year. AGCO reported sales plummeting in the second quarter of this year, citing lower commodity prices, weakening market demand and production cuts.

Farmers, such as Koeller, may hold off on buying in the meantime. The fifth generation farmer said he’d wait to reevaluate.

“Moving into harvest, if the combine needs repairs, it just needs repaired. We’re going to repair it.” Koeller said. “As far as buying extras, we’re tabling those things until maybe after harvest.”

Corn is unloaded into a wagon on Nick Koeller's farm in southern Illinois in late September. The farmer said he'll repair any issues with his tractors or combine rather than buying new equipment this year.

Sophie Proe

/

Corn is unloaded into a wagon on Nick Koeller's farm in southern Illinois in late September. The farmer said he'll repair any issues with his tractors or combine rather than buying new equipment this year.

Land sales

Farmers National Company, an Omaha-based firm that specializes in agricultural real estate, reported earlier this year that the land market is "settling."

Tim Johnson, an area vice president for Farmers National in eastern Nebraska and western Iowa, said decreased farm income does play a role. Interest rates that are higher than they had been in about 15 years also factors into the equation.

“When you deal with the volume of what these land prices are, that interest rate really adds up quickly,” said Johnson, who’s based in Grand Island, Nebraska. “So, that truly causes a level of conservatism to come into play.”

Overall, Johnson estimates farmland prices have decreased by 5-10% across the board in his neck of the woods.

Yet desirable farmland still generates demand, and bidders will compete for that property, Johnson said. The lower tier properties are a different story.

“Farmers aren’t quite as motivated to go out and pay a premium for those farms,” he said.

Buying farmland is a tricky gamble for farmers, however. While a local dealer will have options for farm equipment, land isn’t always for sale. Oftentimes, it’s only available when a neighbor retires or someone dies. Farmers might have to take the risk, even when the economics aren’t the most attractive.

“The biggest thing with the purchasing ground is they don't make any more,” Koeller said. “That's the one caveat in land that's different from a lot of other things — there's only so many acres.”

Farmland lines the Missouri River on near Washington, Missouri. This photo was taken in April 24, 2024 with aerial support provided by LightHawk.

Eric Lee

/

St. Louis Public Radio

Farmland lines the Missouri River on near Washington, Missouri. This photo was taken in April with aerial support provided by LightHawk.

More loans and bankruptcy

Agriculture is fairly debt intensive, maybe more so than other industries, said Kreitman with the Kansas City Fed. With less cash this year, the bank is observing more demand from farmers for loans.

“We're seeing growth and sort of use of debt at the same time that we are seeing interest rates at a level that really we haven't seen for several decades,” Kreitman said. “That puts another element into the equation.”

In the Federal Reserve’s Tenth District, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri, nearly 45% of lenders surveyed reported more demand for non-real estate farm loans than a year ago.

Loan renewals and extensions are also increasing in that region, and repayment rates have declined, the survey found.

The good news for farmers needing to take on debt is that the Federal Reserve recently slashed rates by a half point — and leaders at the central bank could make another cut before the end of the year.

The USDA is projecting a small increase in the bankruptcy rate among farmers this year compared to last year. However, 2022 and 2023 had been record low levels — the smallest in 20 years.

Yet, there are bright spots for producers.

Livestock, as a whole, is forecasted to do well in 2024. Cattle and calves will make 4% more than last year, totalling $4 billion, which is the fourth consecutive year that sector will increase, the USDA reports. Prices for dairy, broilers, hogs and eggs are also projected to increase this year compared to last.

“It does appear to be a period of relatively good times in the livestock sector,” Janzen said.

This story was produced in partnership with Harvest Public Media, a collaboration of public media newsrooms in the Midwest. It reports on food systems, agriculture and rural issues.

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Will Bauer

Will Bauer joined Nebraska Public Media in 2021 after graduating from the University of Nebraska-Lincoln. He now produces the statewide TV talk show "Speaking of Nebraska" and is a general assignment reporter. Will is a Minnesota native, enjoys golfing in his free time and holds three undergraduate degrees.

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