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Plunging Crop Prices- Is it as Bad as it Sounds?

2024 Net Farm Income Projections

The U.S. Department of Agriculture released their 2024 net farm income projections last Wednesday and, according to the report, incomes are forecasted to dip for the second year in a row. It’s not a spot any farm operator wants to be in, but these projections might not spell complete disaster.

It’s possible that we are seeing a decrease in demand for many commodities simply because we, as a country, rebounded rather well from an agricultural decline and pandemic supply chain crisis. The silver lining of the pandemic was that it afforded us the opportunity to spot weak areas of the supply chain and put new measures in place. This projected dip is coming on the heels of one of the highest net farm income stretches in years. Looking back over the last several decades this isn’t an entirely abnormal situation. In fact, it could be the dip before the leveling.

What’s causing the current downward trend?

Projections are made on a broad scope rather than a deep dive into one specific aspect of agriculture or supply chains components. So, we’re looking at agriculture as one big entity in these projections. In comparison to 2023, the U.S. Department of Agriculture predicts the industry will experience a 25.5% decrease in income. We’re seeing a couple elements at play that are contributing to an overall dive in the Ag sector.

One significant piece of the equation is government payments. Since 2018, government assistance programs have accounted for substantial payments to farmers. It began with the so-called “trade aid.” Then we saw COVID relief money added into traditional disaster and supplemental assistance programs. All of these assistance programs are expected to see a decrease in their funding.  As much as $1.9 billion less in funding according to the U.S. Department of Agriculture. A record low in the last decade. If you’re a farmer or rancher you’re looking at a smaller safety net under your investments.

At the same time, the cost of operating a farm hasn’t decreased. If anything, the fertilizers, energy, fuel, machinery, water, technology, land prices and employee compensation are holding steady or are on the rise.  Lower volume of sales, plus higher operating costs, equals lower profitability for the American farmer in 2024. 

As the 2024 season ramps up, farmers are looking for ways to contain spending. Individual farmers are weighing purchasing decisions. In general, farmers and ranchers alike are taking fewer financial risks. 

How Are Farm Families Doing?

Collectively, Americans care about farm families. Net farm income isn’t an indicator of their household well-being. Even when farm income at large saw massive climbs, the individual farm household didn’t necessarily see a massive cash influx. 

A good household is defined as one that is stable, secure and equitable. It’s one that is able to absorb the highs and lows and shift quickly. Most farming families in the U.S. are paying their own health insurance, accommodating non-farm debt as well as the farm’s operational costs, and relying on outside income to maintain the “good household” status.  It looks like collectively; these individual households are unwilling or unable to absorb too many risks in the current economy.

What Could Turn the Economic Tides?

Can we pull this plane up and level out again? It’s possible! 

According to Tanner Ehmke from CoBank, one scenario that would create a shift in the direction of higher net income is a bad crop season. Drought, fires, or severe weather can prompt a reliance on our storehouses of grains and other commodities. With reserves depleted, we’d see demand increase and the profit margin expand again for farmers.

Several agricultural economists have presented another scenario. They speculate that the global stage might be the catalyst for a shift. Larger scale needs could put demand for many commodities back on the shoulders of the U.S. Thus, revving up the agricultural wheel and impacting net farm income for the positive.

Short Term Dips- Long Term Agility

The numbers look different when we stand back a bit. Farm incomes are lower than they were at the peak of the pandemic, but still significantly higher than 2019 at the height of the U.S.-China Trade war. Five years ago the net farm income was sitting at $79.9 billion. Even with a significant decrease in overall farm income, last year’s net was $151.1 billion.  The downward trend will domino into this year as well, but even with the projected 25% decrease, won’t see the recent 2019 lows. In fact, many economists are ball-parking the net income projections significantly higher than the U.S. Department of Agriculture.

Instead of a plummeting situation as many headlines suggest, maybe this is a return to normalcy. 

Looking Back and Planning Ahead

History proves that necessity often precipitates creativity. And, the agricultural industry is a fairly  agile sector of the economy. Innovative technologies like drones and precision farming, automated feeding and soil testing tools, and seed and planting variations all being proof that the industry can adopt new methods. This could spark fresh ideas that propel us into the next season of abundance.

Unlike past situations, the flow of information is at an all time high in the Ag world. Farmers and ranchers have been a little late to the connectivity party compared to other industries, but there is more knowledge sharing happening now than ever before. It’s happening within the industry as well as between industries. That alone is something to celebrate. The more information farmers have, the more options they have. And the more options the more flexibility they have to navigate the economic waves.

What Are We Watching Now?

  • Keep an eye on the unfolding global events. These could absolutely play into agricultural demands. 

  • Monitor new technologies and methods. These can increase efficiency and lower costs, making an operation more profitable. 

  • Think long term. There are always waves to ride. Boom and bust cycles are central to agriculture and businesses have to manage these.

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