Economic Summit: Inflation, interest challenge agriculture

The economic pressures facing Iowa agriculture are strong, but experts said there are still reasons to be optimistic during the Iowa Farm Bureau’s annual economic summit June 14.

Farmers and ag stakeholders gathered in Ankeny to hear a forecast of the environment for the industry, which has been volatile in recent years as domestic inflation and global conditions have made costs and returns unpredictable.

Don Vaske, a conference attendee who farms in north central Iowa, said he was interested in learning about the trends facing the industry to make the right decisions on his farm.

“It’s always good to have a perspective on past and future trends,” he said. “Basically you don’t want to make the same mistake twice, and we know the farming economy is volatile and goes up and down.”

Farmers have felt the effects of inflation and high interest rates in rising input costs, squeezing their margins and income over the last two years.

Net farm income reached record highs in 2021 and 2022. Crop prices have since cooled while the cost of inputs like fertilizer, machinery and labor have steadily risen, driving down farm income in 2023.

That’s led to a high-cost, low-margin environment for most grain producers, said Jim Knuth, a lending executive at Farm Credit Services of America.

That means farmers need to take more proactive measures to ensure their operations remain profitable, Knuth said, like enhancing risk management and crop insurance, more meticulous marketing, holding onto more cash and focusing on cutting costs.

“(2023) was the most expensive crop we’ve ever planted, and ’24 will be the second-most expensive crop we’ve ever planted,” he said.

“A high-cost, low-margin scenario for grain producers, it’s a higher risk environment. You’ve got a lot of chips on the table.”

The USDA expects net farm income to be down 25% in 2024 from 2023. It decreased 16% from 2022 to 2023.

During the inflation peak in 2022, consumers wanted inflation on food to come down, said Austen Goolsbee, the president and CEO of the Federal Reserve Bank of Chicago. It did, but input costs did not ease along with it.

Michael Folsdick, who raises corn and soybeans in Sperry, Iowa, said he expects higher production costs to be a problem going forward.

Farmers have had a high margin of error in recent years, but he said they will need to be more stringent to remain profitable.

“We’ve had a couple really strong years of farm profitability,” he said. “Naturally, high costs have come along with that. … That’s definitely one of the biggest challenges today, as far as the next couple years.”