The farm economy is not always smooth sailing. Those resilient enough to succeed in making their living growing food know choppy waters are the norm, and stormy weather can well up at a moment’s notice. Their motto? Enjoy the good times, and always be ready for the winds to shift.
The close of 2023 is no exception, and farmers are on alert. A Purdue University survey released in November found that 36% of farmers identified rising input costs as their greatest concern heading into 2024. Rising interest rates ran a close second at 25%. The Purdue University/CME Group Ag Economy Barometer is a nationwide measure of the health of the U.S. agricultural economy. On the first Tuesday of each month, the Ag Economy Barometer provides a sense of the agricultural economy’s health with an index value. The index is based on a survey of 400 agricultural producers on economic sentiment each month.
The November results came as no surprise to Michael Langemeier, an ag economics professor at Purdue. For some growers it feels like a perfect storm. “Interest rates are tied to input costs, so any time you see a big spike in interest rates, that’s going to cause an increase in farm operating costs – and also makes machine and land payments much more expensive,” said Langemeier. “They are correlated, and that’s what farmers are feeling right now.”
According to the monthly barometer, farmer sentiment has been relatively flat for the past few months. But with tighter margins predicted for 2024, concerns are on the rise. “When you look back, sentiment is down substantially from early 2021 when crop prices increased before input costs went up,” Langemeier explains. “Then they went up double digits in 2022 – sentiment went down and it has not come back up, largely because of the concern around high input costs.”
During the pandemic years, supply chain issues wreaked havoc on the ag economy, fuel prices went up and fertilizer prices escalated even further. The Russia / Ukraine conflict also threw potash supply into turmoil, creating additional supply pressures. Plus, herbicide and insecticide prices have been on the rise, adds Langemeier. “There are so many issues happening and a lot of them are still with us,” he notes.
Tips on weather the storm
However, it’s not all doom and gloom, Langemeier insists. “Luckily, in many ways, agriculture is in pretty good shape right now,” he says. “We have low debt levels and good equity, particular land equity is strong because we have seen land values go up and this really helps the balance sheet.”
Check out this advice Langemeier offers farmers as they head into 2024:
Tip 1: Before locking in fertilizer prices for the new year, shop around.
“Farmers need to shop around, and it’s not just about comparing different retailers, you also want to investigate different types of fertilizer. Is your current plan the best program for your farm? Are you distributing a lot in the fall and then losing some at the time of planting?”
This is always a good practice to examine, says Langemeier, and it becomes even more crucial during tight economic times. The same is true for herbicides, i.e. do you need as many passes? Could you use different products?
Tip 2: Try to negotiate if you are renting farmland.
One of the biggest costs for many farmers is renting land. If margins are particularly tight try to negotiate – it can and does happen.
Tip 3: Carefully consider new machinery and land purchases.
Farmers still have to consider these options, but in this kind of environment it pays off to be cautious. Expanding your operation may be the right move, just make sure you can bankroll an expansion if conditions change.
Overall, Langemeier says he doesn’t expect the first half of 2024 to be much different than the last half of this year. Yes, margins are tighter but it’s not as it was in 2014 or 2019, he says. “I’m optimistic that balance sheets are strong enough that we can weather the storm, mostly due to many farmers having good working capital and strong balance sheets. Those are strategies farmers have pursued during tough times, and they are paying off.”