Minnesota farm incomes continue to decline
Editor’s note: This article was provided by University of Minnesota Extension.
Despite record crop yields, the incomes for Minnesota farms continued to decline in 2015, reaching their lowest point in inflation-adjusted dollars in 20 years.
A major factor was the continued decline in prices for virtually all major commodities produced by Minnesota farms. Unlike 2014, when livestock producers had a very good year, both crop and livestock farms struggled financially in 2015.
These are among key findings in the annual farm income analysis conducted jointly by Minnesota State Colleges and Universities (MnSCU) and University of Minnesota Extension.
The analysis used data from 2,031 participants in MnSCU 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.
HIGH INCOME, LOW YIELD
“Thank goodness for record yields,” said Dale Nordquist, University of Minnesota Extension economist. “At current prices, the average crop producer would have suffered a net income loss of over $50,000 with normal yields.”
Overall, the median net farm income for Minnesota farmers included in the study was $27,078, down 37 percent from 2014. The median income for crop farms was just over $26,500, up from $16,500 in 2014 but far less than incomes earned during the “golden years” of 2010-2012.
The median livestock producer earned just under $24,000, down from more than $110,000 in 2014.
“It is hard to look at these financial returns – and the lack of debt repayment capacity of these farms – and think that this could happen in a year of record yields,” said Ron Dvergsten, farm business management instructor at Northland Community and Technical College in Thief River Falls.
“Most of these farms still have solid balance sheets, but cash flow and debt repayment capacity is really tight.”
CROP PRICES CONTINUE DOWNWARD TREND
Crop yields were outstanding, with corn at 198 bushels per acre statewide, 30 bushels higher than the previous 10-year average. But the downward spiral in prices that began in 2013 continued.
• The average price for corn sold by participating producers declined to $3.75 per bushel in 2015, down from $4.37 in 2014.
• With a yield 22 percent higher than the 10-year average, soybeans sold for $9.45 per bushel, down from $11.67 the previous year.
• Wheat sold for $5.26 per bushel, compared to $6.33 in 2014.
By the end of the crop year, prices for each of these commodities had slid further. Many producers carried their crop inventory into the winter and still hold them, hoping for better prices.
Prices high enough to cover average production costs have not materialized yet.
LIVESTOCK PROFITS OF 2014 WERE SHORT LIVED
Prices for every major livestock commodity dropped sharply in 2015 after hitting record prices in 2014.
• Dairy farms earned an average profit of $41,500, down 70 percent from the previous year but still the highest income earned by any major commodity group in 2015.
• The average price received for milk decreased 27 percent, from $24.45 per hundred pounds in 2014 to $17.93. With the average costs of production around $17.50, dairy producers netted about $300 per cow after expenses compared to $1,200 in 2014.
• The price received for market hogs decreased from 75 cents per pound to 55 cents, a 27 percent drop.
• The price of market weight beef decreased from $1.51 per pound in 2014 to $1.48 in 2014, a relatively modest 2 percent decrease. But cattle feeders had to pay 11 percent more for feeder calves. Also, a major price decline for beef cattle at year’s end resulted in huge losses on cattle in inventory.
While 2015 witnessed devastating losses due to avian flu, large turkey producers are not among producers participating in the voluntary data sharing used to compile this report.
TOUGH YEAR AHEAD
Despite three years of reduced income, the average farm maintained a strong balance sheet.
However, the outlook for 2016 remains tough. Commodity prices have hit major headwinds, with weak international economies and the strong dollar putting pressure on global demand.
Some costs, especially fuel and fertilizer, have come down. Cash rents, a major expense for most crop producers, decreased about 5 percent in 2015 and are expected to go down more in 2016. While those reductions will help, for many producers the costs of production are still higher than prices currently available for 2016 production.
“There is a lot of anxiety in rural Minnesota,” said Keith Olander, director of AgCentric at MnSCU. “We work directly with these producers to try to put together cash flow plans that work and are bankable. That is a real challenge right now.”
The statewide results are compiled by the Center for Farm Financial Management into the FINBIN database which can be queried at www.finbin.umn.edu.