Audio Transcript:

Brady Brewer: Hi, and welcome to the Purdue Commercial AgCast, the Purdue University Center for Commercial Agriculture’s podcast featuring farm management news and information. On today’s episode, I’m your host, Brady Brewer. And joining me today is Dr. Michael Langemeier, Professor of Agricultural Economics and Associate Director of the Center for Commercial Agriculture.

On today’s episode, we will be discussing the recent update to the USDA farm income forecast and discussing farm incomes here in Indiana more broadly. Before we get into today’s topic, I just want to remind everyone that you can find all the information that we are discussing on today’s episode at the Center for Commercial Agriculture’s website at purdue.edu/commercialag, or you can find the Center for Commercial Agriculture on Twitter with the handle at PUCommercialAg.

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[00:00:58] December USDA Farm Income Forecast

So as I said today, we’re going to be talking about the latest USDA Farm Income Forecast. So just to remind listeners the USDA provides farm income forecasts periodically throughout the year .They always do their first one in the February of of the given year They update it in August as they have more accurate and more information to include then they update it at the end of November. And then finally they were will release the official numbers for the growing season In the next February.

So today we’re going to be discussing the third update that was provided for the 2023 growing year that happened here at the end of November. So just to remind everyone back in august when they did their second update the farm income numbers, for net cash farm income was right around a hundred and forty eight billion dollars for U. S. net cash farm income. And here in November, they did revise that upward t o 157 billion. So Michael, we saw them revise it up a little bit. When we dig into the numbers, we see that this is mainly being driven by certain sectors of the U. S. farm economy. Namely, when you think about cattle and there’s some fruits and vegetables as well in there that are increasing that that’s really what’s driving that increase in net cash farm income. Now we were discussing here before we started recording one of the main things, you know, we’re worried about is the health of the U.S farm sector. The farm income numbers that the USDA just released are above the 20 year trend. So it looks like, yes, while we were down from the 2022 numbers, we’re still above long-term trend, but there’s always worry about the financial health of the sector as well. So, Michael, talk a little bit about where you see the financial health of the balance sheet in relation to some of these income numbers the USDA is providing.

Michael Langemeier: Well, first of all, we’ve had three straight years of being above that 20 year trend in terms of net farm income. And so what that’s essentially done is it’s improved land values. Not in the last year, but certainly in ’21 and ’22. And at the same time you know, simultaneously increased equity. You know, land’s the biggest asset on the balance sheet, so when land values go up and you don’t, and you don’t add a lot of debt, which we haven’t, the equity goes up.

And so, and so just the bottom line here is the, is the U. S. balance sheet is very strong. And, and, and moreover the short term you know, short term relationship between current assets and current liabilities, specifically the current ratio of working capital, is also quite strong. And that bodes very well if we do have some two or three years in a row here of lower net farm income.

Brady Brewer: Yeah. And just to clarify, we’re not predicting two or three years of lower net farm income…

Michael Langemeier: But if it does happen we have a strong balance sheet and strong working capital. I mean, it’s, it’s really, it’s hard to predict six months out yet two to three years.

Brady Brewer: Yeah. So the, the assets have just been increasing in terms of value a lot faster than farm debt. Now that said farm debt has slowly increased. I saw some figures here about a month ago that farm debt, we’re getting close from a real perspective to what, where we were in the 1980s in terms of the value of that farm debt, but when you compare it to the value of the assets are the equity position of agriculture in general is, is pretty strong.

Now that does not mean that there may be individual farms out there that don’t have a strong of an equity position. And I know I’ve said this before, and I will always reiterate. The credit markets and the financial markets are driven by those on in the tails of the distribution. If we think about how that works with in respect to loans and in the banking sector. So there’s always cause for concern. But overall, there’s just a lot of equity out there. And it just leads me personally to not really worry too much in the short run about the financial position of the agricultural sector.

