Tighter margins: $4 corn and $10 soybeans

The USDA Outlook Board published Long Term Agricultural Projections in February of 2024. USDA economists studied the supply and demand of agricultural products and projected marketing year average estimates for commodities out to 2033.

USDA is projecting corn and soybeans to quickly return to the $4 and $10 area and stay there for several years. This follows a five-year period of very strong commodity prices.

The average cost of production including operator labor and management is $4.21 for corn and $9.82 for soybeans on cash-rented ground for the last 5 years among farms in the FinBin database. This database contains the financial results of more than 2,000 farms each year. Farms must be proactive and address these tightening margins.

Preparing for lower agricultural margins requires strategic planning and proactive measures to ensure the sustainability and profitability of agricultural operations.

Here are the top five things to prepare for:

Cost management and efficiency improvement

• Conduct a thorough analysis of your production costs and identify areas where you can cut unnecessary expenses without compromising the quality of your product.
• Implement precision agriculture techniques to optimize inputs like water, fertilizers, and pesticides. This can help reduce costs and increase yields.
• Invest in energy-efficient equipment and renewable energy sources to lower utility costs.

Diversification of income streams

• Diversify your crop portfolio to spread risk and reduce dependency on a single crop. This can help buffer against price fluctuations and adverse weather conditions.
• Consider alternative agricultural enterprises such as livestock, agro-tourism, or value-added products.
• Explore opportunities for off-farm income to supplement agricultural earnings, such as part-time jobs, consulting, or renting out farm facilities.

Market strategies and sales optimization

• Increase direct-to-consumer sales through farmers markets, CSA (community-supported agriculture) programs, or on-farm sales.
• Develop and market value-added products to capture more value from your produce. This could include organic certification, specialty foods, or processing raw products.
• Strengthen relationships with buyers, retailers, and distributors to secure better terms and ensure stable demand.

Financial planning and risk management

• Create detailed budgets and financial forecasts to plan for various scenarios and ensure you have a clear understanding of your financial position.
• Invest in crop insurance and other relevant insurance products to protect against unexpected losses due to weather, pests, or market volatility.
• Manage debt carefully by refinancing existing loans at lower interest rates, paying down high-interest debt, and avoiding unnecessary new debt.
• Prepare financial statements, such as balance sheets and accrual income statements to monitor financial progress and to find strengths and weaknesses.

Technology adoption and innovation

• Adopt precision agriculture technologies such as GPS-guided equipment, soil sensors, and drones to improve efficiency and productivity.
• Use data analytics to monitor crop performance, predict trends, and make informed decisions.
• Implement automation where feasible to reduce labor costs and increase operational efficiency. This could include automated irrigation systems, robotic harvesters, and advanced sorting and packing equipment.

Preparing for lower agricultural margins requires a multifaceted approach that focuses on cost management, diversification, market strategies, financial planning, and the adoption of innovative technologies. By proactively implementing these strategies, farmers can enhance their resilience, maintain profitability, and ensure long-term sustainability in the face of challenging economic conditions.