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Building a Balance Sheet
Allison Beichner, Ag Relationship Manager and Phil Taylor, Ag Business Consultant
Knowing the financial position of your farm business is critical to its future success. One of the most important financial statements in helping you to understand the financial performance of your operation is the balance sheet.
A balance sheet measures your financial position at a specific point in time providing an overview of the equity position — also known as net worth — of your farm or business, in addition to cash investment. Equity is the owner’s personal investment in the farm or business as measured by the assets owned over the debt owed. A balance sheet showcases equity as current and noncurrent assets less current and noncurrent liabilities, and all are important components of a successful business. We'll get into the nitty gritty details of a balance sheet in this article.
Do I really need to complete an annual balance sheet?
Yes! Most farmers and business owners look at their cash position or year-end profit or loss as a measure of success, however, the cash position isn’t the only measure of business success. Completing a balance sheet allows you to see how your farm business’ equity has changed and grown from year to year by giving credit to adjustments for inventories, assets purchased and the change in liabilities throughout the year. Because a balance sheet shows a snapshot of your operation, it is recommended you prepare a balance sheet as of December 31 each year.
Other benefits of completing a balance sheet each year include:
- Improving your understanding of your business’ financial position, which allows you to make more informed management decisions on your farm for the future based on your equity.
- Lenders, such as Farm Credit, use this information to assess your business. Having a balance sheet completed can expedite loan approval when completed accurately and as of December 31 of each year.
- It demonstrates to your lender a greater initiative and interest in how your business performed from year to year.
- Information on the balance sheet can be used to calculate key financial ratios for your farm.
In addition to creating a balance sheet for your farm business, it is also recommended to complete a separate, personal balance sheet on your individual finances.
The Basics of a Balance Sheet
The three main components of a balance sheet are assets, liabilities, and owner’s equity. The standard accounting equation represented on a balance sheet is:
Assets = Liabilities + Owner’s Equity
Assets
Assets are anything owned by a farm business that has monetary value. Assets are classified as current and noncurrent.
Liabilities
Liabilities are anything owed by the farm business. Like assets, they are classified as current and noncurrent.
Owner’s Equity
Owner’s Equity is the area of the balance sheet that will need to be calculated since it is dependent on the value of your assets and liabilities. It shows what your business is worth as of the date of the balance sheet.
To calculate Owner’s Equity, subtract liabilities from your assets. The remaining value is Owner’s Equity.
Assets – Liabilities = Owner’s Equity
As a young and/or beginning farmer, it often feels as though progress moves slowly and business growth — and ultimately success — is not easily measured. Completing an annual balance sheet allows you to track the financial success of your business as net worth grows over time. Understanding the “change” in net worth is key. Is net worth increasing or decreasing? Why is it changing?
The goal is for net worth to increase each year because of the earnings generated by the farm business, not simply because assets were valued at a higher level. Take some time to fill out a balance sheet and compare it to one completed on December 31 of this year. Do this task for three years and then reference the first balance sheet you completed to see how far your business has come.
Want to see it explained a little easier? Check out this quick video! If you’re ready to try your hand at your own balance sheet, click here to download our balance sheet case study.
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Beneficial Ownership Information (BOI) Reporting for Your Business
Reporting requirements have changed and this blog may no longer be accurate.
What is a BOI Report?
The Beneficial Ownership Information (BOI) report is a new type of report required by the U.S. federal government that discloses the owners of a business. Most businesses are required to file the BOI report with the Financial Crimes Enforcement Network (FinCEN) between January 1, 2024 and March 21, 2025. This report was created to help increase transparency of businesses and help fight illicit activity through the use of business structures. There are civil penalties if the BOI report is filed late and criminal penalties for willfully failing to file. BOI reports must be updated within 30 days if there are any changes, and businesses will be required to file an updated BOI if any information changes such as address, or the addition or reduction of owners. Read below to learn more about this report.*
*While our Business Services team can provide some guidance on this matter, specific questions on beneficial ownership and your potential requirement to file the BOI report should be referred to your legal counsel as our team does not file beneficial ownership information on a customer’s behalf with the Financial Crimes Enforcement Network.