Now, As I said we are down from 2022 in terms of farm income still above the 20 year trend, but we are down. What is really driving that for most of the commodities and what the numbers the USDA provides shows that the vast majority of this downward change from 2022 is because of changes in the price of the commodities. The quantity change in terms of the yields of the crops we receive, we get in the field is a little bit of a negative mark, but relatively speaking, price is the main driver here in terms of the lower numbers from 2022.

There are some other changes thinking about off farm income in particular that, you know, contributes to farm household income and the USDA numbers show that the median off farm income has increased for most farm households that have off farm income. And this is what we would expect if you think about inflation. The numbers that we run here at Purdue, in the Purdue Ag Jobs Dashboard, shows about a six percent increase in agricultural wages from 2022 to 2023. And that’s about what the USDA is showing as well in terms of off farm income increases.

Real quickly, Michael, I do just want to go over, I mentioned this a little bit earlier but there are certain commodities that are driving some of these changes. So on the crop side, corn and soybeans are down in terms of cash receipts from 2022 to 2023. Fruits and nuts and vegetables are steady, if not slightly up. Wheat is steady as well, and cotton is slightly down. On the livestock side, cattle is the main driver of the increase in net farm income here. We’ve seen strong cattle prices as well as weaker feed costs that are contributing to to larger margins in the cattle markets. Dairy is down along with the poultry markets and hogs and eggs are down slightly as well.

When we look at production expenses, because a large part of the contribution margin that farmers get is determined by the cost of inputs. We have seen increased inflation adjusted production expenses. To, to put this in perspective, when we adjust for inflation, we are not quite where we were back around the 2010 mark, 2010, 2012 mark. But we are on an upward trajectory in terms of production expenses in the agricultural sector, though, when we look at the production expenses relative to 2022, we’ve actually seen some categories decrease. Obviously there’s some, the, the notable ones like fertilizer, pesticides, and fuel and feed that have seen some decreases that are helping out on the production input side. And those, those categories in particular carry pretty large share of wallets when we think about the production expenses for a given farm. Now we have seen some increases interest being the, the one that kind of sticks out in terms of a percentage change. But if you compare the percentage of gross farm income that goes to interest now relative to the 1980s, it’s, it’s a much smaller expense. So yes, from a percentage standpoint, it is an increase. Overall, it’s still a pretty low share of, of the production expenses.

Michael Langemeier: looking Brady, looking at, looking at input prices rather than the actual expenses, if you compare input prices October to October, that’s the latest data we have, is October ’23, essentially the USDA input price index is flat, and lower than inflation. Which was a big reversal from ’22, where, where the input the farm input prices were double the inflation rate in 2022. So big change in ’23. And as you indicated, the, the, the big, the big drops are in fertilizer and fuel. We don’t know if those are going to continue to be lower but at least they were in ’23 compared compared to ’22. Labor’s probably one of those that’s on, that’s the biggest change. You were talking about 6 percent earlier. I think the USDA price indices are right around 5. So very consistent with the story you were telling.

Brady Brewer: Yeah, so I mean, and labor, especially for when I, when I hear labor and agriculture, obviously there’s some sectors of it that are less impacted. Corn and soybean being one of them, it’s a much lower lower emphasis component in the corn and soybean sector, but if you think about dairies, hogs, some of the livestock sector, some of the fruit and vegetables, labor is a much larger component of the production expenses for some farm types.

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[00:09:36] Producers Perspective from the Ag Economy Barometer

So Michael, that’s kind of what the USDA is saying in recent release data. But I know you and Dr. Mintert have collected some data on farmers attitudes as it relates to what about what will happen to their financial position over the next 12 months. So what are farmers saying about what they’re predicting their financial position will be here in the future?

Michael Langemeier: I’m using results from the November Ag Economy Barometer survey, which is a survey of approximately 400 U. S. producers scattered throughout the entire U. S. And it’s both crop and livestock producers, so keep that in mind as I talk . One of the things that we’ve seen is the, when you compare those that think their financial performance in the next 12 months is going to be worse compared to those that think the performance in the next 12 months is going to be better, that gap is lessened. That gap was closer to 10 percent going back three, four months. In November, it was only 5 percent. 22 percent said they’re, they expected their financial performance be worse and 17 percent better. So what did what how do you interpret that? Well, I think there’s two things going on first of all, I think net farm income was stronger than they thought it was going to be and we just went through that looking at the USDA, USDA numbers. I think the second thing is we’ve got a large proportion of the of the people we talk to our corn and soybean producers, and I think the yields were a little better than what we thought they were going to be, and so that translates into translates into less pessimism regarding where financial performance is heading in the next 12 months.

