SW Minnesota farmers experienced a drastic reduction in farm income in 2023 caused by weather challenges coupled with decreasing corn and soybean prices, increased costs and challenging profitability for the dairy and hog sectors. Crop yields were near trendline even with the difficult growing conditions across much of the state. Corn, soybean, milk, and pork prices fell during the year causing an economic storm for many producers in the state.
Average net farm income for SW Minnesota farms fell over 80% when adjusted for inflation from the prior year. 2023 marked a striking change in profitability from the prior three years of strong profits. Farm profits in 2023 retreated back to the challenging levels experienced by Minnesota farmers from 2013 to 2019. The average Minnesota farm saw a reduction in working capital, decreased retained earnings, stagnant net worth change and limited profitability for the year.
Cash crop sale prices during the year were similar to those seen in 2022. But the profitability reduction stems from reduced inventory values at the end of the year. Meaning, crops sold in 2024 will be for a lower price. When considering cash flow projections for the coming year, most farm operations are preparing for negative margins.
Higher crop prices continued to translate into higher feed costs for Minnesota livestock producers. Earnings for dairy and hog producers were down exceptionally in 2023 Dairy producers also experienced thin margins in 2023. Beef production was the bright spot last year. Beef producers experienced the highest median net farm income as a group in the state. This group capitalized on the record beef prices offered in 2023.
There is much concern related to 2024 farm profitability in Minnesota. Farmers and consumers alike share many of the same concerns. This includes the impact of inflation, rising interest rates, and general economic uncertainty. The global market situation is also worrisome for Minnesota producers. Much of the future concern relates to decreased commodity prices, compressed margins, and interest rate increases.
Input costs are typically ‘sticky’ for farmers. Commodity prices correct quickly, while input costs tend to stay high after they’ve increased. Over the last few years, machinery costs, land rent, and fertilizer have all increased. These expenses don’t look like they will come down as fast as commodity prices falling, now more than ever farms need to know their cost of production and focus on risk management planning for the coming year.