Net Farm Income Plummeted Last Year in Many Midwest States

Jun 20, 2016

Midwest farmers may be facing some of the toughest financial times they have experienced in three decades, largely thanks to low prices for some of the region's biggest crops.

The average net farm income for farmers in Kansas, for instance, plummeted in 2015 to just $4,568, according to a report released this week by the Kansas Farm Management Association (KFMA). The figure is less than 5 percent of the previous year's average of $128,731.

The 2015 KFMA report measures the average net farm income of its members, which include about 10 percent of Kansas farmers that gross more than $100,000 annually, and found the lowest average level of nominal net farm income in Kansas since 1985.

The picture was nearly as dire in Nebraska. Average net farm income there in 2015 was $29,432, an 80 percent drop from the previous year, according to data compiled by Nebraska Farm Business financial analysts. In Iowa, the average net farm income was $18,000 in 2015, down from a 10-year average of $80,000, according to the Iowa Farm Business Association.

The dip is likely driven by low farm prices for corn, soybeans, wheat, grain sorghum and beef cattle. Record and near-record harvests of corn and soybeans, both domestic and global, in recent years have resulted in huge supplies and falling prices.

"Long-term profitability is really a concern," said Elizabeth Yeager, an agricultural economist at Kansas State University. "Right now the main thing is just going to be focusing on being a low-cost producer and weathering the storm for the next couple of years."

Net farm income is similar to profit in other businesses and reflects the amount of money left over after all cash expenses are paid and depreciation factored in. In an effort to weather a global grain glut, many farmers have grain stored on-farm, hoping for a better price. Prices have dropped, however, and grain stores have depreciated.

While negative economic indicators bring to mind the 1980s farm crisis, most economists believe current farmers are better able to weather a downturn, with larger cash reserves and lower interest rates.

"We're not expecting what we saw in the '80s, but we are expecting that prices may move closer to average, that we might not see the high times that we saw earlier this decade," Yeager said. "That's all going to cause farmers to think – to be a little more conservative in their bidding and buying, slow some of their growth down, and to try and hold on to financial reserves that they do have."