Brady Brewer: So, that’s the general consensus, but when we think about looking ahead next year you guys also asked the farmers, what’s your biggest concern as it relates to your farm and what did the farmers say there?

Michael Langemeier: I’m going to talk about the November results, but I want to put this in context. When we asked this, we’ve been asking this question for quite a while now, a couple years at least. And when we asked this earlier in the year, a high input cost was 35 to 40%. Said that that was their biggest concern. It’s still at 32 percent November, but it is down from where it was. The one that’s up rather substantially throughout the year is rising interest rates. That’s right now at 26%.

If you ask me this question. I would probably put interest rates as my biggest concern because of the impacts of interest rates not only in operating debt, but also when you’re buying machinery and buying land, it has a big impact and we’re very capital intensive in production agriculture. But that’s 26%.

And then 20 percent said lower crop or livestock prices. We do ask it exactly like that, lower crop or livestock prices, so we’re not segmented by enterprise. And so that, like you said, that’s a mixed bag. There’s some people that have substantially lower prices, i. e. corn. And there’s some that have better prices, i. e. beef. Beef is approximately 20 percent of the people we talk to every month are beef producers. And so that has an impact on these numbers. And so biggest concern in the order order of importance higher input costs, rising interest rates, and then lower crop and livestock prices.

Brady Brewer: So Michael, I kind of want to go into each of these one by one. So the higher input costs, so we went over what the USDA reported. There’s a healthy amount of input costs. That have gone down over the past year, but there’s still some that are going up. Getting out your crystal ball. Do you think if you think about production expenses, you mentioned the index that you look at, where do you think we’ll be in 2024 next year at this time? Do you think we’ll continue to see rising input costs in the ag sector?

Michael Langemeier: Well, looking at the 2024 Purdue Crop Costs and Return Guide and looking at corn specifically, we’re looking at, we’re looking at costs per acre that are down at least 5%, probably closer to 7-8 percent right now, and that’s primarily due to lower fertilizer costs.

Looking at the soybean side, it’s a little bit lower than that. It’s probably closer to three to five percent decline, but the important thing is the decline after two, three years of seeing increases, in particular, ’22, a very large increase and that’s certainly good news to see that decline. Is the decline big enough? Whereas the break even prices are lower than expected prices? No. Not for corn. Soybeans were very, very close, but certainly we’re, we’re, we’re, the, the situation we’re in in ’24 is better than the situation we were in for most of 2014 to 2019. So I think it’s very important to point out, yes, returns are lower, but it doesn’t look like they’re gonna be quite as low as what they were during that 2014 to 2019 period.

Brady Brewer: So some good signs for net farm income here moving forward.

Michael Langemeier: Yeah, it’s going to drop in ’24, but it’s not going to crash.

Brady Brewer: Yeah. And as we pointed out earlier, there’s a lot of equity out there. So it gives you a little bit of a, of a bright spot. Now the second item that you mentioned, rising interest rates.

Now we’re recording this the day after the FOMC released their December decision for the fed funds rate. Most of you may know by now that the Fed decided to hold the fed funds rate steady for the third straight time here at the end of 2023, they also released their summary of economic conditions, which means that they kind of project out what’s going to happen to the fed funds rate over the next year. The consensus among the FOMC board is three fed funds rate drops in 2024. And each of those being about 25 basis points or a quarter of a percent for the fed funds rate. So that puts us if we were right there at five and a quarter to five and a half In the fed funds rate target right now, if you take off 75 basis points, that gives us a target of around 4.50 to 4.75. So about three quarters of a percent decrease in interest rates through the end of 2024.

