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Farmers and ranchers are managing through an interesting and challenging time in agriculture. National projections suggest relatively strong farm income for 2026 down slightly from 2025 but still substantially above the average for the past decade in real dollars (U.S. Department of Agriculture, Economic Research Service, available at https://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics). Other reports on the agricultural outlook show increasing concerns as financial conditions tighten (Federal Reserve Bank of Kansas City, available at https://www.kansascityfed.org/agriculture/ag-credit-survey/steady-tightening-of-agricultural-credit-conditions-persists/) and farmer sentiment had been declining over most of the past two years before some recent improvement (Purdue University/CME Group Ag Economy Barometer, available at https://ag.purdue.edu/commercialag/ageconomybarometer/).
Part of the seeming contradiction in ag conditions can be explained by the economic outlook for crops versus that for livestock. While cattle producers have enjoyed record prices amid tight supplies and sustained consumer demand, crop producers have generally faced declining prices and tightening margins over the past several years, offset only by ad hoc government assistance. Even if livestock revenue and government assistance help with ag profitability in the short run, farmers and ranchers will have to make effective decisions to manage risk and position their operations for success in the long run.
Agricultural producers face risks across five broad categories, from production and marketing to financial, legal, and human risks. Farmers and ranchers must continually manage risk in their operations to be successful. Helping producers prepare for, adapt to, and overcome these challenges is part of the broad educational mission of the Extension Risk Management Education (ERME) program. The North Central ERME Center is funded through USDA’s National Institute of Food and Agriculture to deliver programming and fund educational projects throughout the North Central region. The Center supports educational projects that address topics across the broad areas of agricultural risk to help producers achieve risk management outcomes and improve farm profitability and business success. Identifying issues and needs is an important first step to understanding and addressing agricultural risk and is part of the Center’s on-going mission.
Needs Assessment
The Center makes a concerted effort each year to work with and listen to stakeholder groups as part of its needs assessment effort. The center’s listening group representing production agriculture, ag professionals, organizations, and institutions met in June to discuss issues currently on the minds of producers and the needs and challenges ahead for producers. The Center also gathered needs assessment input from producers, agricultural stakeholders, and Extension agricultural economists at small farm, value-added agriculture, and ag outlook conferences in the region. The stakeholders identified numerous issues through the listening session and conference input that provide a valuable perspective of current agricultural conditions and risk management education needs.
The first and most common issue raised in discussions and input is the ag economy and the divergence between the crop sector and the livestock sector. The crop sector has endured lower commodity prices and higher production costs over the past few years and multiple parts of the North Central Region have faced either drought or flooding during the current growing season limiting production potential. That has put increasing pressure on margins, cash flow, borrowing capacity, and financial stress. Near-record government payments have helped offset the financial losses, but have largely come through ad hoc emergency payments, creating both an increased dependency on government support and an increased uncertainty for the sector. In contrast, the livestock sector, or more specifically the cattle sector, has enjoyed record prices and returns recently amid cyclical lows in cattle inventory. However, the industry also faces challenges including drought or wildfire losses of forage capacity and long-run investment decisions if it is to rebuild the herd. Across all sectors, producers need to manage input costs, decisions, and price risks and analyze the use and role of risk management tools, including supplemental and margin-based insurance products.
While the ag sector may be focused on current financial challenges, it also must continue focusing on production and productivity. Stakeholders identified the growing importance of managing agricultural data. That recognizes the growing accumulation and application of precision agricultural data and operations over the past two decades as well as the potential to use artificial intelligence to manage data and make informed management decisions. There are continuing concerns over data management, ownership, and privacy, but also a recognition of the need and value of sharing data as appropriate and working with professionals to improve the management, analysis, and precision practices on an operation.
A key point in managing ag data or managing the operation more broadly is the need to focus on the role of management, building the capacity to keep and utilize sound records and benchmark analysis to make improved management decisions, whether production, marketing, investment, or other issues. The discussion on management also highlighted the role of outside expertise and perspectives or a “board of directors” to bring information and insight to producers. Focusing on management also includes attention to building the capacity of the next generation through effective farm organization and transition planning as well as next-generation or beginning farmer training and targeted efforts including financial strategies.
The financial challenges and risks noted in agriculture, particularly the crop sector, also highlight the need for attention to financial management. Tighter financial conditions and increased borrowing needs may run up against tightening credit standards, putting pressure on leveraged or low-margin, high-cash-cost operations. In some cases, the increased capital intensity has pointed toward increased outside equity or non-traditional investment and increased borrowing from non-traditional lenders including equipment or supply vendors. Managing the increased financial obligations as well as financial relationships with lenders, vendors, landlords, and more are all a critical part of successful financial management.
Among the range of risks producers face are numerous outside shocks and developments. Producers in some parts of the region face growing challenges related to groundwater declines or growing developments that put pressure on water availability. Producers also face potential business challenges as trade, labor, or other policy developments disrupt markets and regulations. Other business changes can come from supply chain shocks such as the opening or closing of processors, the outbreak and management of animal diseases, or the various natural disasters such as drought, flooding, wildfire, and storms. Even as producers face these business risks and outside shocks, they also must manage human risks that are fundamental to the operation, including personnel management, family communications and relationships, and personal safety and well-being.
As important as these risks and management decisions may be, they don’t even include some of the unique risks that producers face when they work with or produce something outside of the traditional, commercial-scale, commodity-focused ag system. Small, diversified, and direct marketing operations often face different risks and need different tools to manage production and marketing risk. Producer input among these producer groups highlighted an overriding question of access, where access to land and access to capital are known constraints, but access to programs and access to markets can be challenges as well. These operations also tend to interact more directly with consumers and the public and face additional concerns about regulations and business practices.
Helping the full range of producers prepare for, adapt to, and effectively manage these risks is part of the broad educational mission of the Extension Risk Management Education (ERME) program. The University of Nebraska-Lincoln hosts the North Central ERME Center, funded through USDA’s National Institute of Food and Agriculture. The North Central ERME Center and its companion centers around the country manage regional competitive grant programs to support local projects that reach producers with the risk management education they need and demand. For educators, groups, and entities interested in delivering education, for producers interested in educational projects and materials, and for those interested in the outcomes of funded projects, you can visit the center website at http://ncerme.org and the national program website at http://extensionrme.org.
| The North Central Extension Risk Management Education Center and this material are supported by USDA/NIFA under multiple awards including 2021-70027-34694 and 2024-70027-42470. |