corn being poured into truck
HARVEST CONTRIBUTED: Record crop yields in 2016 helped financially improve some struggling farm businesses.

A third of Minnesota farms in red in 2016

Record crop yields helped some farmers keep their heads above water.

More than 30% of Minnesota farmers were in the red in 2016, the third consecutive year of declining commodity prices, according to an analysis done by University of Minnesota Extension and Minnesota State University.

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.

The analysis used data from 2,103 participants in MSU farm business management education programs and 103 members of the Southwest Minnesota Farm Business Management Association.

Participating producers represent approximately 10% 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, reinvestments and retirement.

Since the period from 2007 to 2012, when farm earnings were generally strong, net farm incomes have fallen dramatically. Many farms have tapped into their working capital to meet financial obligations. On average, these farms now have only half the working capital they did at the end of 2012.

University of Minnesota Extension, Minnesota State

On crop farms, big crop stems 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% from the 10-year average for these farms. However, the average price received for corn declined by 9%. 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,” says Ron Dvergsten, a farm management instructor at Northland Community & 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.”

Get more INSIGHT: Download 5 Ways to Manage Risk now!

Crops prices continue downward trend
With outstanding yields across the Corn Belt, the downward spiral in prices that began in 2014 continued:

• The average price received for corn sold by participating producers declined to $3.42 per bushel in 2016, down from $3.74 the year before.

• Soybean yields averaged 56 bushels per acre, compared to a 10-year average of 44 bushels. The average producer sold soybeans for $9.07 per bushel, compared to $9.45 the previous year.

• Wheat yielded 67 bushels per acre, up 8 bushels from the 10-year average. Wheat sold for $4.78 per bushel, compared to $5.26 in 2015 This was the first time prices have gone below $5 per bushel since 2006, according to the university’s database.

• The 2016 sugarbeet crop was so plentiful that some was left behind in fields. The average yield harvested was 32.6 tons per acre, the highest in years. The average price received was $39.10, a slight increase over 2015’s $37.87, but far from the higher prices of four and five years ago.

Livestock has 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,” says Dale Nordquist, Extension economist and co-director of U-M'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.

• The median beef producer lost more than $11,000, after losing almost $10,000 in 2015.

• Calf producers lost about $70 per cow, on an average of 71 cows. Many Minnesota cow-calf producers also have off-farm jobs and may not rely on beef calf sales for their primary income.

• Cattle finishers have suffered major losses in the last two years. In 2016, they lost $77 per head. That is an improvement over 2015, when they lost almost $300 per head.

• The market price of beef decreased from $1.48 per pound in 2015 to $1.19 in 2016.

Dairy profits declined again in 2016.
• The median dairy farm earned $31,563, down from just over $45,000 in 2015.
• The average price received for milk decreased by 8%, from $17.95 per hundred pounds (cwt) in 2015 to $16.57.
• With the average costs of production around $16.00, dairy producers netted less than 60 cents per cwt of production, or $135 per cow.
• The average dairy farm milked 180 cows.

Pork producers also lost money in 2016.
• The median hog farm has invested more than $4 million in its business, and lost just over $4,000 in 2016.
• The price of live hog sales decreased to 50 cents per pound in 2016, down from 55 cents the previous year.
• Pork producers lost about 3 cents on every pound of pork sold.

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,” says 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 finbin.umn.edu.

Source: U-M Extension

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish