As corn prices declined in the fall of 2013, so did farm incomes for a majority of Minnesota farms, according to a joint analysis conducted by Minnesota State Colleges and Universities (MnSCU) and University of Minnesota Extension.
Overall, net farm income was $41,899 for the median farm. That compares to $189,679 in 2012, a 78 percent decrease. While crop farm incomes plummeted due to declining commodity prices, livestock farms did not fare much better as incomes for dairy, hog and beef farms also declined.
The analysis used data from 2,063 participants in MnSCU farm business management education programs, 111 members of the Southwest Minnesota Farm Business Management Association and 41 participants working with private consultants.
"A decline from 2012 levels should not come as a big surprise. We have to remember where we came from," said Dale Nordquist, Extension economist in the University of Minnesota Center for Farm Financial Management. "2012 was a very profitable year for Minnesota farms. Land rental rates have been catching up with the increased profitability of crop production. Most crop producers were in pretty good shape to handle a down year. The question is how long will these reduced profits last?"
Dramatic drops in crop prices
Corn and soybean prices dropped dramatically. Net return per acre of corn dropped from $377 in 2012 to minus $24 in 2013. Soybeans went from $216 net return per acre in 2012 to $85 in 2013. The price of sugar beets dropped from $65 a ton to $35. Sugar beet producers lost an average of $300 per acre in the Red River Valley and west central Minnesota.
Price was not the only factor that led to reduced profits for crop producers. Yields were down due to a cold, wet spring followed by developing drought conditions in parts of the state. The statewide average yield for corn was 160 bushels per acre compared to 171 in 2012, below the ten-year average of 167 bushels. Soybean yields were down from 46 to 42 bushels per acre. Meanwhile, the cost to grow an acre of corn increased by 10 percent. Land rental rates increased by 15 percent for corn production.
"The full extent of this has not been felt by crop producers yet," said Ron Dvergsten, Farm Business Management (FBM) instructor/FBM program coordinator at Northland Community & Technical College in Thief River Falls. "Cash flow was not a problem through much of the year as producers sold 2012 crop at high prices. Most of the decrease shows up in the reduced value of inventories at the end of the year. That means cash flows for 2014 are really tight. At current prices, many producers will lose money on cash rented land in the coming year."
Feed factors reduce livestock profits
Livestock farms faced high feed costs for much of the year; feed prices did not decline substantially until harvest. While the price of milk, pork and beef were all up from the previous year, the combination of high feed costs and lower values of feed inventories reduced livestock farm profits. Milk sold for $20.34 per hundredweight compared to $19.63 in 2012. With a cost of production of $19.92, dairy farmers made 42 cents on every hundred pounds produced or about 5 cents per gallon on average. Market hog prices increased from $63 per hundred pounds in 2012 to $66 in 2013. Market beef prices increased from $122 per hundredweight in 2012 to $125 in 2013.
Prospects for livestock producers are better for the coming year. After several years of high feed costs that benefited crop producers, the tables will likely be turned in 2014.
"Prices are projected to be strong for all major livestock sectors this year," Nordquist said. "And feed costs will be much lower so livestock producers should have a very good year."
The one wildcard for pork producers is the spread of porcine epidemic diarrhea virus (PEDV). While the virus is not transferred to humans, it can be devastating to pig herds and cause severe financial consequences.
2014: Tighter margins ahead
Crop producers will see much tighter margins in 2014.
"The good thing is that most crop producers come in to the year with very strong working capital positions," Dvergsten said. "Another plus is that fertilizer prices are down. But other costs, including land rent, are projected to increase. It is likely that many crop producers will have to use some of their working capital to cover losses in the coming year."
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. 2013 regional reports and reports from previous years can be found on the MnSCU Farm Business Management website at www.fbm.mnscu.edu.