Now, I would be remiss to not say that while the consensus is three interest rate drops. There’s just as much sentiment on the FOMC voting committee. There’s a A healthy amount of the voting members that think that we may have four interest rate drops. So a little bit more bearish on what’s going to happen to the fed funds rate. And there’s a healthy amount that think that we will only have two fed funds rate drops in 2024, as well. So I I think though the range that I would expect is two fed funds rate drops of 25 basis points each to four drops in 2024.

Michael Langemeier: That’s certainly good news for production agriculture because as I indicated we’re very capital, capital Intensive business. However, I would like to point out for those that are listening, and I sound like a broken record because I say this about every time we do one of these podcasts, is we’re not going to go down to where we were. You know, for that, for a long period of time from 2008 to 2021, interest rates were abnormally low. Abnormally low. We’re not going there. I mean, yeah, we’re going to go down from where we are now. They’re probably a little high right now. Compared to the long run average, particularly if you adjust for inflation. And so certainly it’s going to be good news if we see a a three quarter three quarter percent drop or a percentage drop, but that’s, that’s, after you’ve had a four percent increase, a percent drop is not going to get you back where you were.

Brady Brewer: No, and they have, the FOMC committee, the Federal Reserve, has sent strong signals to the market that they do not want to return to the zero lower bound Fed funds rate. They expect the long term to be right north of two and a half percent. So, you know, that’s returning to what I would call a normal interest rate environment that we saw pre 2008 financial crisis.

Michael Langemeier: I, I throw out the number 3%, you know, 3%, three and a half percent. That’s a, that’s a more typical Fed funds rate.

Brady Brewer: Yep.

Michael Langemeier: And that would be a full 2% lower than we are now.

Brady Brewer: Yep.

Michael Langemeier: Another thing that you, you mentioned, Brady, but I think it’s important to, to reiterate. All of these Fed changes depends on the economy. How strong the economy is, how weak the economy is. I mean, you could, you could paint a scenario on a, a scenario, and this is not my scenario, mind you, but you could paint a picture if the economy is not very good, they’ll probably accelerate, accelerate the declines in the interest rate.

Brady Brewer: Right now, all the macro indicators are indicating that the economy is stronger than they expected at this time. GDP growth in the third quarter of 2023 came in at 4.9, which far beat expectations. Job growth. We also added more jobs than they were expecting as well.

Now, if you look at some of the leading indicators, housing starts are on the way down. Jobs are on the way down, but I would, I’m characterizing this as we’re just reverting to long term trend. Our economy has been so out of what I would call normal for the past two to three years. We’re just reverting back to the long run trend. If we’re still on the downward trend for both housing starts and job growth, when it comes to say June of 2024. I think that may be a, a strong question mark that we need to address at that time, but right now I’m not too worried about it.

Now, there are some indicators out there. You know, I did a talk last night and one of the, the people in the audience came up and spoke to me after the talk about the trucking industry. And that there has been some decline in the demand for trucking that tends to be a leading indicator. Now we can argue if that is a supply issue or demand issue, regardless, there’s some issues there. So there’s, there’s some question marks starting to pop up, but right now the, the main indicators we look at housing starts, job growth, GDP growth, then are coming in pretty strong.

And the third one, Michael, I want to touch on real quick, lower crop and livestock prices. I think the point that I want to make here. There’s a lot of question marks, not just in the macro economy, but on the ag side as well. If we think about some of the political conflicts that are disrupting trade right now, the Ukraine war, Israel, Gaza, China, Taiwan, there’s a lot of question marks that could disrupt trade. There’s a lot of question marks that could disrupt the energy markets that impact our production inputs.

So while farmers are concerned about them I agree with this sentiment. There’s a lot of question marks that could make this go up or down.

