2022 farm profits were the second highest among the historical records in Minnesota
There is much uncertainty related to 2023 farm profitability in Minnesota.
The year 2022 was marred by rising inflation, extensive drought and global uncertainties — yet Minnesota farm incomes rose to near record levels.
Minnesota State and University of Minnesota Extension jointly released the annual analysis of farm income in Minnesota in April and it showed most farms performed very well in 2022. That's especially important as 2023 is expected to be less rosy for producers.
Why was it such a good year?
The report shows that crop yields were above trendline even with the difficult growing conditions . Strong prices throughout the year for the state’s major commodities meant Minnesota farms were able to improve their financial position in preparation for expected economic challenges in 2023.
"Median net farm income for Minnesota farms reached $179,728 in 2022," according to the report. "This was another year of improved profitability after challenging financial years from 2013 to 2019. This profitability level was an 8% increase over the previous year and when adjusted for inflation, 2022 farm profits were the second highest among the historical records."
“There was much uncertainty going into the 2022 production year for Minnesota farms. The dry conditions, inflationary pressures, and market volatility were all top of mind for Minnesota producers,” said Pauline Van Nurden of the University of Minnesota’s Center for Farm Financial Management. “Many Minnesota farms used risk management techniques to lock in profits by marketing their commodities and securing inputs before costs soared. This will be harder to do in the coming year.”
This analysis includes 2,131 participants in the Minnesota State Farm Business Management programs and 109 members of the Southwest Farm Business Management Association. Participating farmers represent about 12% of Minnesota’s farms with gross incomes over $250,000 annually.
The average Minnesota farm saw continued improvement in working capital and retained earnings. Repayment capacity, solvency, and financial efficiency performance remained strong, according to FINBIN, a database devoted to providing farm financial and production benchmark information.
FINBIN not only provides data for traditional commodity agriculture but several special initiatives in recent years are helping to address big questions in Minnesota agriculture. One such area includes the economic impact of cover crops on a farm operation.
“We are excited to dig into the economic impact of cover crops . We hope to expand the findings of this project over time, by tracking acres using cover crops over several years to learn more about the economic impacts of this production system. These are big questions on the minds of farmers today. We hope to help inform the decision making process for Minnesota farmers,” said Keith Olander of the Minnesota State Northern Agricultural Center of Excellence.
The median net income for crop farms was $234,853. Cash crop sale prices during the year were up compared to 2021. Yields for the major crops of the state were also above the 10-year average. This includes corn, soybeans, wheat and sugarbeets.
Those higher crop prices translated into higher feed costs for Minnesota livestock producers. Yet, earnings improved for most dairy and beef producers, while hog farm profits were down slightly year over year.
In general, livestock operation profitability was bolstered by the cropping side of their farming operation.
“Livestock profitability was improved in 2022. By year end, livestock prices began to erode and input expenses remain high. Currently many livestock operations are operating at a loss. And, unfortunately, I expect this to continue for the foreseeable future. Hopefully farmers were able to build a strong financial position to weather this current financial storm and all the inflationary challenges facing them,” said Nate Converse, Farm Business Management instructor at Central Lakes College.
The pandemic's impact was significant in terms of government payments received in 2021. Those were much lower in 2022, where just 2% of gross farm revenue came from government. That was a 50% drop from 2021.
Prospects for 2023
Inflation, rising interest rates , and general economic uncertainty will be felt in 2023.
Minnesota is part of the global economy and continued war in Ukraine, and uncertainty related to Mexico and China, two of our largest export markets, are areas of concern.
The report expressed that much of the future concern relates to decreased commodity prices, compressed margins and interest rate increases. This is echoed in the USDA’s February 2023 forecast, which predicts inflation adjusted net farm income will decrease over 18% in 2023. This is the result of decreased commodity prices and input costs remaining high .
“Input costs are typically ‘sticky’ for farmers. Commodity prices correct quickly, while input costs tend to stay high after they’ve increased. Over the last year, machinery costs, land rent, and fertilizer have all increased. These expenses don’t look like they will come down as fast as commodity prices are expected to fall this year,” said Garen Paulson, lead field staff for the University of Minnesota’s Southwest Minnesota Farm Business Management Association. “I encourage all farms to know their cost of production and use this in their marketing plans to try and lock in a profit for the coming year.”