Minnesota farm incomes marginally improved in 2016
Farmers needed a good year, but despite record yields, incomes were only slightly better
St. PAUL, Minn. (March 28, 2016) — More than 30 percent of Minnesota farmers were in the red in 2016, the third consecutive year of declining commodity prices.
Record crop yields enabled crop producers to tread water financially, but incomes improved only slightly and the median crop producer didn’t earn enough to meet family living needs. Many livestock farmers generally fared worse as milk, pork and beef prices hit new lows.
Those are among key findings in the annual farm income analysis conducted by the University of Minnesota Extension and Minnesota State. The analysis used data from 2,103 participants in the Minnesota State farm business management education programs and 103 members of the Southwest Minnesota Farm Business Management Association. Participating producers represent approximately 10 percent of commercial farmers in Minnesota.
Across all of these Minnesota farms, the median net farm income was $35,636, up from $27,478 in 2015. Net farm income represents the amount of income contributed by the farm to cover family living expenses, taxes, re-investments, and retirement. Since the 2007- 2012 period, when farm earnings were generally strong, net farm incomes have fallen dramatically and many farms have tapped into their working capital to meet financial obligations. The average of these farms now have only half the working capital they did at the end of 2012.
Crop farms: Big crop stems the tide
The median crop farm earned $46,348, compared to $27,462 last year. Including off-farm earnings, the average crop farm family made a modest improvement in their net worth.
Bumper crops across the Corn Belt filled elevators and farm storage bins this fall, but the big crop also affected prices. For the first time for this group of farms, the average corn yield topped 200 bushels per acre, up 19 percent from the 10-year average for these farms. But the average price received for corn declined by 9 percent. The story was similar for soybeans, wheat and most other crop commodities.
“Those extra bushels in the bin saved many of our farms from near disaster,” said Ron Dvergsten, a farm management instructor at Northland Community and Technical College. “But we still have a lot of farms that are on the edge going into next year, and some are having trouble getting operating credit for 2017 right now.”
Crops prices continue downward trend
With outstanding yields across the Corn Belt, the downward spiral in prices that began in 2014 continued:
Livestock: Another year of low returns
Lower crop prices translated into lower feed costs for livestock producers but that did not help Minnesota producers enough to improve profits in 2016. For the second consecutive year, prices for every major livestock commodity decreased.
“The livestock industry is very cyclical,” said Dale Nordquist, Extension economist and co-director of the University’s Center for Farm Financial Management. “Livestock producers earned record profits in 2014; that jump-started investment and expansion. Now we are seeing downside of surplus production.”
The beef production industry was hit hard in 2016. It’s made up of cow-calf producers, who produce the calves, and cattle finishers, who buy and raise them to market weight.
Dairy profits declined again in 2016.
Pork producers also lost money in 2016.
Mixed expectations for the year ahead
Some farms will have to make major adjustments in the coming year in order to continue farming. Like any business, every farm has a different cost structure and some farms are doing better than others. The average farm’s balance sheet is still strong, but there are obvious signs of financial stress. Requests for participation in the Extension-run Farmer Lender Mediation program, where debtors and creditors negotiate with a mediator, have increased. Many farms have already restructured debt to lengthen terms and free up cash flow.
Looking forward, there are some areas of optimism. Costs have decreased as land rental rates and other inputs adjusted to lower price conditions. Lower fertilizer and fuel prices, in particular, will help.
Given recent increases in milk and pork prices, there is also optimism that dairy and hog farm profits will improve in 2017. Beef prices are expected to remain depressed, however, limiting prospects for recovery for the beef industry.
“We work with these producers to try to put together cash flow projections that work,” said Keith Olander, director of the Minnesota State Agriculture Center of Excellence, North (AgCentric). “That has been a real challenge the last couple of years. Record crop yields stopped the bleeding for a lot of producers this year, but we can’t plan on that every year.”
The statewide results are compiled by the Center for Farm Financial Management using the FINBIN database, which can be queried at www.finbin.umn.edu.