At the beginning of 2023, U.S. agriculture finds itself in a position of strength and cautious optimism. Short term, this has created a palpable sense of excitement headed into the new year. Long term, economic fundamentals suggest the momentum currently fueling industry growth has potential for an extended runway.
The U.S. farm economy has 2001 Top Producer of the Year Ben Riensche of Blue Diamond Farming Company in Jesup, Iowa, looking forward to 2023. “You can say farming is a pretty good seat on the bus of inflationary times,” he says. “Our output is worth more, our asset values are stronger, farmland and the machinery we have in our fleet are also worth more.”
Riensche says he’s planning to dedicate any current and pending profits on investments that pay.
“I’ve never been through an upcycle where I didn’t wish that I used it to get ready for that rainy day,” Riensche says.
RECORD FARM INCOME
For 2022, USDA projects net farm income at $160.5 billion, which is the highest since 1973 and more than 50% above the 20-year average when adjusted for inflation.
“The last two years have seen exceptional returns to row crop producers,” says Chip Flory, host of “AgriTalk.” “Now livestock producers are starting to participate in the positive returns that are available because of the strength in the protein markets.”
Economists such as Matt Roberts, formerly of Ohio State and now the senior grain and oilseed sector analyst with Terrain, says versus a few years ago, U.S. ag is on solid ground.
“In the farm economy, overall, we are healthy,” he says. “From 2019 to present, the combination of high prices, relatively solid yields and solid government support for producers has led to nearly all producers improving their balance sheets.”
THE YEAR AHEAD
Going into 2023 there are plenty of unknowns — South American crop production, war in Ukraine and a volatile global economy. But there’s still an opportunity to lock in strong returns for 2023.
“As we look at the upcoming planting season of the major crops, we are looking at some of the highest profitability levels of the past two decades, farmers should lock down some of these margins and prices,” says Dan Basse, president of AgResource Company.
The big question for 2023 is still input costs and growing expenses.
“Over the next three years, I think finances are going to be a little tighter as I don’t think we’re going to reach the same level of profitability we’ve had in the last three,” Roberts says. “But, global grain stocks are the tightest we’ve seen in the last 20 years, and that means, fundamentally, there’s a positive price outlook.”
FEEDING THE FUTURE
The agricultural industry is racing to fuel and feed a global population now 8 billion people strong.
“This next billion will be added in around nine years,” Basse says. “The problem for world agriculture to feed all of those mouths grows exponentially, and so we need farmers embracing technology to keep yields moving higher.”
Roberts adds: “I think we will continue to see a positive price picture, and in the next three years most producers will continue to see balance sheets building.”
Make Money While You Sleep
Iowa farmer Ben Riensche is excited about the opportunities current margins are providing to reinvest in his operation. He provides these tips for spending money during good times. “We want to invest in things that are going to make money while we sleep,” he says.
Add or Improve Farm Infrastructure
“The last cycle we built tremendous grain storage facilities thanks to the excess cash flow, and it adds to our bottom line every single year,” Riensche says. “Likewise, we have built our own fertilizer handling facilities, and we’re equipped to take transport loads of diesel and propane.”
Improve Water Management
“We lose more crops from too much rain than not enough, and so drainage tile is a standard,” he says. “Nothing pays you more on an acre of land than drainage tile, and it rewards you the most on the year where it’s needed the most. I suppose my friends who irrigate could say the same about the driest years.”
Trucks Over Tractors
“You may not need a bigger tractor or a wider combine necessarily,” Riensche says. “Maybe your farm needs a fleet of trucks to improve logistics. Think about equipment that will pay you back rather than upgrades like Bluetooth latte warmers.”
Make Facility and Labor Investments
“If labor’s really tight in your area, it may be time to invest in housing for H2-A workers,” Riensche says.
Buy What’s on Sale
“My accountant tells me what’s not on sale right now is land,” he says. “Based on average earnings, it would take 50 years of profits to amortize a prime acre of I-state corn ground. I’m not telling you not to buy the farm next door, but if you do, you may want an investor.”
Increase Working Capital Strategically
“Building working capital may not mean paying down debt, it may be by buying next year’s inputs to escape supply chain woes,” Riensche says. “It also might be a more strategic place to put your money from a tax perspective.”
