Farmers might have to manage margins more proactively this year, according to an economist
While farm incomes are expected to drop this year, economists have some good news, saying they expect them to remain at a healthy, profitable level.
“Commodity prices are down compared to where they were last year. It’s unfortunate, but you know it really is a reflection of the fact that last year we saw a huge supply disruption from the Ukraine war. They’re still at elevated levels. Farmers should still be profitable, given what the current future prices show, but they are going to have to manage their margins a little bit more proactively than they probably had to last year. Farming expenses have come in aggregate. We have seen a bit of a pullback in farm expenses that should help preserve again some of those, when you think about a profit margin, the decline in commodity prices, you’ve also seen a pullback in some expenses. Cash rental rates, seed costs, a lot of those non-energy-related prices are up, though, this year and that’s going to compress margins. When we think about where we’re going moving forward, you have to take into account our competitors. Latin America has a very big crop coming to market and that’s going to absorb a lot of that export demand. Argentina is suffering from a drought and so there is hope that maybe the U.S. can slide in and take some of that demand that generally goes to the Argentina producers. Brazil’s crop is so large that they are in a pretty good spot to fill that instead of the U.S. So it’ll be interesting lower prices, probably overall this year, compared to last year, but still at a very profitable level,” said Blaine Nelson.
When it comes to farmland values, they have been off to a slow start this spring. Nelson says it is partly due to retiring farmers cashing in on record values we saw last year along with higher interest rates and lower commodity prices.