The cycle of above-average profits that has defined the US agricultural economy in recent seasons is fraying this year as crop prices slacken against elevated expenses.
The domestic agricultural sector is forecast to endure a 24pc drop in net cash income this season — the sharpest year-over-year decline in the last decade — underpinned by a 6pc slump in crop sales revenue and modest growth in projected expenses, according to the US Department of Agriculture's (USDA) latest industry income statement.
This retraction, which kicked off in 2023, forced many growers in key agricultural districts this season to augment non-real estate loans, slow debt repayment and restructure existing loans to meet liquidity requirements thanks in part to sliding global grain and oilseed prices.
Lenders within the seventh and 10th Federal Reserve districts, which represent farmers across major growing regions, reported stronger loan demand and tightened working capital during the first quarter — signaling deteriorating farm finances.
Working capital is measured as the difference between the value of assets that can be easily converted to cash and debt due within the next 12 months. Lower working capital valuation signals the ability to pay down debt could be challenged.
Domestic agricultural working capital this year is estimated 17pc lower from 2023 and 6pc lower than the five-year average, according to USDA data.
"Conditions in the US farm economy have tightened alongside lower prices for many key products and higher financing costs," the Federal Reserve Bank of Kansas City reported in its quarterly Ag Credit Survey. "Many lenders highlighted growing concerns about deterioration in working capital as a result of low prices, particularly for crop producers."
US row-crop growers are expected to endure another season of price deterioration as global markets adjust to supply shocks stemming from the ongoing war in Ukraine that rattled wheat values and key input prices for corn and soybeans. Domestic corn, soybean and wheat farm cash prices are projected to slump for a second consecutive season by 5pc, 11pc and 15pc, respectively, according to the latest projections from the USDA's World Agricultural Supply and Demand (WASDE) report.
Corn growers, specifically, face losses this season amid a 4.6mn-acre cut in planted area from last season in tandem with sinking crop values. Margins are estimated -$65.75/acre, based on the latest new-crop contract close and early-season production volume estimates, after benefiting from peak earnings at $242.33/acre in 2022.
Corn is a fertilizer-intensive crop, and changes in farmer profitability can erode input prices. Urea, the most widely traded fertilizer globally, is strongly tied to front-month corn futures and domestic barge prices have sunk to levels last seen in January 2021, tracking lower front-month corn futures since the start of the 2023-24 fertilizer season.
Fertilizer expenses account for nearly 40pc of annual operating costs for domestic corn growers on a per-acre basis, with seed costs comprising an average 25pc, according to Argus analysis of USDA data. Plant nutrition expenses, though, surged in 2022 and remained above average in 2023 — reflecting historically elevated fertilizer prices during the same period. The USDA forecasts a 15pc dip in fertilizer costs in 2024 for corn growers, providing some reprieve compared with the last two years despite higher seed and various overhead expenses.
"Factors like the rising costs of seeds, fertilizers and other inputs as well as more strict environmental regulations, specifically on water usage, have added to the financial and administrative burden for farmers," said Donnie Taylor, Agricultural Retailers Association senior vice-president of membership and corporate relations.
