Analysis

Now that the 2024 crop year is completed, many farmers are analyzing their year-end cash flow position as they begin planning for the 2025 crop year. Crop production expenses and land rental rates have increased substantially in 2023 and 2024, while crop prices for corn, soybeans and wheat have remained below breakeven levels, and are now at the lowest levels in several years.

For upper Midwest farm operators that experienced crop losses in 2024 due to weather issues, the financial situation is likely even more severe. Farmers and ag lenders are now wondering what potential sources of income could possibly be advanced in the coming months to enhance the cash flow position of grain producers as we head into 2025.

2024 crop insurance indemnity payments

Based on yield reports from many areas of the upper Midwest, it is likely that a significant number of corn and soybean producers are qualifying for crop insurance indemnity payments in 2024, which could be taken as income either in 2024, or after Jan. 1, 2025.

In the Midwest, most corn and soybean producers have tended to secure some level of revenue protection (RP) crop insurance coverage, in order to have the flexibility of insurance coverage for reduced yields, as well as in instances where the harvest price drops below initial base price.

The established base prices for 2024 RP crop insurance policies were $4.66 per bushel for corn and $11.55 per bushel for soybeans. These base prices served as the final price to calculate revenue guarantees for determining potential RP crop insurance indemnity payments for corn and soybeans in 2024. The harvest price is used to calculate the value of the actual harvested bushels for all RP insurance policies.

The final 2024 crop insurance harvest prices were $4.16 per bushel for corn and $10.03 per bushel for soybeans. This means that farmers with 85% or 80% insurance coverage for 2024 needed a fairly small percentage reduction in crop yields below the farm average yields in order to qualify for 2024 indemnity payments.

Many farmers in southern Minnesota could possibly receive $50 to $100 per acre or more in crop insurance indemnity payments for every acre of corn and soybeans they raised in 2024. Producers that had crop revenue losses in 2024 should contact their insurance agent and properly document the yield losses. I have prepared an information sheet titled "2024 Crop Insurance Payment Potential," which is available by contacting: [email protected]. The University of Illinois FarmDoc website also contains some good crop insurance information at: https://farmdoc.illinois. edu/crop-insurance. 2024 farm program payment potential

Many crop producers in the Midwest are enrolled in the "revenuebased" Ag Risk Coverage (ARC-CO) farm program choice for the 2024 crop year, rather than the "price-only" Price Loss Coverage (PLC) program.

The reference prices for the PLC program and the benchmark prices for the ARC-CO program for both corn and soybeans increased in 2024. The marketing year to determine the 2024 market year average (MYA) prices for corn and soybeans is from Sept. 1, 2024 through Aug. 31, 2025. For producers in the PLC program, the final MYA price needs to drop below the crop reference price to earn a payment, as opposed to the ARC-CO program which determines payments based on a final county revenue (county yield and MYA price).

The 2024 PLC corn reference price is $4.01 per bushel and the 2024 corn benchmark price for ARC-CO payments is $4.85 per bushel. Based on the latest USDA WASDE report, the current estimate for the 2024 MYA corn price is $4.10 per bushel. At the current 2024 MYA corn price, there would be no 2024 PLC payments and any corn ARC-CO payments would initiated with a final 2024 county corn yield that is very near the 2024 county benchmark yield. The 2024 soybean PLC reference price is $9.26 per bushel and the 2024 soybean benchmark price for ARC-CO payments is $11.12 per bushel.

Based on the WASDE report, the current estimate for the 2024 MYA soybean price is $10.80 per bushel. At the current MYA price, soybean ARC-CO payments would initiated with a 2024 county soybean yield reduction that is about 11-12% below the benchmark yield.

Any 2024 ARC-CO or PLC payments will not be paid until October 2025.

For information on benchmark yields, prices and revenues, and other farm program information, producers should access the USDA ARCPLC web site at: www.fsa. usda.gov/arc-plc.

Potential for other sources of added income

· 2024 disaster program: Many farmers that had significant crop losses in 2024 are hoping for Congress to enact a crop disaster program for 2024, similar to the Emergency Relief Program (ERP) that existed for the 2022 crop year and before.

The ERP program provided additional USDA payments beyond crop insurance indemnity payments, as well as payments for revenue reductions in livestock production.

There has not been a disaster program for the 2023 and 2024 crop years. Passage of some type of 2024 disaster program has probably been enhanced in recent months, due to the large agricultural losses that were incurred earlier this past fall by Hurricanes Helene and Milton.

· The proposed FARM

Act: Some members of Congress and some farm organizations are promoting passage of the Farm Assistance and Revenue Mitigation (FARM) Act that was introduced a few months ago. The FARM act would provide crop payments for actual acres of corn, soybeans, wheat, and other crops raised in 2024 to offset low commodity prices and negative profit margins. Early estimates of potential FARM payments, based on the proposed formula, have been near $100 per acre or corn, $80 per acre for wheat, and $50 per acre for soybeans. However, the FARM act may face some challenges in Congress due to not addressing profitability challenges faced in specialty crop and livestock production, as well as the estimated overall cost of the proposed legislation,

· Passage of a new farm bill: The 2018 Farm Bill initially expired in 2023 and was extended for 2024, and is now expired as of Sept. 30, 2024. This means that Congress must either pass a new farm bill or an extension of the current bill in the coming months in order to avoid changes in commodity programs and elimination of many USDA programs. If a new bill is passed, any extra benefits from the commodity title of the legislation would likely not have much impact for 2025 farm revenue, unless some of those benefits are retroactively added to the 2024 farm program.

At this point, an extension of the current farm bill appears more likely in the coming weeks. If there is an extension for 2025, it is possible that 2024 disaster assistance or possibly provisions of the FARM Act could also be included.

· Improved grain prices: Many farmers stored a significant amount of their 2024 corn and soybean production, hoping for improved market prices in future months. Marketing analysts are quite varied in their opinions regarding the potential for improved corn and soybean prices. The "given" is that the projected 2024-25 corn and soybean supply and ending stocks will be at the highest levels in recent years, which may put limitations on potential price increases.

Ultimately, price improvement will likely be determined by future demand for ethanol and soybean processing, along with strength in export demand. Tight local basis levels in some areas could also create some marketing opportunities.

The continued tight margins and low profitability in farming seems to be on everybody's mind in ag country as we end 2024. Profit margins in crop production have worsened considerably in the past two years and are not expected to improve much for the 2025 crop year, which could put some farm operations at the brink of financial hardship. Many farm operators are also wondering if Congress will pass a supplemental agriculture disaster bill in the coming weeks to deal with 2023 and 2024 crop losses, along with the potential FARM Act, to help offset the current financial hardships.

Kent Thiesse is a Farm Management Analyst and writes the weekly "Focus on Ag" column. Contact him by phone at (507) 381-7960 or by email at [email protected].