Midwest Farmers Brace for Downturn as Crop Prices Plummet

The agricultural industry in the Midwest and Great Plains is bracing for a challenging year, as farmers face a significant drop in net farm income compared to the record-breaking levels of the past two years. Amid slowing global demand and ample supplies, commodity prices for key crops like corn, soybeans, and wheat have fallen sharply, putting a strain on the profitability of farming operations across the region.

Weathering the Storm: Midwest Farmers Adapt to Changing Market Conditions

Declining Farm Incomes and Cautious Spending

Net farm income is projected to fall by 4.4% in 2024, a $6.5 billion decrease from 2023. This downturn comes after a period of relative prosperity, with the last couple of years seeing record-breaking farm incomes. Now, farmers are adjusting their spending habits, focusing on necessary purchases rather than upgrades or expansions. "We're kind of making the necessity purchases right now," said Illinois farmer Nick Koeller. "If we need something, we're going to make it work — but we're not going to look to upgrade anything this year."

Global Commodity Market Dynamics

The decline in crop prices is largely driven by global factors, including increased production in the U.S. and Brazil, as well as the recovery of Ukrainian grain exports following the Russian invasion. "That really has made the supply of these crops increase — not only here in the U.S. but on a global scale," said Ty Kreitman, an economist with the Federal Reserve Bank of Kansas City. "That's been putting downward pressure on prices." The resulting decrease in farm income is a challenge for producers, but one that is largely outside their control.

Impacts on Agricultural Equipment Manufacturers

The downturn in the farm economy has had a ripple effect on the agricultural equipment industry. Companies like John Deere, Case IH, New Holland, and AGCO have all reported declining sales and profits as farmers pull back on major purchases. "It's the first year of a downturn," said Mig Dobre, an analyst of Deere and other equipment manufacturers. "In our opinion, this is going to stretch into 2025." To combat the drop in demand, manufacturers have been forced to make difficult decisions, including layoffs and production cuts.

Shifting Dynamics in the Farmland Market

The decrease in farm income and the rise in interest rates have also impacted the farmland market. Farmers National Company, a leading agricultural real estate firm, reports that farmland prices have decreased by 5-10% across the board in parts of Nebraska and Iowa. "When you deal with the volume of what these land prices are, that interest rate really adds up quickly," said Tim Johnson, an area vice president for Farmers National. While desirable farmland still generates demand, lower-tier properties are seeing less competition from buyers.

Increased Reliance on Loans and Potential for Bankruptcies

With less cash on hand, farmers are turning to loans to finance their operations. The Federal Reserve's Tenth District, which includes several Midwest states, has seen a nearly 45% increase in demand for non-real estate farm loans compared to a year ago. Loan renewals and extensions are also on the rise, while repayment rates have declined. While the USDA is projecting a small increase in the bankruptcy rate among farmers this year, the overall outlook is not as dire as it could be, with the livestock sector expected to perform well.

Bright Spots in the Livestock Sector

Despite the challenges facing crop producers, the livestock sector is projected to have a strong year. Cattle and calves are expected to generate 4% more revenue than in 2023, marking the fourth consecutive year of growth in that segment. Prices for dairy, broilers, hogs, and eggs are also forecasted to increase, providing a glimmer of hope for some farmers in the Midwest.