State of the 'Row Crop' Union Address
- Grant Wiese
- 8 hours ago
- 8 min read
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SW Financial Literacy
State of the 'Row Crop' Union Address
The cold hard truth of what we are seeing with ag row crop Midwest finances right now. This may not be your specific situation, but it is a lot of someone’s situation they are dealing with, and it is important for you to understand and learn from this.
Therefore, I feel everyone in ag or running a business needs to read this article in full. It may be the most important article I have put together.
I am not blaming anyone for decisions made or not made (hindsight is 20/20), just laying out what I see from dozens of operations. Without a wide lens into industry financials, these happenings may not be as clear to you. For operations struggling, this is the reoccurring trend I am seeing from this down cycle, and there is something here for all of us to learn from.
How we got here
From my vantage point, this started in 2012. Yes, 2012 was a wildly profitable year (if you raised a crop in the drought), but those high corn/soybean prices set us up for guaranteed working capital losses moving forward.
Let’s say from 2012-2019, you raised 100,000 bushels of corn every single year. With the commodity price direction of that decade, it is feasible your operation lost working capital for 6 out of 8 years.
In this scenario, 100,000 bushels represents a 444a operation raising 225 bu/a corn. The working capital decrease of $375,000 from 2012 ($700,000) to 2019 ($325,000) represents a $120/a loss (on average) in working capital each of the 7 years. That is the loss from commodity prices alone. No bad yields, equipment upgrades, or higher input costs (which definitely happened) factored in. OUCH!
It is really hard to justify making operational improvements when your cash position is dwindling year after year.
Operations were falling behind on not only cash, but important equipment and infrastructure upgrades on highly depreciating assets. Fortunately, 2019 was the bottom.
Enter 2020. The year of COVID and, more importantly for this conversation, extremely low interest rates! PPP and SBA loans allowed for much needed upgrades and cash injections into operations. If you had an existing loan on the books, they were refinanced at a lower interest rate. These refinances helped improve cash flow projections moving forward due to lower annual debt payments from lower interest.
2021 saw more government payments and 2022 FINALLY saw a boom in commodity prices, making 2022 the most profitable year for row crop producers on record (except for me, my dryland acres were in a drought).
What did we do with those 2022 profits? Spend them because our CPA said we needed to avoid taxes. How did we spend them? With all cash purchases. Why all cash?
Interest rates had moved quickly higher as the fear of inflation came into play. Why would you pay extremely ‘high’ interest rates (7%) on an equipment loan or house remodel when you have a pile of cash just sitting there?
But wait, farmers have the ability to store grain, catch a carry in the market, and sell in a different calendar year. This meant there was a tax problem again in 2023. Queue another round of purchases (some of these with cash, some of these financed on 5-year terms, many on contract leases) to upgrade equipment 1 model bigger or newer than what they got in 2020.
What's been happening
For operations between 2015-2019, it was very possible to lose between $50-150 of working capital per acre per year. This was partially due to lower commodity prices, but if you recall the big dip in prices happened more between 2012-2014. The 2015-2019 working capital losses had more to do with the increase (inflation) of input prices (seed, chemical, fertilizer) and equipment prices against the low commodity price they could sell their grain for (sub $4 per bushel). So, during that 4-year span (2015-2019), many operations lost around $400 working capital per acre total.
Coming out of those record 2022 earnings, working capital levels were built to extremely high levels, around $600 per acre for many operations. They could operate a large portion of the year with cash. They also spent that cash on upgrades and didn’t finance due to interest rates, as mentioned above.
Some year-end 2023 balance sheets showed as much as $400 working capital per acre loss in 1 year alone.
2015-2019 losses were much shallower, and it took 4 years to lose $400 working capital per acre. Undisciplined spending (as advised by some tax preparers) using mostly cash instead of debt (because of appallingly average interest rates) created that deep $400 loss in 1 year alone.
Here comes 2024, where the corn prices hit their high on January 2 leading to poor grain sales (hindsight again) while interest rates are still high. This is also when the full effect of inflation kicks in. Way higher grocery, fertilizer, chemical, and repair bills combine with a few new equipment loan payments that were financed, leading to $200 working capital per acre losses. That pile of cash you had 2 years ago is gone, and the operation is illiquid in the blink of an eye. Breakevens are poor and can’t support any equipment payments from loans put on in the past 2 years.
