written by Jonathan Eisenthal
Researchers found that net farm income in Minnesota was down drastically for crop farmers, while livestock farmers managed to turn handsome profits in 2014. However, livestock sales in Minnesota this year are not meeting the cost of production, according to Dale Nordquist, Extension economist at the University of Minnesota’s Center for Farm Financial Management.
The Center for Farm Financial Management runs an education program that includes a full analysis of farmer financial records. About 2,200 farmers —approximately 10 percent of the state’s commercial farming operations —take part. These financials are compiled in a database that Nordquist analyzes.
“There’s just been a tremendous amount of income variability in the returns for farmers over the last few years,” Nordquist said. “Volatility is very wild. Farmers have kind of gotten used to that. You never get used to losing money, but they aren’t surprised by it.”
Here is the breakdown of prices received in the database:
- The average price received for corn sold by participating producers declined from $6.28 per bushel in 2013 to $4.37 in 2014. With costs of production averaging $4.57, the average corn producer lost money on each bushel of corn produced.
- Sugar beet producers in the Red River Valley and West Central Minnesota did not fare any better. In 2012, the average value of beets was $64 per ton. By 2014, it had fallen to $35 per ton. The average producer lost $230 on beets in 2014.
- Soybeans sold for $11.67 per bushel, down from $13.59 the previous year.
- Wheat sold for $6.33 per bushel compared to $7.66 in 2013.
The database shows that Minnesota crop farmers’ median income was $17,003 dollars in 2014, down from $48,120 in 2013 and $260,940 the year before that.
Nordquist explained that in 2012, drought impacted almost the entire Farm Belt, while leaving Minnesota relatively untouched — crop farmers here benefitted from high prices and high yields at the same time in that year.
Nordquist noted that the general public sees income figures for farmers and may think these are comparable to non-farm wages. This is true to the extent that farmers support their families with this income, but they also have to grow the capital that’s in the business in order to ensure long term survival of the farm business.
“A good rate of return on investments is the standard benchmark (farms should try to achieve),” Nordquist said. “Last year, the rate of return on assets was 4 percent and this year it was under 3 percent. When you compare that to what most of us are earning on our savings accounts it sounds pretty good, but it’s not an outstanding return for a business. Previous to that, in those really good years, we were seeing returns of 15 percent. Those were just exceptional returns on investments —especially 2010 through 2012.
The years 2007-12 (except for 2009) offered good returns to farm investments in Minnesota, Nordquist reported, while in 2013-14 crop farmers saw both a decline in prices and a drop in yield, a double hit to their return on investment.
“The one thing you can do to combat that high volatility is to have substantial working capital, have a strong balance sheet,” Nordquist said. “That’s what most of our farmers still have. They have used up some working capital in the last year for sure, to try to make ends meet, but they still are in a pretty strong position. Maintaining working capital. Trying to build working capital, that’s a lesson we keep teaching going forward. What that means is you really have to forgo buying that new piece of capital equipment that you might need, or really want, at least. That’s the trade off. Invest in that piece of equipment or hold onto that working capital until the next turnaround.”
On-farm storage facilities are the key to crop farmers’ balance sheets, Nordquist said.
“A big part of the liquidity for farmers is the grain that they have in the bin,” Nordquist said. “That is really where their money is tied up, in working capital. (On farm storage) gives them marketing flexibility for sure. That gives them the ability to price their grain from lots of months before they plant all the way until harvest. You hope you find a price during that period that covers your cost. That’s really a challenge this year, to find a price that’s going to cover your cost. We might be looking at minimizing loss this year, on the crop side.”
In contrast to the challenges faced by crop farmers in 2014, Minnesota livestock farmers saw median income rise in 2014 to $138,037, up from $38,479 in 2013 and $97,669 in 2012.
The study showed this breakdown of livestock prices garnered by Minnesota farmers: The average price received for milk increased from $20.36 per hundred pounds in 2013 to $24.42. With the average cost of production around $20.00, dairy producers netted about $1,200 per cow compared to $300 in 2013. Beef and pork producers experienced much the same results. The price of market weight beef increased from $1.25 per pound in 2013 to $1.51 in 2014. Lean pork prices increased from 89 cents per pound to $1.01.
The coming year does not look as promising for animal ag in Minnesota.
“Milk, pork and beef prices in Minnesota hit all-time highs during 2014,” Nordquist said. “This year, dairy prices are already down below cost of production. We came out with a cost of production of about $20 dollars (per hundred pounds of milk) last year. Futures are down around $17, but I think farmers are getting a little bit more than that. We’re under cost of production also on pork. Those two sides (milk and pork) look like it’s not going to be a great year. Beef prices are still high. So that’s the one positive.”
Poultry is not well represented in the study, but nearly a dozen outbreaks of avian flu are clouding the economic picture for Minnesota’s turkey producers.
You can read the full 2014 Minnesota farm income report here.
Want more insight from Nordquist on the farm income report? We asked Nordquist to discuss the corn aspects of the report in greater depth on the weekly Corn Update segment on the Linder Farm Network. Listen below: