A report by Capstone Partners outlines what it will take for widespread farm profitability to return to North American agriculture and how long it may take. Those hoping for a quick reversal of the downward market and profitability trend are likely to be disappointed, as some estimates puts a return to much better financial times out to 2033 or later.
But that’s not set in stone, explains Jerry Sturgill and Skye Root, both with Capstone Partners, as they outline that several factors could converge to turn things around sooner, at least for a portion of the farming industry.
Their report, found here, shows that farmers are facing very tight to negative margins as commodity prices have fallen but input prices have not fallen at the same rate. The squeeze on margins sets off a cascading effect: farmers spend less on inputs, equipment upgrades get pushed out, perhaps jobs don’t get filled, and overall efficiency declines.
Farmers will have to develop means of coping with financial pressure, Strugill and Root explain, even as supply chains will have to adjust to declining demand. In other words, fuel, fertilizer and equipment prices will need to come down too.
In this discussion, Root and Sturgill also discuss how consolidation in the ag space will include farms, too — for those in stronger financial positions, the time might be right to expand their land base. At the same time, some older farmers may choose the next few years to make an exit, rather than ride out what could be several years of down markets.
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