Soy Squeeze: 2025 Economics

February 6, 2025 | Kriss Nelson

The Iowa Soybean Association's annual Farm Forward event took place earlier this week. Trade, soy demand, biofuels and legislative forecasts were discussed with the goal of setting farms up for success in 2025.

During the event, Matt Roberts, founder of the Kernmantle Group led a discussion on the current state of the farm economy and future outlook with Jim Knuth, senior vice president at Farm Credit Services of America, Adam Gregg, president and CEO of the Iowa Bankers Association and Al Kluis, managing director of Kluis Commodities.

Roberts: What are your thoughts on the current state of the farm economy?

Gregg: I have hope and some concern. Talking to ag lenders across the state, the hope is that this is the year we start to pull out of the downward cycle. But, the concern is this is the year we feel the pinch of that downward cycle with a liquidity crunch.

Kluis: I think longer term, we are back into the upswing; however, because of higher costs, profit margins will still be a challenge.

Knuth: I think we are starting to call this our new normal. This will be the third year we have been caught up in this high cost, compressed margin, sticky inflationary environment. This is not new. This is something we need to start adjusting and getting used to. Farmers came through 2024 better than we thought. If we all remember corn prices were $3.70 last August. Thought it might go lower. Got a great surprise in our corn market. In Iowa, producers benefitted from big bushels. There is a lot of risk variability out there. We are all struggling with the high-cost compressed margin environment. Eventually, there is a bigger focus on cost structure issues because I don't think it is likely prices will save us. We don't think corn is going back to $6 or $7 or soybeans $14.

Roberts: As president and CEO of the Iowa Bankers Association, give us your sense on the general farm economy. What are you hearing from ag lenders?

Gregg: I would like to emphasize some headlines from recent banking publications. In March 2023, Nebraska Bankers Association's magazine said, "Nebraska's Ag Future is Bright." In the same timeline, the Iowa Banker's Association magazine headline was "Ag On the Upstream: Farmers Optimistic About the Economy." Fast forward to Oct. 2024, the American Bankers Association Banking Journal's headline was: "Farmers Face Cliff as Working Capital Disappears." Those headlines are just 18 months apart. Both are accurate for the time they were printed, but they show how quickly things can change. Some have felt that last headline. Working capital is disappearing. Some ag lenders are reporting a significant decline in net worth. The American Bankers Association surveyed ag lenders across the country. In 2023, 78% of farmers were projected to be profitable, in 2024 58% were projected to be profitable. The two biggest concerns ag lenders reported in the survey were liquidity and farm income. The third issue was inflation.

Roberts: Is Farm Credit Services of America seeing any patterns in balance sheets? What do growers need to know?

Knuth: As we are going through the 2024 renewal season into 2025, it is going better than expected. We have seen producers doing a good job controlling their costs, retaining working capital with some risk management choices made last year with crop insurance. Understanding your position is critical. What are your land costs per acre? What are your rented acres, machinery, equipment costs? Where are you in terms of break-evens?  Those people who have their numbers ready, understand them, know where they are going.

Agriculture is becoming an industry where just being a good producer is not enough. It's great to have the production we see in our portfolios. Those who continue to thrive are successful farmers, and they are good business people. Farming is not just a way of life or a birthright. We are seeing the younger generation is business-oriented, entrepreneurial, understands the technology and wants to become better business people, not just good producers, and that will bode well with them.

As we go into 2025, consider risk management with crop insurance through the farm bill. Don't just close your eyes and do what you always do. Make an informed decision of what kind of safety net is appropriate for the size, scope and risk of your operation. Planning pays off.

Gregg: There are a lot of great producers in Iowa, but not everybody is marketing in this environment. It is important to be a good marketer. They say those in the best position are those who have a marketing plan and follow it.

Roberts: How should farmers, with the recent rhetoric, make a marketing plan? How do you market trade wars?

Kluis: Farmers should take a longer-term approach to their marketing. Use a risk management plan. Work with a qualified crop insurance agent and buy crop insurance to guarantee price and yield. Then, ensure 50 to 70% of your bushels are protected with futures. If you learn to sell while markets are going up, you don't have to panic when prices are going down. Work with a reputable broker or grain elevator and stay consistent from one year to the next. Learn how put options work. Somebody on your farm needs to learn how futures or put options work. You have to understand the intricacies of those tools to do a better job for your farm. You all know how to produce a crop; the difference is learning how to make the right marketing and financial decisions.

Roberts: What's the future of land prices?

Knuth: Farm Credit Services of America has the most comprehensive real estate database in the state of Iowa, and more than 75 full-time appraisers work for our company. In 2022 and 2023, land hit an all-time high of nearly 180 CSR (corn suitability rate) points average in the state. Some places higher than that. It has come down modestly, as we ended 2024 with 167 CSR. I would say land values are very resilient, especially considering higher interest rates, lower commodity prices, lower margins and lower profitability.

We have talked about working capital and cash. More than 80% of the ground in Iowa is owned free and clear. There is plenty of collateral and plenty of capital out there.

What do we expect going forward? Land will find a stabilization point, might be two, three years. It is hard to predict the future. Who is buying the land? In 2024, 84% of the land buyers were farmers; 6% were local investors who live in the state of Iowa; that is 90% of land buyers with local capital. Local competition drives markets.

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