Michael Langemeier: Yeah, and it’s very, very enterprise specific. That’s why you can’t read too much into that that particular answer. You know, if you look at If you look at the WASDE report for corn and soybeans, just for example the corn price for the current marketing year is expected to be 25 percent below the corn price from the previous marketing year. So you got corn, which has fairly high stocks in the U. S., a fairly large price adjustment. Soybeans, on the other hand we did not plant as many soybeans as we thought we were going to earlier in the year, and so soybean, soybeans only declined 10%. I say only, that’s still a pretty big drop. Beef prices have increased. They’ve dropped recently, but if you look at, if you look ahead to 24, we’re still going to have pretty tight beef supplies. And so you’ve got to look at this very enterprise by enterprise, and each enterprise has its own fundamentals.

Brady Brewer: So that is the barometer expectations for maybe the issues in the ag market. One thing I want to come back to Michael is we talked earlier about the strong equity positions of farmers right now in the agriculture sector. On the ag economy barometer, you ask farmland price expectations and farmland makes up a majority of the farm balance sheet. So what do farmers expect in the short run, so 12 months over the next year, for farmland prices?

Michael Langemeier: First of all, we’ve done some work relating farmland price expectations 12 months out in relationship to the sentiment itself. And as you’d expect as sentiment improves the prospects for farmland prices the next 12 months out improves and vice versa. And so right now the sediment is, is a little bit lower than Than, than, than it was, you know, certainly lower than it was two years ago. You know, two years ago, we were looking at 50, 60 percent thought, thought farmland prices were going up. A lot of optimism there. Currently, there’s still optimism with short term farm prices. 36 percent say that that farmland value is going to go up in the next 12 months, and only 11 percent say that farmland prices are going to go down.

And so to summarize, We’re still optimistic, but not near as optimistic as we were two years ago, and for obvious reasons. You have net farm incomes down you’re not going to be quite as optimistic about farmland prices, but the key here is we’re not necessarily expecting decreases. Stable land values is, that’s not a bad word, in the current environment when we’re talking about land values because we’re, we’re up substantially from what we were two, three years ago, and so good land, strong land values, and expecting those to be you know, relatively similar in the next year. That would summarize those respondents of the Ag Economy Barometer.

Looking five years out, this, these, these expectations actually do not follow sentiment that closely. I’ve done some done some analysis on this recently, and it, and it, it’s hard to figure out what these do follow. Quite frankly, they don’t, they’re not correlated with other questions in the Ag Economy Barometer, so they almost have a life of their own. And what I, what I, the way I talk about these is, this really is your long term outlook on production agriculture. Are you optimistic long term or are you pessimistic? And clearly the respondents of the survey are optimistic long term because when they asked about farmland prices five years from now, 62 percent said higher and only 11 percent lower.

Brady Brewer: Well, farmland historically has been

Michael Langemeier: has increased. Over a five year period, so that’s where I would too.

Brady Brewer: Yeah, I completely agree with the farmers here. Farmland tends to be a fairly risk free asset. In other words, there’s, you know, outside the 1980s, there’s not too many examples or data points, you can point to where it has declined, we’re not printing more farmland. In fact, we’re only taking it away. So it’s only becoming more scarce. So, you know, I definitely agree with the farmers here. Now, you guys do ask, Michael, on the Ag Economy Barometer, What are the following factors that have the most influence on farmland values? What do the farmers say here?

Michael Langemeier: Well, first of all, this question is similar to a question that’s posed in the Purdue Cash Rent and Land Value Survey and the results are released in August. The difference here is we don’t ask whether these factors are positive or negative. We just say identify the factors that are most important. So remember that when I go through these. The most important factor was 28 percent of the of the respondents indicated this was the most important factor was alternative investments. That’s consistent with another question we have that asks about why do you think land values are going up? They point to alternative investments, outside investors in, in the land market. So that’s the number one factor and I’m assuming that’s positive, okay when they answer that.

Interest rates is actually the second, and that’s, interest rates is a negative, if interest rates go up, you expect farm more weakness in the farmland value. That’s been identified by 24 percent of the response. That’s not surprising. We’ve had big interest rate changes.

