Agricultural economy slumps as costs soar and profits dip

With economic uncertainty mounting across the board, the agricultural industry continues to slump. With input costs rising and profits dropping, trade tensions add increased instability as they stifle previously high agricultural exports.  

Why it matters: In the September Credit Managers’ Index (CMI) report, respondents noted that the agricultural industry is continuing to see stress with no relief in sight. The imbalance created by higher input costs and lower commodity prices is sinking the agricultural economy deeper, compounded with the unpredictability of international trade tensions and extreme weather events. 

“The agricultural economy is in a recession right now, mainly driven by the crop side of agriculture,” said Chad Hart, associate professor of economics at Iowa State University (Ames, IA). “Crop prices are really low, but input costs are really high, creating definite losses. The livestock side is in better shape, though it’s arguably just breaking even, with record high prices for cattle, but record high input costs as well.” 

The recession is sinking deeper as the divide between the cost to plant crops and the profits from harvesting them widens. “Input costs, which include fertilizers, chemicals and seeds, are costing more and the crops are selling for less,” said Mike Habegger, CICP, director of global credit for J.R. Simplot Company (Boise, ID). “It is costing farmers more to put the crop into the ground and then it is selling for less. Grain prices have gone down faster than their input costs have come down, so the gap is getting wider.”  

There has been an oversupply issue for the last few years, according to Hart, but with exports of certain crops dropping this year, the problem has become more pronounced. “We typically sell a substantial portion of our production internationally for certain commodities, like corn, soybeans, beef and pork,” Hart said. “But tariff uncertainty has definitely hampered some of those sales, especially with the sales to one of our largest markets, China. So that’s hurting potential growth in markets that had been growing.”  

Significant declines in sales to China have led to big losses for certain corners of the agricultural industry that relied on the positive trade relationship between the two countries, most notably soybeans. For the 2023-2024 harvest, 54% of the soybeans produced by the United States were exported to China, according to the American Soybean Association.  

The last year has seen steep drops in commodity prices as input costs remain high, leaving farmers with razor-thin profit margins. “The agricultural industry has seen higher prices for the last few years, but farmers have been able to weather the storm because commodity prices were still high,” said Mark Speiser, CCE, director of credit, N.A. and global nutrition for Archer Daniels Midland Company (Decatur, IL). “With commodity prices now below the break-even point, farmers are having a harder time gaining revenue from selling crops, especially with the export market for certain crops drying up.” 

Extreme weather events, from droughts to hurricanes, have also impacted crop yields and made it more difficult for farmers to plan their harvests. “Farmers are in one of the toughest businesses because not only are they dealing with changes in the market, market conditions and prices, but they’re dealing with weather patterns, something they really have minimal control over,” Speiser said.  

As the agricultural recession continues, credit managers in the field are closely watching troubled customers who might be struggling with tight margins. “We are monitoring our Ag customers very closely and watching for compliance with terms,” Speiser said. “We are evaluating if there are scenarios where maybe we need to require collateral from certain customers. It is the type of environment where we need to be more diligent on who to extend credit to and how. We are taking on a more conservative approach to extending credit and I don’t see that changing in 2026.”  

The bottom line: As the agricultural sector continues to suffer from a broadening divide between high input costs and low commodity costs, credit managers may take on a more conservative approach to extending credit. While there is no clear end in sight to agriculture’s woes, maintaining close relationships with risky customers can help credit managers anticipate struggles down the line and protect their companies from losses.