Minnesota farms saw continued financial improvement in 2021, despite the drought conditions that affected much of the state during the production year. Crop yields were near the trendline even with difficult growing conditions. With strong prices throughout the year for the state’s major commodities, Minnesota farms persevered through the supply chain challenges presented by the ongoing pandemic.
Median net farm income for Minnesota farms reached $166,262 in 2021. This was the second year of improved profitability after seven years of challenging financials for Minnesota farms. When adjusted for inflation, 2021 farm profits were the second-highest among the historical records tracked by University of Minnesota Extension and the Minnesota State Agricultural Centers of Excellence. Overall, the average Minnesota farm saw continued improvement in working capital, retained earnings and debt coverage in 2021.
“The ongoing pandemic and drought concerns provided challenges in 2021 for Minnesota farms,” Pauline Van Nurden of the University of Minnesota’s Center for Farm Financial Management, said. “The dry conditions through much of the summer were stressful. Many Minnesota farms took a conservative approach to the year, locking in profits when present.”
All farm types experienced positive net farm income for the second year in a row. Net farm income improvement in 2021 was primarily the result of higher commodity prices. Government payments received by farms were down nearly 50 percent for the year. “Commodity prices were also impacted by inflation and a return to more normal consumer spending,” Megan Roberts of the Minnesota State Southern Agricultural Center of Excellence, said. “Improved demand lifted both grain and livestock prices for Minnesota farms. Therefore, the need for government program assistance was down substantially.”
This analysis includes 2,263 Minnesota participants in the Minnesota State Farm Business Management programs and 108 Minnesota members of the Southwest Farm Business Management Association. Participating farmers represent about 10 percent of Minnesota’s farms that have gross incomes of more than $250,000 annually.
Crop Farms: Improved Prices, Trendline Yields Lead To Stronger Profits
The median income for crop farms was $210,026. This improved profitability was the result of bolstered prices for Minnesota’s major crops. Despite the drought conditions, crop yields in the state were slightly above the 10-year average for corn, soybeans and sugarbeets. “Timely rains near the end of the growing season were literally million-dollar weather events,” Josh Tjosaas, Farm Business Management instructor at Northland Community and Technical College, said.
Crop prices have continued to improve over the past two years. Cash sale prices during the 2021 marketing year were up, as compared to 2020. Cash corn price received was 39 percent above the previous year at $4.73 and soybean price was 27 percent better at $11.43. Both of these marketing years rank in the top five for prices received over the last 15 years for Minnesota farmers.
Livestock Farms: Profitable But Increased Expenses Hamper Gains
Higher crop prices translated into higher feed costs for Minnesota livestock producers. Yet, earnings improved for most hog and beef producers, while dairy profits were down slightly. Drought conditions also burdened livestock producers, as quality forage commodities were in tight supply. This affected producers in multiple ways including increased costs and lower production, given lower quality feed. Additionally, the labor market was tight for all industries, including agriculture.
Dairy producers earned a median net farm income of $127,444 for 2021. This was down 25 percent from the previous year. Overall cash expenses were up 8 percent for dairy producers last year. The average milk price for dairy producers was down approximately $1.30 per hundred pounds as compared to 2020. The Dairy Margin Coverage (DMC) program provided a safety net to producers when needed.
“Even though milk prices are up so far in 2022, Minnesota dairy farms are keeping a watchful eye on the future,” Nate Converse, Farm Business Management instructor at Central Lakes College, said. “The increased feed, labor, and hauling costs are weighing on their minds. Trying to source quality, affordable forages is difficult. Dairy producers are hoping for better weather and better crops in the coming year to help preserve profits.”
Pork producer net earnings continued to rebound with the median producer earning $429,421, up from $310,042 in 2020. Marketing played a significant role in hog profitability for the year, as the lowest profit farms lost money during the year. Hog prices have been highly volatile over the last year, which created this profitability swing. Wean-to-finish producers made $14 per head on average, but this ranged from a loss of $34 per finished pig to profits of $41 per finished pig.
Beef producers also saw net earnings continue to improve overall in 2021. Median net farm income for beef producers was up 82 percent for the year at $77,861. But most of this increase came from the cropping side of their operations. Beef finishing producers broke even on finish cattle sales on average, with the average cow-calf producer losing approximately $100 per cow for the year. Again, market volatility, coupled with the drought impacts led to varying profitability levels for beef producers in 2021.
Prospects For 2022
There is much uncertainty related to farm profits in 2022. The supply chain logistics continue to plague agriculture, just like the larger economy. Additionally, the impacts of the war in Ukraine are yet to be fully understood.
Much of the future concern relates to input prices and product availability. Few producers locked in input needs last summer given the uncertain prospects. “Many farms are concerned about getting fertilizer and chemicals for their crop production this year. Availability is scarce for many of these products,” said Garen Paulson, lead field staff for the Southwest Minnesota Farm Business Management Association. “Farms are looking at Plans B, C, and D if they don’t have inputs in storage today. Farms are facing the same inflationary concerns as any consumer; increased fuel prices and labor shortages will likely take their toll on profitability for 2022.”
Improved commodity prices are expected to continue in 2022, but operating expenses are also up for both crop and livestock producers. The latest USDA estimates echo this, predicting net farm income will be down 4.5 percent for 2022. This estimate was from early February 2022. Given the global nature of agriculture and the current status of world affairs, this estimate may be too optimistic.