Frontier Farm Credit and Farm Credit Services of America (FCSAmerica) are co-sponsoring a webinar series, Two Economists and a Lender. Our March installment featured Agriculture Economic Insights (AEI) co-founders David Widmar and Brent Gloy and Chad Gent, senior vice president retail credit. The webinar recording from March 20 is available.
Agricultural cycles are a familiar concept to farmers and ranchers, but each cycle brings its own unique challenges and opportunities. In a recent webinar, "Two Economists and a Lender: Cycles in Ag 2025," experts delved into the current agricultural cycle, highlighting key differences and offering valuable insights for navigating these changes. The full webinar recording is available along with a summary of the main takeaways from the discussion.
Understanding Agricultural Cycles
Many people compare the current cycle to the 1980s and 2014-16. While there are similarities, it is important to understand the differences so you can make the appropriate adjustments in your operation. These include:
Inflation: We haven’t seen inflation like today’s since the late 1970s. Producers have seen across-the-board increases in costs. Family living and machinery – whether buying new or repairing older equipment – are among the areas where producers are paying far more than just a few years ago.
Debt: Levels of debt have climbed, as they did in the 1980s. But more of today’s debt is locked in at the record to near record lows of recent years. Variable rates were common in the ‘80s when interest rates climbed into the double digits.
Interest rates: While not as high as in the 1980s, interest rates are above 2014-16 levels and certainly, higher than during the early ‘20s. Land values have held steady at the near record levels, while interest rates have climbed and are unlikely to come down significantly in the near term. A $5,000 per-acre debt at 4% interest equated to a land payment of about $300 per acre. At today’s 7% interest rate, that same debt level now costs more than $400 an acre, a level few can afford through every cycle.
Sector-Specific Insights
After the COVID-19 pandemic, producers benefitted from record high net income. A few years later, significant disparities have emerged between the crop and livestock sectors.
Row crop producers have seen substantial price declines for corn, soybeans, cotton and wheat, reducing net farm incomes and making it difficult to cover production costs. Meanwhile, the livestock sector, particularly dairy, cattle, and calves, is performing well, with net cash incomes significantly above average.
This divergence of fortunes is a critical aspect of the current cycle and the need for tailored strategies to address sector-specific challenges.
Government Payments
The federal government is sending the farm sector direct payments that are higher than historical averages. These payments are essential to financial stability for many farmers. Additionally, supplemental and ad hoc payments, such as disaster aid and trade aid, are significant contributors to current farm income levels.
However, these payments come with uncertainties regarding their timing and amount, which can complicate financial planning. Producers need to be intentional about how they manage government payments.
Strategies for Farmers and Ranchers
In the last downturn, many took a wait-it-out approach. This time, more producers are being proactive and making early adjustments to their operations. This includes cutting back on expense, particularly family living and recreational items, and getting rid of assets.
Producers who are making course adjustments early are in the best position to stay strong through today’s cycle and potentially take advantage of the opportunities that inevitably come with downturns. Early adjustments also can reduce the magnitude of change needed if the downturn drags on.
Now is the time to carefully plan and prioritize expenditures.
Focus on essential costs as well as risk management strategies, such as crop insurance and grain marketing.
Investments in efficiency improvements and management of government payments will be crucial to financial health.
Maintain liquidity and prioritize profit centers in your operation.
Your financial officer is one of your most valuable tools, helping you to understand your financial position and accomplish your goals.
Long-Term Considerations
Structuring debt payments to be sustainable throughout economic cycles is essential. Farmers should consider the long-term impact of interest rates and land values on their financial stability. Making proactive adjustments to operations, such as reducing family living expenses and optimizing capital purchases, can help navigate economic challenges. These strategies will help farmers maintain control over their financial health and position themselves for success in the coming years.