The third is inflation. Again, you know, recently, recently inflation’s down a little bit in terms of the rate. But yeah, we’ve had pretty strong inflation compared to what we had essentially from you know, 10 years before 2021. It’s been higher than that 2 percent for, for quite a while now, and so that’s identified by 18%, and then finally net farm income is identified by 17%, and we don’t ask people whether that net farm income, they’re thinking that if it’s a negative or a positive. I think right now it might be a mixture of both. That, because it depends on the type of farm they are. We ask this of everybody. And you know, there’s some farms that had a better year in ’23 than ’22. Whereas there’s quite a few farms probably had a slightly worse year in ’23, ’22. And so, and so again, we’re not necessarily saying that’s positive or negative. We’re just saying that’s an important factor impacting farmland values.

Brady Brewer: Uh, I do want to comment on the alternative investments real quick as the biggest factor. One of the things I pay close attention to is the broader stock market. And a question I’m asking, I don’t have the answer here, Michael, but a question I’m asking is, is with the inflationary environment we’ve seen in the broader economy, that means that items that you would traditionally invest in, index funds, mutual funds will have to pay a higher return because of, you know, the inflation that we’re experiencing, broadly speaking. Will that pull some of that alternative investment money away from ag? Ag traditionally is a very risk free industry to invest in, but our returns, if you look at cap rates, have not always been great. It’s a positive return, always, but it’s not a large return. Very, you know, low risk, low reward in that standpoint.

So one, I don’t know if I have an answer, but, but something I’m paying attention to is looking at will this kind of pull back on that? And how will that impact the farmland markets?

Michael Langemeier: My guess is it would, it will to some extent. I think long term there’s still some good reasons to invest in real estate, including farmland, as part of a mixed portfolio by large institutional investors. So I think the long term that that’s there. But certainly from a short run perspective, I would think it’d make people a little bit more cautious. Another thing that’s happened is interest, you know, interest rates and savings accounts and CDs and money markets have went up. And, and so that’s also a, a factor that, that make, could make people a little bit more cautious investing in farmland.

And farmland is one of those assets that, it’s so different I, I, I suppose it’s a lot like commercial real estate. It’s very long term. You, the transaction costs are huge to get in and, in and out of farmland. And so that’s why I, I usually think of this in a very long term fashion.

Brady Brewer: So I agree. I think it’ll have some impact, but I don’t think it’ll be too big of an impact.

When you talk to land managers here in Indiana the overwhelming storyline I get is yes Some of those investors are at the auction. Some of those investors are in the market .But they don’t actually win the market that much I would say they more so create a floor for the market because they’re typically looking for a good deal on a long term investment. That does not mean they don’t play in the market. They don’t buy. But I, I think the impact will be fairly minimal in terms of if we do see some of those outside investments, exit the ag markets.

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[00:27:51] Indiana Case Farm

So I want to turn our attention now, Michael, to you run a case farm, a central Indiana case farm. So we’ve been talking a lot about farm income. So what’s happening on this case farm that you have constructed?

Michael Langemeier: Yeah, let’s talk about ’24 compared to where we’ve been in the last few years and, and there is some positives when you look at the ’24 corn budget and the soybean budget, but particularly the corn budget. And I, and I alluded to this earlier fertilizer costs on a per acre basis or and a per bushel basis for that matter are expected to be quite a bit lower in ’24 than what they were in ’22 and ’23. Having said that you know, in nominal dollars, at least I haven’t adjusted these for inflation. We’re still relatively high compared to where, where, where we were from 2015 to 2021. And so we’re, and so we are down, but we’re not down to that 2020, 2021 level. And that’s having an impact on breakeven prices. Breakeven prices are, are lower, but they’re not certainly not as low as what we saw in ’21.

So let’s look at that. I wanna look at high productivity soil. I wanna focus on that today. And back in ’21, we had a breakeven price on high productivity soil. That’d be, that would be those with a trend yield of 220, 225 pretty good soil in, in Indiana, we had a even price in ’21 for rotation corn that was right at $4. That increased over $5 in ’22. Went up to $5. 34 in 23, and now we’re back down to about $5 in ’24, so we’re getting there. And when I say getting there, what are we getting what are we moving towards? Well, if you look at the long run cash corn price, adjusted for a normal basis, it’s about 4. 75. So on high productivity soil, we’re getting closer to that long run, long run expected corn price. So we’re moving towards equilibrium is the way I would say this. We’ve got need, need a little help, a little more help for some input cost to get there, but we’re moving in that direction.

