As Minnesota farmers climb into their tractors during the next few weeks to sow more than 15 million acres of corn and soybeans, they’re all too aware that they could lose money this year.
Both crop and livestock farms struggled financially in 2015, and only near-perfect weather and bountiful corn and soybean harvests kept things from being worse. They are hoping for the same this year but also taking financial steps now, before the seeds are planted, to brace for any deficits.
“Thank goodness for record yields,” said Dale Nordquist, University of Minnesota Extension economist. “At current prices, the average crop producer would have suffered a net income loss of over $50,000 with normal yields.”
Nationally, net farm incomes dropped by more than 50 percent between 2013 and 2015, according to U. S. Department of Agriculture estimates, and are expected to slump more in 2016.
The deteriorating outlook for agriculture is not a disaster, lenders and analysts say, but the continued low prices of corn and soybeans are straining budgets and are projected to make it difficult for many crop producers to break even. The belt-tightening also has repercussions for farm equipment dealers, land values and rural economies that depend on agriculture.
“This is going to be an extremely challenging year, especially for young farmers,” said Tom Slunecka, CEO of the Minnesota Soybean Research & Promotion Council. “Most farmers will be at break-even or less this year, and the industry is bracing for that.”
Because of that, producers are sharpening their pencils and changing some of their practices to cut back on the costs of seed, fertilizer, land rent and other expenses.
Average Minnesota corn prices dropped from $6.08 to $3.75 per bushel between 2012 and 2015, according to a recent farm income analysis conducted jointly by University of Minnesota Extension and Minnesota State Colleges and Universities. The report concluded that even with record yields last year, many producers lost money or haven’t sold their 2015 crop yet because prices remain lower than costs.
Commodity prices have hit major headwinds, with stronger competition and weaker demand from abroad. The strong dollar has weakened U.S. exports, and bumper crops in the U.S., Mexico, Brazil and Argentina added to what was already an oversupply in the market.
Minnesota producers are reacting by reducing the density of seeds planted per acre, or cutting back on fertilizer, or changing the way they till farmland or rotate crops. Many have already had difficult conversations with landlords to try to negotiate lower rents for cropland, or worked with lenders to restructure debt or increase lines of credit.
“We’re doing a lot of financial counseling and also rebalancing of overall debt,” said Mark Greenwood, senior vice president of relationship management for AgStar Financial Services, which provides loans and other products for farmers across Minnesota and Wisconsin.
“We hope corn prices come up a little bit,” he said, “but if they stay where they’re at, we’re trying to give producers enough working capital to withstand some potential losses for a period of time.”
For Rochelle Krusemark, who grows corn and soybeans with her family near Trimont in Martin County, the low crop prices are cushioned somewhat by income from other enterprises: custom finishing hogs and a cow-calf operation.
“It’s just leaner times,” she said. “You buckle down and see where you can cut costs and be more creative.”
For Krusemark, that meant studying expenses closely and realizing that her fertilizer cost was far too high.
“I think in the past farmers just accepted whatever the local place of business had to offer, but it’s a different ballgame now,” she said. “You have to think outside the box and become a better manager. You just have to do that.”
The average costs of renting land and buying fertilizer and fuel have dipped slightly, Krusemark said, but not nearly enough to cover the dramatic fall in crop prices.
Gary Prescher, who farms near Blue Earth, said he may cut back on the density of seed he plants by 6 or 7 percent per acre, because he had good results trying that on some of his land during the past two years. He also expects to plant more soybeans in his crop rotation than previously because they are less expensive, and he’s not tilling his soybean acres this spring to cut fuel costs and machinery depreciation.
“Every time you go across a field it’s $5 to $12 an acre depending on your equipment size and how efficient you are,” he said.
David Bau, University of Minnesota Extension educator who works in southern Minnesota, said farmers will need to be on top of their game and lucky with the weather in 2016. He works with four marketing groups: farmers who meet to talk about strategies for selling, and develop work sheets each year to figure out their break-even price — the dollar amount per bushel needed to cover their expenses.
One group projected recently that it would lose about $150 per acre for both corn and soybeans grown this year, based on current prices, Bau said. “Right now we’re looking at $3.50 corn [per bushel] and $8.25 beans as the cash price for the 2016 crop,” he said. “What they need is about $10 for beans and around $4 for corn to make it work.”
Bau said crop farming is still profitable for some, and many experienced farmers saved or invested some of their record profits from 2011 and 2012. “It’s not doom and gloom for everybody,” he said. “People that have higher debt levels and people that have higher rental rates are going to be the first ones to really feel the pain if crop prices don’t improve.”
Michael Swanson, chief agricultural economist for Wells Fargo & Co., said that farmers and landlords are still adjusting to the unusually high crop prices four years ago, and becoming more pragmatic about land and rental values.
“I would characterize this as back to business as usual in a real sense,” Swanson said. “It’s easier said than done, but if you can knock $100 off per acre in input costs with $4 corn, that’s like picking up 25 bushels of yield. That’s the difference between a bang-up year and a mediocre year.”
Also adjusting to the sluggish farm economy is the “inner ring” of professionals closest to farmers, Swanson said, including those who sell seeds, crop chemicals, fertilizer, agronomy services, machinery and other products. Yet to be determined, he said, is the potential decline in farmland values and what that may mean for property taxes that fund schools and social services in farm country.
Bruce Schmoll, who grows corn and soybeans just east of Owatonna in southern Minnesota, said that trimming seed, fertilizer and crop chemical costs may be possible in some cases, but cutbacks can also be tricky if they lower yields and profits.
“For the most part, guys are moving full speed ahead,” he said. “As farmers, we’re pretty optimistic and plan for the best, and I don’t see this year as being any different.”