2021 Outlook for Agriculture Producers
Written by Andy Ludeking, Ag & Business Banker, VP
(Click below to listen to Andy’s message)
April 12, 2021 – Whether you’re in agriculture or not, we live in an ag community; it’s always good to have a feel for what’s going on within it. I wanted to share an agriculture update about what we’re seeing from our side of the desk.
2020 was a positive year for agriculture due to government payments and the rise in commodity prices in the 4th quarter. For the first time in several years, there is an opportunity for solid profits in 2021.
It’s important for farmers to take advantage as crop input costs will also rise moving forward if prices stay at these levels. As always, farmers need to pay attention to their break-even costs and manage production costs to ensure the best opportunity for profits in the years ahead. Farmers who locked in their input costs for the 2021 operating year early will benefit greatly as long as they followed a strong marketing plan and the weather cooperates for a solid crop in 2021. 2020 was one of those years where those that marketed ahead of time could not take advantage of the run-up in prices in the 4th quarter, but following a consistent marketing plan over the long haul still pays dividends. Understanding your break-even costs, doing your best to control the cost of production, and having a marketing plan equates to profits and success over the long haul.
Interest rates are continuing to stay relatively low. Short-term rates have remained flat, while long-term rates are starting to move upward. Rates are still very good, but as we’ve seen the treasury yields start to rise slightly, we expect rates to follow that same path. Cash flow and net worth changes were positive in 2020 due to government payments and the rise in commodity prices. Farmers and bankers are optimistic moving forward into 2021.
What did farmers do with their gains in 2020? Did they extinguish debt on loans or bills? Did they make land or equipment purchases? Did they make real estate improvements? Did they improve their cash position to set themselves up for success in the tough times? It is evident that these government payments will not continue at the level we saw in 2020; therefore, this non-recurring income needs to be recognized by farmers. It’s important that farmers used this money in a way that benefits the operation long-term by improving cash flow or building their cash position versus buying capital items that require debt service for several years.
The dairy and livestock industry was up and down in 2020. Government payments kept them afloat; however, Covid-19 had a negative impact due to the economy being shut down for a period of time. Looking into 2021, experts in the field predict a strong demand for their products as the economy reopens.
Please reach out to any Ag & Business Banker at Decorah or Cresco Bank with questions or to discuss this information further. We look forward to helping your farm achieve its’ long-term goals.