NW Call to Action
The ’24 Ag Outlook was one of my more popular articles with a lot of positive feedback. With the seasons changing and 1st Quarter complete, it is time to share updates:
Interest Rates
Odds still favor 3 rate decreases in 2024, which I do not agree with. Wall Street was calling for decreases in 2023 and doesn’t seem to be on the same page as the Fed. Inflation was higher in December through February. Typically, it takes 8 months for a rate change to have an impact on the economy (which would be April ‘24). If inflation doesn’t move down soon, we could be looking at a rate increase before any decreases take place.
If you have debt below 5%, consider avoiding making any early payments. It is unlikely you will be able to borrow again at that rate anytime in the next 5 years.
Land Prices
I haven’t seen a new high land price in a county nearby this year and expect prices to remain steady to lower (0-10%) through 2024. Some listings and private deals have sold for more than 10% off auction prices.
Yields
In a few weeks the planters will be rolling!
Equipment Prices
Term notes are currently cheaper than borrowing money on your Line of Credit. You can term the equipment out to replenish Working Capital, save on interest for 2024, and pay off the note if you have a strong year. 2024 projected cash flows have been tight, make sure you know your position before adding any term debt.
Operation Improvements
A lot of improvements were made in 2023. It is a good time to monitor your cash flow projection and limit future improvements until there is certainty around your income for this year.
Commodity Price Direction
Lower corn planting intentions along with lower ’23 old crop stocks (feed usage up) and other factors have decreased the ‘24/’25 new crop ending stocks by over 500 million bushels. This still leaves us with over a 2.1 billion new crop ending stocks which implies a price under $5.00, but the supply balance sheet has greatly improved and could create better opportunities for a spring rally.
Marketing and Weather
Odds are showing we will be in La Nina sometime between June-August 2024 which typically leads to dryer weather. The short-term outlook is promising for moisture before planting. Planting delays often create marketing potential, even though I am convinced rain makes grain and the crop always gets in.
Working Capital Trend
In many instances, working capital levels are similar to where we were after the 2021 crop year. Coming off the 2021 crop year it was positive to have this level of liquidity after tough years between 2014-2019. 2020 PPP helped grow some cash positions and 2021 was a positive year in ag. The difference between 2021 and today which makes these working capital level concerning is in 2021 we had lower expenses not yet impacted by higher commodity prices and inflation. I expect working capital will again be lower after the 2024 crop year. Limit farm and living expenses now to avoid further losses when you update your next set of financials.
Overall Financial Picture
It is very possible to lose Working Capital while still maintaining or growing your overall Net Worth position through debt paydown and increased value in long-term assets. That situation is playing out for some operations who mostly limited capital purchases in 2023. If there was significant equipment bought with cash, it is likely there are losses in Working Capital and Net Worth. Every operation, regardless of their Working Capital or Net Worth movement in 2023, will need to be very careful with all expenses, decision making, and marketing in 2024 to be profitable. Farm made projections are very tight even with some overly optimistic commodity prices.
Some operations will show significant stress after the 2024 crop year if they can’t make strong marketing decisions and limit expenses. Be proactive to make sure this isn’t you.
Final Summary
If we head into a true downturn in ag profitability:
How many farmers will decide to retire?
How quickly will inputs adjust lower?
What will change about ag to allow for better returns?
Will you be an early adopter to capture the biggest wave of profitability?
Every operation is different and needs alternative advice compared to their neighbor. Nothing mentioned above is a one size fits all approach. While I hope this is helpful, what is better for your operation’s well-being is to update your own financials, run them by a trusted financial advisor, make your own plan for the upcoming year, and adjust that plan when necessary.
Have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.