Do I need to file a BOI report for my business?
The general rule is, if you filed documents with the secretary of state — or any similar office under the law of a state or Indian tribe — when establishing your business, you may need to file the BOI report. There are a limited number of entities exempt from filing. Here are some examples where you may not need to file a report:
- Sole proprietors doing business under their own name (no corporation or LLC)
- General partnerships (no filing done with secretary of state)
- Larger businesses and non-profit organizations*
- Highly regulated industries
- Examples include: publicly traded businesses, governmental authorities created by federal, state, or tribal governments, banks and credit unions, money transmitters, securities brokers and dealers, investment companies and advisors, venture capital fund advisers, insurance companies or producers, commodities brokers and dealers, public accounting firms, public utility companies, pooled investment vehicles, and inactive businesses
*For large businesses, you must meet all of the following criteria: over $5 million in gross revenue reported on the previous year's tax return and without any foreign-source revenue, business employs over 20 full-time employees in the United States, and have a physical office location in the United States. For non-profit organizations, you must meet one or more of the following criteria: an organization that received IRS approval for tax-exempt status under Internal Revenue Code section 501(c), a political organization that is tax-exempt under section 527(a), or an organization that is a trust under section 4947(a).
Who needs to be included on my BOI report?
See the table below for a timeline on filing your initial report and an updated report if changes are to occur.
| Established Date | Initial Report | Updated Report |
| Business entities already formed or incorporated before 1/1/2024 | Between 1/1/2024 and 3/21/2025 | Required within 30 days after any changes occur |
| Business entities formed or incorporated on or after 1/1/2024 OR 1/1/2025 | Within 90 days of receiving notice that their business entity was created or registered at the state level | Required within 30 days after any changes occur |
Who needs to be included on my BOI report?
On the BOI report, you must identify the company’s beneficial owners. A beneficial owner is any individual who, directly or indirectly, exercises substantial control over the reporting company or owns/controls at least 25% of the ownership interests of the reporting company. The following information on each company and each beneficial owner must be included:
| Company Information | Beneficial Owner Information |
| Full legal business name | Full legal name |
| Any DBA or trade name used by the business | Date of birth |
| Street Address of the company's primary place of business | Street address of current residence |
| The jurisdiction where the business was formed or registered | Identification number from a non-expired, government issued photo ID, along with the name of the issuing state (such as driver's license or passport) |
| The company's EIN (taxpayer ID number) | An image of the photo ID from which the identifying information was obtained |
What if I fail to file my BOI report on time?
Failing to file the required information through FinCEN by your required deadline could have significant consequences. Willfully failing to file or providing fraudulent information may result in a daily fine of up to $591, imprisonment for up to two years, or a fine of up to $10,000.
How do I prepare now for BOI filing?
While Farm Credit’s Business Services team can provide some guidance on this matter, specific questions on beneficial ownership and your potential requirement to file the BOI report should be referred to your legal counsel as our team cannot file beneficial ownership information on a customer’s behalf with FinCEN.
Here are some recommended “to-do’s” in preparation for filing:
- Review your list of business owners and key employees.
- Collect the Beneficial Owner personal information and make sure is up to date.
- Review your by-laws or operating agreements. You may need to add language that requires company’s beneficial owners to provide the business with required information.
Consult with your attorney for additional support in your by-laws and filing requirements. - Do your research at Beneficial Ownership Information Reporting | FinCEN.gov
- A reporting company can file online through the FinCEN BOI website at BOI E-FILING (fincen.gov)
If you have questions or need guidance on filing, a member of our Business Services team may be able to help. With increasing complexities in accounting, a member of our team may be the solution to your accounting and consulting needs. Visit our Business Services page to learn more or contact us today at 888.339.3334!
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Farm Credit Awards $150,000 to New and Beginning Farmers
Horizon Farm Credit recently awarded $150,000 in grant funds to 15 new and beginning farmers through JumpStart, the Association’s competitive grant program for farmers in the start-up phase of business.