Brady Brewer: And then what about for soybeans?

Michael Langemeier: Soybeans is actually a more positive story because we only planted 84 million acres of soybeans last year and and the market was market probably could have used a few more soybeans than that. So, you know, so the stocks to use is pretty tight for soybeans right now and, and, and, and the breakeven price is here. We’re seeing some declines in, in, in ’24, not as big as for corn because, you know, nitrogen obviously is a big input for corn and we’ve seen some decline in prices, but we are seeing a reduction in breakeven, 3 to 5 percent or so, and the breakeven price right now on high productivity is about 11. 70, which is right at the long run average soybean price since 2007. So it seems like we’re almost already at equilibrium or close to it for soybeans. And when you look at the relative profitability of corn and soybeans, this is an Indiana perspective. In case there’s anybody from Nebraska or Iowa here, this is an Indiana perspective. Soybeans look fairly profitable compared to corn, again in ’24.

Brady Brewer: Well, and I know Michael, the carryover for corn right now is quite significant.

Michael Langemeier: Yeah, stocks to use are 15%, whereas soybeans is like 6%.

Brady Brewer: Yeah. So, you know, if we’re thinking ahead to the question I asked earlier about what’s, you know, the price issues. Corn definitely has a lot more unresolved issues out there because there’s there’s some corn sitting in the bins that have yet to be sold and it’s larger than previous years to that there’s a glut of supply out there that I think is going to keep the price for corn, put downward pressure that price.

Now you also look at this from an earnings per acre perspective for the case farm as well.

Michael Langemeier: Yeah, and essentially what’s happened is, you know, from 7 to 13 11, 12, some place in there, as we were building ethanol capacity for the ethanol industry, corn was more profitable than soybeans.

Really, since about ’13 or ’14, soybeans has been a better prospect in Indiana more profitable than corn. And it doesn’t, that doesn’t mean that corn is, is not necessarily profitable year in and year out. It just means that soybeans have tended to be a little bit more profitable. Remember when I say that, soybeans are less likely to hit a home run. What I mean by that, well, you know, if you get 240, 250 bushels of corn, like quite a few farmers did in Indiana, that’s going to be profitable, okay? But if you just look at trend yields, which I primarily focus on, soybeans have been relatively more profitable since about ’13, ’14.

Brady Brewer: Now, Michael, to finish up here, you also look at cash rent and net return to land for this case farm as well. I know there’s been a lot of attention paid to cash rental rates and the increases in cash rental rates here recently. What do you see in store for farms here over the next year?

Michael Langemeier: Well, first first of all, there’s a very close connection between cash rent and net return to land. It’s usually lagged one year. In terms of net return to land, but there’s a very tight relationship between those two. Cash rent’s more stable than net return to land, but they’re, they’re very tightly linked. And essentially to get a lower cash rent, that’s what they, people are probably interested in. Are we going to see lower cash rent? To get lower cash rent, you really need to have three, four years in a row where net return to land is lower than cash rent. We have two. So far, ’23 and it looks like ’24 is in that situation. So essentially right now I’m expecting cash rents to be flat. If the net return to land in ’25 and onward would be below cash rent then we’d start to see some downward pressure in cash rent. So, so I think we’re, you know, we’re looking at fairly stable cash rent prices, you know, for the next couple years.

Brady Brewer: So that is all we have for today’s episode. Hopefully you’ve enjoyed the discussion around the USDA farm income release, the Ag Economy Barometer projections about farm income, and then looking at the central Indiana case farm and what will happen and what it is showing will happen to farm incomes here over the next year.

Just want to remind all the list listeners one last time for more economic information, please visit us at the Purdue Center for Commercial Agriculture. You can go to our website, which is purdue.edu/commercialag. On behalf of the Center for Commercial Agriculture, I am Brady Brewer, and we thank you for listening.