The USDA recently released its annual farm sector income forecast for 2025, and it’s interesting to look at where we’ve come from and where we may be going this year. 

The question of how the farm economy is really doing probably depends on who you talk to. The agricultural economy is bifurcated – grain and row crop producers have felt the most pain, with expenses slow to fall while commodity prices are off significantly from recent highs, often below most producers’ cost of production. On the other hand, as I touched on in the last issue of AgViews, livestock and dairy producers are generally feeling fairly optimistic, with favorable prices for their products. 

The combination of these trends was the main reason net farm income continued to decrease in 2024, with crop receipts down significantly but livestock receipts increasing. Ag lenders are clearly seeing these same trends with their loan portfolios. 

Surprisingly, according to the USDA’s forecast, net farm income is expected to increase in 2025. A deeper dive into the numbers, however, finds that direct government payments that are expected to be made in early 2025, along with continued strong prices for livestock, are the main drivers of the overall expected increase. 

While this national and macroeconomic data is important from a policy and farm program viewpoint, the data that matters most for producers and their lenders is the performance of individual farm operations. 

At the time of this writing in early March, ag lenders are in the middle of what we call “loan renewal” season, meeting with their ag borrowers to review 2024 profitability and performance and take a realistic look at projections and outlook for 2025. 

At the end of the day, the success of an operation depends on the ability to manage risk – production risk, financial risk, market risk and overall industry risk (government policy, tax implications, succession planning, etc.). Generally, here’s what we’re seeing in our portfolio and what I’m hearing from my ag lender colleagues around the country: 

• Working capital levels for most grain producers have decreased significantly. As a result, operating loan balances will likely increase, coupled with higher interest rates than earlier in the decade. Working capital is the first line of defense, or the “shock absorber,” for economic adversity. For some producers with depleted working capital levels, inflated land values could become their shock absorber or last line of defense. 
• With continued depressed commodity prices for grains plus sticky expenses, it’s challenging for many crop producers to reasonably project positive debt service coverage for 2025. 
• Livestock producers – especially established cow/calf producers – are doing quite well. The sector seems to be in no hurry to expand. This positive outlook is expected to continue through 2025. 
• Overall, land values are stable, with limited acres available for sale. Marginal land is beginning to soften in some areas. 
• Machinery and equipment values have moderated and depreciated more than in past years, especially for newer, late-model equipment. 
• Grain and row crop producers have significantly dialed back their capital expenditures. 
• With the average age of U.S. farmers and ranchers approaching 60 years old, more seasoned producers who don’t have a succession plan for their operation are starting to consider retirement. 
• Excessive family living expenditures are often the “silent profit robber” of many operations. 
• Many non-traditional lenders and creditors are pulling back from some of the earlier years of easy credit. 
• There are growing concerns about biosecurity (bird flu) impacts to poultry, dairy and, to some extent, humans. 

Challenges Facing Younger Producers

Something else I’ve been hearing lately is that younger producers are facing significant challenges from this cycle. Younger producers are often the most vulnerable to economic downturns because many of them haven’t yet had the chance to build up balance sheets as a cushion against prolonged economic declines. Further, many of them haven’t had the benefit of asset appreciation or paper wealth – especially land values – that many older producers have used to build deeper balance sheets. 

In visiting recently with some of my senior ag lenders and colleagues from across the country, I’ve learned that some younger crop producers with significant leverage may have trouble getting adequate financing in 2025. 

Given this challenge, what are some of the steps younger producers can take to remain viable? For starters: 

• Diversify your operation and consider value-added income streams. 
• Leverage technology and precision agriculture when it makes economic sense. 
• Consider utilizing sustainable practices that may qualify for government payments. 
• Take advantage of networking and education opportunities. This a huge one. I find it interesting that with all the winter meetings and conferences for farmers and ranchers, there appears to be very little emphasis placed on developing a deeper understanding of an operation’s financials, which can be particularly useful to younger producers trying to compete with older, well-established and financially healthy operations. 
• Explore off-farm income. Find a “gig” or a side job that uses any excess time and assets your farm may already have. 
• Try to live within your means, understanding the difference between a want and a need. 

In the midst of all this, it may be helpful to remember that production agriculture is and has always been a cyclical endeavor and undertaking. 

This article appeared in the Q1 2025 issue of Bell’s AgViews newsletter.