The agricultural landscape in the Midwest and Great Plains is bracing for a shift in the coming year, as experts predict a decline in farm incomes compared to the previous two years. This downturn, driven by a combination of global market forces and domestic production factors, is set to impact the livelihoods of farmers and the broader agricultural ecosystem. From equipment manufacturers to land sales, the ripple effects of this economic transition are poised to reshape the industry in the months ahead.
Weathering the Storm: Farmers Brace for a Challenging Year Ahead
Declining Incomes and Cautious Spending
Net farm income is expected to fall by 4.4%, or $6.5 billion, relative to 2023, marking a significant departure from the recent boom years. This downturn is driven by slowing global demand for key American crops, such as corn, soybeans, and wheat, leading to a decline in commodity prices. As a result, farmers in the Midwest are adopting a more conservative approach, focusing on essential purchases and holding off on major investments. "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."Shifting Global Dynamics and Domestic Production
The recent surge in crop prices, fueled by production shortfalls in Ukraine and Brazil, has given way to a more balanced global supply. With improved yields in the U.S. and a return to more normal production levels, the supply of these key commodities has increased, exerting downward pressure on prices. "That really has made the supply of these crops increase — not only here in the U.S. but on a global scale," explained Ty Kreitman, an economist with the Federal Reserve Bank of Kansas City. "That's been putting downward pressure on prices."Ripple Effects on the Agricultural Equipment Industry
The decrease in farm income has had a noticeable impact on the agricultural equipment industry, particularly for industry giants like Moline, Illinois-based John Deere. Demand for Deere's equipment, such as combines and crop harvesters, has plummeted, leading to a 20% decrease in overall equipment sales and a 42% drop in profits. "It's the first year of a downturn," said Mig Dobre, an analyst who covers Deere and other equipment manufacturers. "In our opinion, this is going to stretch into 2025."Shifting Dynamics in the Land Market
The agricultural downturn has also been felt in the land market, with Farmers National Co., an Omaha-based firm specializing in agricultural real estate, reporting a "settling" of the land market. Tim Johnson, an area vice president for Farmers National, noted that decreased farm income and higher interest rates have contributed to a 5% to 10% decrease in farmland prices across eastern Nebraska and western Iowa. However, desirable farmland still generates demand, with bidders competing for the most sought-after properties.Increased Loan Demand and Potential Bankruptcy Risks
As farmers face tighter margins, the demand for loans has increased, with the Federal Reserve's 10th District observing nearly 45% of lenders reporting more demand for non-real estate farm loans compared to a year ago. Additionally, loan renewals and extensions are 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 good news is that 2022 and 2023 had record-low levels, the lowest in 20 years.Bright Spots in the Livestock Sector
Amidst the challenges facing the crop-based agricultural industry, the livestock sector is poised to perform well in 2024. The USDA forecasts a 4% increase in revenue from cattle and calves, totaling $4 billion, marking the fourth consecutive year of growth. Prices for dairy, broilers, hogs, and eggs are also projected to rise, providing a glimmer of hope for producers navigating the broader agricultural downturn.As the Midwest and Great Plains farmers brace for a year of decreased incomes, the agricultural industry must adapt to the shifting tides of global markets and domestic production factors. From equipment manufacturers to land sales, the ripple effects of this economic transition will be felt across the sector. However, the resilience of the farming community and the potential bright spots in the livestock industry offer a glimpse of the industry's ability to weather the storm and emerge stronger in the years to come.