Earlier this summer, we discussed the outlook for the 2024 growing season, noting that the income potential for agricultural producers appeared less than promising due to weakening commodity prices. The USDA’s Economic Research Service recently released its income projections for 2024, confirming what many in the market had anticipated. After adjusting for inflation, net farm income is expected to drop by $10.2 billion to $140.0 billion, or nearly 7%, from 2023 to 2024.
The decline is worrisome for many in agriculture, but this isn’t the first time we have experienced a reversion to the mean in farm income after a record-breaking peak as we did in 2022. Even glancing at the figure below from Farmdoc Daily, we can see these cyclical moments in agricultural history. Some of the more notable income troughs occurred in the 1980s, early 2000s, and the mid-2010s. As we look at the current landscape in the agricultural economy, it is important to look at where we have been and how it relates to future expectations.
The Crisis Years: 1980’s
“Go Big or Get Out”—the famous last words of former United States Secretary of Agriculture, Earl Butz. This rallying cry came after the United States negotiated a $750 million grain deal with the Soviet Union in 1972, promising U.S. farmers a steady income stream for years. However, this promise was short-lived. In 1979, after the Soviet Union invaded Afghanistan, President Jimmy Carter imposed a grain embargo on one of America’s key trading partners. As a result, farm commodity prices plummeted, and farmland values naturally followed suit. Isn’t it strange that some 60-odd years later, we’re still reading headlines about Afghanistan and sanctions and embargos of Russia?
The 1970s had been a time of prosperity for many in agriculture, as the new Russian demand drove commodity prices upward. With more money in their pockets, farmers sought to expand their operations, often by acquiring more land. Banks across the country were eager to lend vast amounts of capital, but these loans were often based on collateral values rather than the farms’ ability to generate consistent cash flow. When the Russian grain embargo was enacted by the Carter administration, many landowners found themselves unable to handle the debt service on the mortgages to purchase additional farmland, leading to a wave of farm failures across the country.
What parallels can we draw to today? The rising land values in recent years have led some to speculate whether we may be heading toward a repeat of the mistakes of the 1980s. Declining commodity prices have prompted those who lived through the Butz and Carter era to recall their experiences. While a tightening of farm incomes is inevitable, and some will be left behind, it is unlikely we will experience the same level of pain felt during the 1980s. Credit standards are now more stringent than ever, shaped by the lessons learned from the farm crisis. For example, Farmer Mac and the Farm Credit System will generally only lend up to 50% of the value of the farmland versus the much higher leverage of the 1980s. Furthermore, today’s average farm operation is larger, more financially resilient, and better equipped to manage the cyclical risk of agriculture, meaning most will weather the current conditions.
The Years After 9/11: The Early 2000’s
As we come up on the 23-year anniversary of that ill-fated day in September when almost 3,000 people lost their lives. The event marked changes in global trade and concerns over whether global markets could continue safely. Commodity prices were already low coming into 2001 and changes in government farm programs reduced subsidy payments to farmers. Direct government payments were nearly cut in half, declining from $20.7 billion in 2001 to $11 billion in 2002. The emergency payments that had bolstered net farm income since 1998 ended with the implementation of the 2002 Farm Bill and were replaced by counter-cyclical payments intended for farmers during low-commodity price years. However, a drought-reduced corn crop led to higher corn prices, resulting in no counter-cyclical payments being made in 2001. Additionally, due to government budgetary constraints and other political factors, Congress did not approve any farmer disaster aid. High yields in 2002 combined with low commodity prices led to the lowest real cash farm income since the Great Depression.
While the current situation isn’t exactly like that of the early 2000s, some are concerned about what could change when the next farm bill is passed. The most recent farm bill expired almost a year ago and the bipartisanship of the upcoming elections has stalled efforts for passage of a replacement Farm Bill. According to Jonathan Coppess, Professor at the University of Illinois, the chances of Farm Bill reauthorization in 2024 are extremely low due to a lack of progress in Congress and significant political and budgetary challenges. The House Agriculture Committee’s proposal to increase reference prices for certain crops lacks viable budget offsets, leading to further political division, especially with proposed cuts to the Supplemental Nutrition Assistance Program (SNAP).
The Fall after the Rise: The Mid 2010’s
In 2012, I experienced my first harvest behind the wheel of my family’s combine where I witnessed the most dry and barren crop I had seen in my 15 years. I thought maybe I was bad luck. However, even though crop yields in the drought-stricken Midwest were the lowest they had been in decades, crop insurance payouts and skyrocketing commodity prices bolstered farm incomes that year. However, the 2012 ag boom was short-lived as several years of strong crops caused grain stockpiles to grow and commodity prices to slip once again. Trade relations with the growing Chinese economy also became tense during this time over banned corn genetics being detected in crop imports to China. Later in 2013, the Environmental Protection Agency (EPA) decided to reconsider its Renewable Fuel Standards and proposed reducing the amount of ethanol blended into gasoline, sending grain markets into greater turmoil. Strong yields led the U.S. grain stockpile to grow and uncertainties regarding demand mounted throughout much of the mid-2010’s.
How does this situation parallel today? The future of ethanol is less certain, with the rise in demand for electric vehicles and China now sourcing its grain from a new global leader—Brazil. However, there is a bright spot on the horizon for biofuels. Innovations in soy biodiesel and soy-based jet fuel have prompted discussions about whether soy could be the feedstock for aviation fuels of the future. Consequently, soybean prices have remained more stable than corn in 2024, leading many farmers to consider planting more soybeans in 2025.
History Recap
Reflecting on these historical cyclical downturns, it’s clear that the agricultural economy has always been shaped by a combination of market forces, policy changes, and global events. While the challenges facing today’s farmers may bear some resemblance to those of the past, the lessons learned from previous crises have made the industry more adaptable and resilient. By understanding these cycles and the factors that drive them, we can better navigate the uncertain times ahead. While the future may hold new obstacles, it also brings more opportunities for growth and innovation. Farmers and industry leaders alike must remain vigilant, adaptive, and forward-thinking, preparing not just for the next season, but for the long-term shifts that continue to shape the landscape of agriculture. Despite the cyclical nature of agriculture, farmland will remain a sustainable source of food and fuel needed for humanity to thrive for generations to come.
