A Closer Look At The 2024 Ag Economy
With planting well underway in most states, U.S. farmers are assessing their 2024 profit picture. Matt Erickson, ag economic and policy advisor at Farm Credit Services of America, shares his insights on the current ag economy and recommendations to help farmers maximize their ROI this coming fall.
Compressed margins and market volatility
When looking at the current state of the U.S. ag economy, Matt notes that farmers are facing significant headwinds in 2024.
“Lower commodity prices, a stronger U.S. dollar, continued concerns about inflation impacting cost of production, higher interest rates and high capital replacement costs all lead to compressed margins for 2024,” he says.
“It is critical for farmers to have a solid risk management plan.”
Identifying efficiencies throughout the year
It’s important to stay on top of your operation’s marketing plan throughout the growing season. Matt urges, “It will be important for farmers to monitor and manage market volatility and act on opportunities and positions that help protect crop margins in 2024.”
Now is a great time for farmers to identify any financial efficiencies, which he recommends examining from a few angles:
- How much (gross) farm income is being used to pay for borrowed capital?
- What proportion of farm income is being used to pay operating expenses, excluding principal or interest?
- How much (net) farm income is left after all farm expenses are paid?
“It is unlikely that significant costs savings will occur through lower interest rates in 2024, so it is important for farmers to generate revenue while controlling costs,” Matt says.
Equipment maintenance and ROI
Given the many factors affecting farm profitability, we asked Matt more specifically about the importance of equipment maintenance and investment.
Unsurprisingly, he equates well-maintained equipment to optimal performance in the field and, therefore, less downtime and lost profits. “Downtime from equipment breakdowns can lead to crop losses and higher labor and equipment costs, resulting in reduced profitability,” he says.
“Investing in proper equipment maintenance needs to be viewed as a cost-saving measure. By [doing this], producers can avoid expensive repairs, achieve better fuel efficiency, increase the equipment’s lifespan, lower operational overhead and potentially increase the equipment’s resale value.”
Maintaining your Drago corn head with Drago parts is an easy way to maximize your investment, with every feature designed for durability and cost savings.
Preparing for a successful harvest
While servicing farm equipment in the summer can alleviate unwanted downtime at harvest, it’s also important to simultaneously assess labor needs.
“Farmers need to plan out their human capital needs for a successful harvest. With a tight labor market, it may take extra time to find the right skill set needed to do the job,” Matt says.
Finally, while evaluating each piece of your profitability picture, it’s wise to keep in mind which investments have a direct correlation to greater yield and ROI.
He says, “Even in a cost-controlling environment, farmers should not reduce costs if it means sacrificing yield potential.”
Drago corn heads help farmers capture greater yield than traditional line heads for maximum ROI potential every harvest.
For farmers looking to buy, lease or refinance equipment, Matt recommends choosing a lender, like AgDirect®, with attractive rates and ag-friendly terms.