Where we are today
2025 was a repeat of 2024 to the working capital. $200 per acre loss. There was a weird marketing cycle, more inflation, and (in places) some yield drag. Let’s take a look at the balance sheet now for these row crop producers:
Lines 39 and 47 are the focus. We went from $672,569 (line 39, year 2022) of working capital to -$247,284 (line 39, year 2025) in 3 quick crop cycles. And if I were to build a net worth trend, those operations probably have the same net worth position as they did almost 10 years ago (I don’t adjust land values higher). No growth in 10 years and hurting in a bad way with negative cash.
In this example, debt payments are nearly ½ of the working capital problem (line 26). Those 2022-2023 purchases have taken their toll. Cash purchases in 2022 zapped $400 working capital per acre, while financed purchases are costing you $100 working capital per acre per year. And they won’t be paid off for another 2 years…
The Impact
This is unlucky. And now we test your management skills.
If the operation in the visual directly above continues on this trend for 1 more year during 2026 (which their 2026 projection with breakeven prices at $4.85 per bushel tells me it will), then their working capital position will be at -$500,000 when they update their balance sheet at the end of the year.
Let’s say the operation above has $1,000,000 worth of equipment on their balance sheet. The bank will look at this balance sheet and think:
“You are upside down and illiquid $500,000. Even after you sell all your grain, all your cows, and give me all your cash, you still owe me $500,000. We (the bank) are now in an extremely compromised collateral position. To fix this problem, you either need to:
1) sell 160 acres (which hurts your earnings moving forward) and put those proceeds directly to your cash position, or
2) sell ½ of your equipment (you can’t farm without that).”
There is not a good refinance or restructure option for you when margins are this tight and cash flow is this poor. It just makes the losses deeper in the future.
There is a 3-legged stool in finance:
1) Working Capital (it is gone)
2) Cash Flow (it is broken in this operation)
3) Equity (it can’t help now)
If any of this article connects with your situation, and you aren’t doing anything significantly different from a management standpoint for 2026, you may have officially stuck your head in the sand. Doing the same thing as last year hoping for a different result.
Don't do this. Make massive cuts and sell assets today to live to fight another day. With compromised working capital and collateral, without taking action to fix your own margins, the next step is to sell that equity. Sell the land. Working capital is so far gone for many, you may need to sell your grain inventory, sell your cows, sell equipment and half your personal vehicles to get cash back. Think about that. Everything you need to farm may be sold just to bring cash back. One more year like this and all your personal items (maybe your home) or multiple owned tracks of land are at jeopardy.
More hard truth
Do not wait any longer to make adjustments and fix this.
You probably haven't seen or heard of it yet, but there are thousands of acres of ground in (most likely) every county of the Midwest switching hands right now. Either private land deals or acres rented out being switched from a failing operation to a more profitable operation. Farmers are just beginning to realize the hole they are in and are having to make the difficult (but probably right choice) of hanging it up, cutting their losses (while they still own their house), and finding a job with another operation or in town.
If you have not made money on the farm the past 2 years (plenty have, despite everything stated above the sky is not falling for all), and have not made massive changes to how your operation is run (mostly cutting expenses and selling assets), then you are putting yourself at risk of not getting funding for an operating note in 2027.
Let me state this again. The sky is NOT FALLING in all of agriculture.
These are the toughest situations right now, and not something that the majority is experiencing. There are plenty of successfully run operations who are still making money.
How are they doing it?
What people are doing
Joining the Margins Cohort to discover ways to improve their margins, make management adjustments, and improve decision making. Learning how to bring expenses in line and make the changes today so they don't get sold out by this time next year.
Usually when I have offers, it's the most financially stable that sign up, so they can get better at what they already do well. I am so passionate (and worried) for operations out there today, and know the value that will be coming your way through your cohort, I feel everyone who reads to the bottom of this article would benefit from listening to these experts share their solutions. To improve your margins for the better, sign-up here:
Disclaimer: This is not financial advice for your operation. This is what I have seen in some of the toughest situations on average across hundreds of operations. All views expressed 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.
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Grant
