Lower expenses, stronger milk prices improve 2024 farm income

At the start of 2024, federal agricultural economists were forecasting a tough year for American farmers. 

A report from the U.S. Department of Agriculture in February projected a 25 percent decline in net farm income from 2023.

Now, the USDA expects farmers will only see a 4 percent decline for the year, keeping net farm income well above the 20-year average.

Carrie Litkowski, senior economist with USDA’s Economic Research Service, said lower-than-expected costs for expenses like livestock feed and crop fertilizer improved farm income projections throughout the year.

“Each (forecast) release, they got a little bit lower which helps farm income,” Litkowski said during an online presentation Tuesday. “That’s just reflecting the new data as it comes in, particularly the prices that farmers were actually having to pay for their inputs being a little bit lower.”

Litkowski said the USDA’s initial expense forecast in February is based on trends from previous years. Farmers saw significant cost increases in 2021 and 2022 due to inflation. But 2024 represented a nearly 2 percent decline in expenses, with the largest declines in feed, fertilizer and pesticides.

Aaron Tigert, vice president of ag lending and insurance for Compeer Financial, said lower fuel prices this year also helped lower costs for the Wisconsin farms he works with. 

Tigert said labor costs have remained high for most producers. But the expense that has impacted farms the most in 2024 is higher interest rates, affecting annual operating loans and bigger decisions around farm expansions.

“It used to be a fairly (trivial) line item expense if you were borrowing operating capital,” he said. “Now, with the going operating rates, it could be as much as 10 percent of your total cost of production for an acre of corn or soybeans. So it’s now become material.”

Tigert said he’s telling farmers to expect interest rates to remain the same heading into 2025. While leaders at the Federal Reserve Bank have moved toward rate cuts, he said the change doesn’t always equate to lower borrowing rates for producers. 

Stronger livestock, dairy income are bright spot amid lower crop prices

Total cash receipts, or the income from product sales, are forecast to be down just under 1 percent from 2023, a smaller decline than originally predicted by USDA. 

Income from livestock and animal products like milk and eggs are expected to be more than 8 percent higher for the year. Egg sales saw a nearly 40 percent increase from the previous year due to higher prices. Milk also saw price increases throughout 2024, leading to a nearly 12 percent increase in sales for the year.

“Profits are back on the dairy side, and mailbox prices are strong again,” Tigert said. “We maybe didn’t start out 2024 quite as strong, but we ended well, and 2025 looks as good.”

But income from crops is projected to end the year worse than economists first projected. The latest data shows total crop cash receipts are expected to be down more than 9 percent. The decline is driven by lower crop prices and comes despite increased sales nationally.

In Wisconsin, Tigert said yields were an important factor in determining a farm’s profits. He said producers with stronger yields came out OK, while those with lower yields from dry weather struggled more.

He said commodity prices are starting to stabilize heading into 2025. But there are several factors that could affect markets in the new year, including Republican President-elect Donald Trump’s return to office in January.

“There’s some unsettlement about what global trade will look like,” he said. “There is still a farm bill that needs to play a critical role in shaping financial outcomes for producers.”

Tigert said he encourages farms to protect themselves against the uncertainty by locking in costs for coming expenses and using forward contracting to lock in a profit or at least guard against selling at a loss.