Bumper Crops, Struggling Prices Weigh on Grain Farmers' Incomes
MT. JULIET, Tenn. (DTN) -- Shoot for the moon, and you'll land among the stars. That's exactly what corn and soybeans did in 2024, with corn production hitting its third highest total and soybeans just narrowly missing a record.
Despite national average corn yields setting a record at 183.1 bushels per acre (bpa), total production declined 198 million bushels (mb) from last year as acreage shrank.
Soybeans came within 0.2 bpa of a new record yield, and overall production is estimated to be about 3 mb smaller than 2021's record, according to the December World Agricultural Supply and Demand Estimates report.
Late-season dryness may have stolen 2024's chances at soybean records, but it wasn't enough to change the trajectory of prices for farmers, which meant fewer opportunities for profitable grain sales. The resulting lower feed prices were good for livestock producers, and that's why USDA estimates net farm income will decline only 4% from 2023 to $140.7 billion.
FARM INCOME FORECAST CHANGED
The farm income forecast has changed dramatically during 2024. USDA's Economic Research Service issues its initial forecast in February, and provides updates in September and December, and finalizes its estimate the following February. Its initial forecast called for incomes to decline by 25% from the year before and 41% from the 2022 record.
February's initial assessment thought livestock producers would struggle too, but once the agency began collecting actual data on production expenses including feed, seed, fertilizer and fuel instead of forecasted prices, the overall picture of the farm economy improved.
The divergent fortunes of crop and livestock producers can be seen in cash receipts. Crop receipts are forecast to decrease by $25 billion from 2023's levels, while animal/animal product receipts are projected to increase by $21 billion. Corn and soybean receipts saw the sharpest drop off, declining 21% and 12% respectively, as falling prices outweighed the increased volume of grain sold.
Economists stress that the average net farm income remains above its 20-year historical average. A survey of bankers by the American Bankers Association and Farmer Mac found that lenders expect 58% of borrowers will remain profitable in 2024 compared to 78% last year.
ECONOMIC CONDITIONS WORSENING
Excess liquidity from 2022 has helped farmers, especially row crop producers, manage the past two years of the down cycle. Nathan Kauffman, senior vice president of the Federal Reserve Bank of Kansas City, acknowledged that economic conditions were worsening at USDA's Agricultural Outlook Forum.
"Yes, incomes are lower. Profit margins are tighter. Credit conditions are still strong but weakening a bit," he said. "If by chance we were to get another year ... where you see another reduction in farm income and a similar percentage decline in working capital, now we're starting to get into the territory that we were in agriculture between 2016 and 2019, and we know that those were not strong years."
A mid-December study by the Farmdoc Daily team examined the working capital to operating expense ratio of members of Illinois Farm Business Farm Management Association. The ratio measures a farm's ability to pay its expenses with working capital instead of revenue, and a number above 0.4 is considered strong. Ratios between 0.2 and 0.4 are considered cautionary, while ratios below 0.2 are considered vulnerable.
Illinois grain farms enrolled in the program had significant improvement in the working capital to operating expense ratio between 2019 and 2021, increasing from 0.614 to 1.15. It's declined since then, coming in at 0.86 in 2023.
"This ratio closely mirrors the trend of accrual net farm income over the same period," the post's authors wrote. "It peaked at 1.15 in 2021 but has since declined to 0.860 in 2023, although it remains within the strong range. This recent downward trend, combined with rising operating expenses and decreasing working capital, suggests potential liquidity pressures."
No comments:
Post a Comment