Minnesota farmers beat drought and supply-chain snags to post near-record profits in 2021. (David Joles, Star Tribune file/The Minnesota Star Tribune)

Minnesota farmers overcame drought and supply-chain snags to bring in near-record profits in 2021.

The median farm profit in Minnesota last year was about $166,000, according to a report released Tuesday by the University of Minnesota Extension and the Minnesota State Agricultural Centers of Excellence.

Adjusted for inflation, it was the second-highest average net income on record.

It was also the second straight year of improved profitability for the state's farmers after seven years of barely breaking even.

"The biggest factor is there were great, strong commodity prices for things that we grow here in Minnesota," Megan Roberts, executive director of the Minnesota State Southern Agricultural Center of Excellence, said in an interview Tuesday. "Even with some of the drought concerns, even with some of the supply- chain challenges, those prices made for a good ending for 2021."

Strong consumer demand helped fuel rising prices for agricultural commodities. The government payments that helped fuel 2020's profit dropped by half last year.

Inflation, while a bane for consumers, was a benefit to many farmers.

"For the most part farmers had locked in their fertilizer and seed prices," Roberts said. "So, for 2021, inflation helped create these year-end net profits."

Crop farmers had above-average yields despite drought conditions and a median income of $210,000 last year.

"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 in a statement.

Many pork producers saw a major jump in profits — median net earnings rose to $429,000 from $310,000 the year before — but some operations reported losses due to volatile prices.

"There were some challenges in terms of when you locked in your prices or when you marketed your hog contracts," Roberts said.

Dairy producers saw profits drop 25% to $127,444 as a result of higher input costs, like feed, and lower milk prices in 2021.

Ongoing supply-chain difficulties, high fuel and fertilizer prices and the war in Ukraine is expected to make 2022 a more difficult year even if the weather cooperates and commodity prices remain strong.

The U.S. Department of Agriculture expects farm profits to drop at least 4% on average as inflation starts driving up input costs as much, or more than, prices.

"Many farms are concerned about getting fertilizer and chemicals for their crop production this year," said Garen Paulson, lead field staff for the Southwest Minnesota Farm Business Management Association. "Increased fuel prices and labor shortages will likely take their toll on profitability for 2022."