On October 10th, Joe Outlaw, Bart Fischer, and Natalie Graff’s SAT article of the day highlighted the need to understand USDA’s net farm income projection. They noted that while the overall projection for farms across the country is down slightly, that masks the commodity-specific variability, where most crop farmers are losing money, and many livestock producers are relatively better off.
In a time of low commodity prices, we often look at economic indicators to help us pin down the extent of the problem. Another approach is to talk to farmers directly about the economic conditions and document their thoughts. This qualitative data gives a much richer description of the issues that underlie the downturn in economic conditions. In July and August of 2024, we held 11 focus groups in Alabama with 115 farmers, producers, growers, agribusiness owners and employees, agricultural processors and manufacturers, and agricultural lenders. The focus groups were intentionally representative of the agricultural commodities produced in the southeast. The goal of the focus groups was to gather their perspectives on agriculture and economic development in Alabama. In the process, we heard an earful about profitability overall and many of the driving factors that affect profitability in the state and region.
One focus group participant stated, “I think the biggest thing is profitability is the leading factor in growing most anything. If it’s not worth doing, you know, why are you going to spend the resources and all your energy just to be at a breakeven point or just barely pay the bills? You know what I’m saying? I think that’s figuring out how to become more profitable, whether it be a niche market or something like that. But I think that’s the main driver.” This sentiment was echoed across all the focus groups. Participants’ central concern for the agricultural sector was profitability. They identified a myriad of factors that contribute to their concerns, and the most common are listed below:
Rising input costs and decreasing commodity prices
Participants noted that the high cost of production coupled with low commodity prices for row crops and lack of markets for catfish, fruit, and vegetables affects the overall profitability of agriculture. Livestock producers discussed the increase in input costs eating away at profits. The inverted relationship between input prices and commodity prices and the subsequent impact on profitability is a critical stressor for farmers.
Equipment costs are skyrocketing with inflation
Participants remarked that the high cost of specific, necessary equipment limits them from diversifying crops as their equipment purchases tie them to particular commodities. The inability to easily diversify crops causes significant stress when specific commodity prices plummet, and producers have to make decisions regarding equipment sunk costs and expected future profitability.
Increasing transportation costs and freight charges
This sentiment was shared by producers across commodities indifferent to the mode of transportation. The escalation in costs related to shipping commodities has had a negative impact on the profitability of producers already impacted by low commodity prices.
Rising farmland values and rental rates
Participants emphasized the growth in metro areas in the southeastern U.S. and the resulting increase in land values. This has caused the growing inability to find land to purchase or rent that is economically viable for a farming operation. While expenses related to land are existing concerns now for profitability, focus group participants expect land values to continue to increase and have an even greater impact on profitability in the future.
Labor availability and costs
Participants discussed the (un)availability and high cost of labor, particularly for labor-intensive operations such as poultry, fruit, vegetable, nursery, and greenhouse production. Regardless of commodity, though, all producers stated that labor issues directly impacted profitability.
These issues all affect profitability, and while some will improve with upswings in commodity prices, others are systematically affecting the profitability of the ag sector. Documentation of these issues is the first step in informing decision-makers of what is unique about agriculture and how those in the industry perceive the likelihood of continuing their operations with the next generation of producers.
References:
Outlaw, J., B. Fischer, and N. Graff. USDA Farm Income Projections… Misused and Abused. Thursday, October 10, 2024. Available at: https://southernagtoday.org/2024/10/10/usda-farm-income-projections-misused-and-abused/
Russel, Kelli, and Mykel Taylor. “Profitability According to Farmers.” Southern Ag Today 4(47.1). November 18, 2024. Permalink