As farmers navigate the ever-changing economic landscape, there are several strategies they can implement to prepare for and manage fluctuations in the market.
What can farmers do to prepare for and manage economic fluctuations?
Limit Family Living Expenses
One of the first steps is to manage family living expenses carefully. Consider being more conservative with larger purchases, such as travel, recreational vehicles, or vacation trips. Cutting back on daily expenditures can also help; those small luxuries can add up over time.
Know Your Break-Even Points and Control Costs
Understanding your break-even points and closely monitoring costs is crucial. Markets can be volatile, so it’s wise to review your costs and cash flow on a quarterly basis. The more frequently you assess your financial situation, the better you can predict income, make necessary adjustments, and avoid unexpected expenses. Given the current market slowdown, knowing your costs is more important than ever.
This year may present challenges for many farmers, as high input prices from 2024 collide with lower corn and soybean prices. While we’ve seen a slight recovery from the low points of late August, both corn and soybean prices remain below last year’s levels.
Opportunities Ahead
Despite the challenges, there are always opportunities in agriculture, and 2025 will be no exception. Ensure you have a solid marketing plan in place, understand your production costs, and, as previously mentioned, limit unnecessary expenses. Evaluate your soil nutrient levels to determine if you can reduce fertilizer usage, and consider all seed options available. Getting back to basics can pay off.
Historical trends show that markets are cyclical. We’ve witnessed similar scenarios in 2017, 2018, and 2019, where simply breaking even was a better strategy than incurring losses.
How can knowing you’re break even point and reviewing quarterly can help someone during a volatile economy?
The Importance of Understanding Break-Even Points
As producers meet with their accountants for tax planning, it’s an opportune time to document your exact costs for fertilizer, seed, repairs, and other key expenses. Compare these figures to the
projections made earlier in the year. When setting projections for the 2025 season, this comparison allows you to make more accurate estimates for gross revenue based on yield predictions.
Utilize your forward-marketed crop prices in relation to local cash prices to assess what your gross revenue against expenses will look like. Markets may fluctuate, but this knowledge provides a solid foundation for understanding your break-even point.
Do you have specific advice on how to weigh ROI before spending?
Weighing ROI Before Spending
Let’s look a typical investment example, fungicide applications. Historically, it’s a profitable practice. The amount of extra bushels you earn pays above the application cost. However, if those extra bushels are worth less and less in a slow market. This may present an opportunity to cut costs this season.
Over the past few years, it was often easy to sell grain directly from the field or hold onto it in hopes of better prices later. This year, it may be wiser to sell earlier. If you choose to hold, set monthly marketing goals to ensure that your average selling price throughout the year justifies the cost of storage at the elevator. While there’s always potential to hit a home run with a late-season price surge, this coming year you may want to play it safe and focus on just getting on base.
Are there any helpful resources to navigate market volatility?
Resources for Navigating Market Volatility
Stay informed about profit opportunity days, such as when USDA reports are released, as these can significantly influence market conditions. Thursdays are typically when Export Sales reports are published, and the Quarterly Ag Trade Report is available on the last business day of each quarter. These resources can guide your selling decisions. For instance, if a USDA report reveals high corn sales to China, it may indicate strong international demand and potentially drive up prices.
Having orders in place early in the crop season can also help you establish positions, especially if you are using hedge-to-arrive contracts. It’s important to remember that with expected high yields this year, basis risks may increase compared to the previous four years. Ethanol plants can only purchase a limited amount of corn; once they reach their capacity, the basis will likely widen.
When is a good time to reflect on the 2023 marketing year?
Reflecting on the 2023 Marketing Year
September is a great time to reflect on the previous marketing year. With much of the previous year’s sales completed, you can analyze your average corn and soybean sales. As pre-pay offers for fertilizer, seed, and chemicals become available, it’s an ideal moment to plan your expenses for the upcoming season. Review your earnings from last year while harvesting your current crop, which will give you insights into the yields you can expect for the 2024 marketing year.
It’s important to take note of the dates when you achieved your best sales, as these could be relevant again this year. Historically, June 16-18 has been a favorable window for marketing corn, and 2024 was no exception.
Can you explain some of the tools that farmers have at their disposal in September that makes it a great time to reflect on the previous year and plan for 2024 crop and 2025 season?
Tools for Planning Ahead
Several tools can assist farmers in September as they reflect on the past year and plan for 2024 and beyond. Crop budget predictors, such as the one by University of Illinois, provide detailed forecasts of costs related to fertilizer, chemicals, seed, and machinery for 2025. These resources are free to access and can even be tailored to your specific region for more accurate predictions. 2025 Illinois Crop Budgets https://farmdocdaily.illinois.edu/2024/09/2025-illinois-crop-budgets.html
Revised 2024 Crop Budgets https://farmdocdaily.illinois.edu/2024/01/revised-2024-crop-budgets.html
Key Tools and Considerations:
- Harvest Review: Compare actual yields to projections as the harvest wraps up.
- Final USDA Reports: Use the latest crop reports for informed decision-making.
- Marketing Year Closure: Analyze last year’s sales and marketing strategies after August 31.
- Market Volatility Analysis: Assess how global supply and demand affected crop prices.
- Tax Planning: Begin discussions around tax strategies and financial planning for the year’s end.
- Cash Flow Management: Review financials to adjust future farm operations.
- Future Crop Planning: Utilize insights from 2023 to plan crop types and rotations for 2024.
- Risk Management Assessment: Reflect on the effectiveness of risk management tools and the impact of weather.
- Strategic Adjustments: Make informed changes for the next planting season based on 2023 outcomes.
- Now let’s get into cash rents. Can you explain a little bit about where cash rents are at right now (elevated) and if you expect them to stay at that level?
Current Trends in Managed Cash Rents
Regarding cash rents, current surveys from Midwest farm managers indicate a potential decrease, with managed cash rents expected to drop by $25 per acre. In Northern Illinois, excellent farmland cash rents fell from $412 to $400, while good farmland dropped from $353 to $340, showing a downward trend.
Do you have a prediction on when cash rents will start to fall?
Predictions on Cash Rent Trends
Cash rents tend to be slow to adjust, much like input prices, which can take two years to reflect current crop prices. In Northern Illinois, about 60% of farmland is cash rented, with crop share and owned land accounting for around 20%. Currently, the average mid- to low-end cash rent stands at $243 per acre. While some cash rents may decrease, others could rise, leading to what some describe as “rough stability” in 2025.
Negotiations for flex leases are becoming more common, which can be beneficial heading into a year like 2025, especially if you have a base rent of $280 or $300 without anticipated price improvements. Flex leases can offer protection for farmers in cash-rented situations.
Any final thoughts?
Final Thoughts
Interest expenses have been challenging for farmers in recent years, but there is some positive news. The US Federal Reserve recently reduced interest rates by 0.5% and anticipates further cuts of another 0.5% in November, with a full percentage point decrease expected throughout 2025. This trend may indicate a return to lower interest rates, which could provide much-needed relief to farmers moving forward.