More than 30 percent of Minnesota farmers lost money in 2016

More than 30 percent of Minnesota farmers lost money in 2016, according to a new analysis by the University of Minnesota Extension and Minnesota State.

The average Minnesota farm's balance sheets are still strong — mainly because of record corn and soybean yields and farmers banking some surplus dollars from a few years ago — but there are obvious signs of financial stress, said Extension Economist Dale Nordquist.

Nordquist said there are always some farmers that struggle to stay in business, but the number in that category grew larger again last year.

"Those extra bushels in the bin saved many of our [corn and soybean] farms from near disaster," said Ron Dvergsten, a farm management instructor at Northland Community and Technical College in Thief River Falls.

But many farms are now "on the edge" going into 2017, and some have had trouble getting operating credit from lenders, he said.

Requests have increased to the extension-run Farmer-Lender Mediation program, where debtors and creditors negotiate with a mediator, Nordquist said, and many farms have turned to restructured equipment or land debt to lengthen payoff terms and free up cash flow.

"When you get down to the bottom end of the scale, 30 percent of the farm operations were minus instead of plus" in terms of net income, he said.

Across the board, from crops to livestock and dairy, farms in 2016 were dealing with lower prices for the second year in a row.

As a whole, median net income for farms in 2016 was $35,636, up from $27,478 in 2015. Net income is the amount from farm operations that covers family living expenses, taxes, reinvestments in the business and retirement. The median is the level at which half of the farm incomes are higher and half are lower, and is considered a good measure to gauge financial trends at the state or regional level.

The report indicated that net farm income was strong between 2007 and 2012, and producers used their profits to build up their working capital. But since then farmers have tapped into about half of that working capital, on average, to cover losses and remain in business.

Minnesota Corn Growers Association President Harold Wolle said that overall debt-to-asset ratios for most farmers are not a problem yet, but he acknowledged that "times are slimmer" because of the surplus of grain and continued low prices.

"Our ag banking community is working with farmers right now," Wolle said. "If there's a place where they can stretch out a loan and get a lower payment for the current year, some of that is happening."

Also affecting crop prices are the strength of the dollar, greater competition in export markets and bumper crops in Mexico, Brazil and Argentina.

Nordquist said that state livestock producers are also feeling the pinch.

They earned record profits in 2014, he said, but that jump-started investment and expansion and subsequently lowered prices. "Now we are seeing the downside of surplus production," he said.

The analysis found that the median Minnesota beef producer lost more than $11,000 in 2016 after losing almost $10,000 the year before.

Median dairy farm earnings dropped from $45,000 in 2015 to $31,563 in 2016. And the median hog farm lost just over $4,000 in 2016, with the average price of live hog sales dropping 50 cents per pound last year.

The analysis used data from 2,103 farmers in the Minnesota State farm business management education programs, and 103 members of the Southwest Minnesota Farm Business Management Association. They represent about 10 percent of commercial farmers in the state.

As farmers prepare for a new growing season, the report said there are some areas of optimism.

Land rental rates have decreased slightly to adjust to lower price conditions, and both fertilizer and fuel prices are stable or somewhat lower than in recent years.

There is also reason to think that dairy and hog farm profits could improve in 2017, Nordquist said, based on recent increases in milk and pork prices.

However, beef prices are expected to remain depressed because cattle live longer and it takes more time to reduce supplies, he said.

"This has been a real challenge for the last couple of years," said Keith Olander, director of AgCentric, a Minnesota State Center of Excellence in Agriculture at Central Lakes College in Staples. "Record crop yields stopped the bleeding for a lot of producers this [past] year, but we can't plan on that every year."

Tom Meersman • 612-673-7388