The 2024 harvest is now complete, despite Mother Nature throwing some pretty hard-breaking curveballs this growing season in many areas throughout the Midwest.

Heavy rainfall and flooding this spring, followed by an exceptionally dry late summer and early fall, contributed to a lot of uncertainty about harvest yields. But overall, many producers were still able to squeeze out an average crop. Great genetics, good agronomic practices and sound management decisions helped overcome some of Mother Nature’s headwinds. Many areas would like to see additional fall moisture so as not to go into next spring excessively dry.

Much of the harvested corn, soybeans and wheat is tucked (but hopefully not locked) away in grain storage. Most bushels aren’t priced or marketed, as producers are hoping for price rallies before spring. Furthermore, current commodity prices are below most producers' cost of production, making it difficult to sell at a loss. Some areas were fortunate to have better-than-average growing conditions that led to excellent yields, which may be enough to offset lower prices and help squeeze out a profit.

From a macroeconomic standpoint, it’s somewhat sobering to note that compared to just a couple of years ago, corn is about half the price, there’s no immediate government payment lifeline, interest rates have doubled, and land prices are up nearly 25%-30% on average.

Good managers are taking a hard look at their financials, determining if there was a deterioration in their financial position – mainly with working capital or liquidity – and, if necessary, making plans to correct the situation. Many may be surprised at the decline in working capital from their 12/31/2023 financials.

Looking ahead to 2025, the early outlook appears to be “rinse and repeat” from 2024.

Lending Updates

From a lending perspective, we’re expecting to see significant declines in grain producers’ working capital – the first line of defense in down times. In most cases, this is for two reasons: First, as we have noted, the current 2024 commodity prices may be below break-even levels for many producers. This certainly will deplete working capital.

Second, flush working capital levels shown on many 12/31/23 accrual-based financial statements may not have materialized at their expected levels due to year-end crop inventory prices not being realized when the inventory was sold later in the year. For example, corn valued at $5/bushel on 12/31/23 financial statements may have been sold later in the year at under $4/bushel – a direct hit to working capital. A double whammy of sorts.

Will lenders start seeing real estate refinances this winter to replenish working capital levels, or will there still be a liquidity cushion? To be determined.

Equipment Market

A fairly accurate predictor of challenging economic times for producers is the health and price of the machinery and equipment market. The very strong values for both new and used equipment that we’ve seen in recent years – fueled by exceptionally strong demand – have retracted, especially in the used equipment market.

Many producers have made significant investments in recent years to their equipment line. There were likely several reasons for these increased investments, including: 

• Pent-up demand, as many producers had delayed updating their equipment prior to 2020 due to a challenging economic environment. 
• Newer equipment offers upgrades to technology that can substantially increase an operation’s efficiency. 
• The opportunity to minimize tax liability during profitable years. 
• Low-cost borrowings.

If a producer is looking to upgrade equipment, and is in a financial position to do so, it could be an excellent time to find value in late model used equipment. Sometimes it’s a matter of knowing the difference between a need and a want.

Farmland Values

And then there’s farmland value. It’s interesting that up until a month ago or so, I thought we were starting to see some “air coming out of the balloon” – maybe not a bubble, but a slight retraction from, in many cases, historic highs.

However, in looking at the results of land sales in recent weeks, it seems that values have remained very strong. There’s still a lot of cash out there, and there’s still a high level of interest in buying farmland. It remains to be seen if this strength holds up through the winter as more land possibly comes on the market.

One area to watch is the amount of “no sales,” when sellers’ expectations are not met and land doesn’t sell.

This article appeared in the Q4 2024 issue of Bell’s AgViews newsletter.