JumpStart is an annual grant program for agriculturalists with two years or less of farming experience, or those who plan to begin farming within the next two years. Grant funds can be used in various ways to support farm businesses. The 2024 recipients plan to use their funds to advance their operations through the purchase of items ranging from high tunnel systems that extend production cycles to irrigation systems, new infrastructure, and livestock handling equipment, among much else. Funds can also be utilized for services including legal fees, business planning, or other startup costs.
“Supporting beginning farmers is and always will be a priority at Farm Credit, and we’re proud to play a role in helping these individuals get started on their journey,” said Tom Truitt, Chief Executive Officer of Horizon Farm Credit. “These farmers are all uniquely talented, and one thing they share is their obvious passion for agriculture and ensuring its successful future. The funding provided by this grant program is a steppingstone for these new farmers to pursue their dreams and realize long-term financial success.”
The following applicants received grants valued at $10,000 to establish and grow their farms:
- Trenton Aitken of Follansbee, West Virginia
- Justin Belko of Wexford, Pennsylvania
- Bret Bucci Jr. and Trish Bucci of Sharptown, Maryland
- Andrew Burkholder of Chambersburg, Pennsylvania
- Andy Christman of Derry, Pennsylvania
- Frank Hamill of New Florence, Pennsylvania
- Elizabeth Krug of Dalton, Pennsylvania
- Jennifer Lauri of Sweet Valley, Pennsylvania
- Reges and Jean Magtibay of Westminster, Maryland
- Caleb Murphy of Greenwood, Delaware
- Matt Nowicki of Red Lion, Pennsylvania
- Becky Rockstroh of Freeland, Maryland
- Arthur "Carey" Saffelle III and Melissa Saffelle of Front Royal, Virginia
- Mitchel Smith of Shermans Dale, Pennsylvania
- Craig and Erin Swope of Canonsburg, Pennsylvania
More than 100 applications were received for the 2024 JumpStart grant program, all of which were carefully evaluated by a diverse panel of agriculture professionals and industry experts. Those named above were selected on the merits of their submissions, which included an application, business plan, and completion of the Ag Biz Basics educational course. Learn more about this program by visiting horizonfc.com/jumpstart.
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Enabling Your Farm for the Future
by Joe Waddell, Director of Market Innovation, Horizon Farm Credit
With so many new technologies emerging for farms, it can be hard to sift through the noise of what you do and don’t need. New technologies are great, but many producers can still benefit from technology that has been on the market for some time, which can often be a more cost-effective option to provide profitability and success. While new technologies may provide additional insights and data that can drive further efficiency, older technology can have these capabilities too.
Before you start tracking every data point on your operation and integrating new products, you must examine and question your current processes, technology, and insights. Knowing your why and the unique story of your farm will help you realize what you’re doing, why you’re doing it, and how you can improve. You’ll then be ready to collect data that provides further insights into your farm, positioning you to influence those developing future technologies down the road.
Focus on Actionable Insights
Unsure where to begin? Data sets without insights are just a bunch of numbers. To truly benefit from this information, focus on actionable data such as:
- Yield data to help you understand which areas of your farm are most productive.
- Consumption rates to track how resources like fuel, water and fertilizer are being used.
- Turn times to monitor the efficiency of your equipment and processes.
Removing inefficiencies is key. Invest time and resources in tools that streamline your operations and provide a measurable return on investment, which doesn’t necessarily have to be monetary. By streamlining and automating tasks, or removing labor from the equation, you can save time and money. These types of efficiencies are low hanging fruit that can be realized through data examination.
Increase Your Aged Equipment's IQ & Prepare for an Upgrade
It may not be profitable for you to replace your current systems with new technology. However, you can enhance your current equipment and technology to work for you. Older equipment can even benefit from newer technology to allow an extended lifespan while adding new capabilities.
Tools like GPS, row clutches, and section control can significantly improve efficiency which can save fuel, other inputs — like seed fertilizer spray — and time. Adding new capabilities to older equipment also opens the door to variable rate nutrient applications, increasing operational efficiency far beyond the immediate benefits.
Up and coming tools that utilize actionable artificial intelligence (AI), like Farmwave, help reduce waste and improve efficiency of your existing legacy combines by better tracking header and crop loss real time, allowing you to make beneficial adjustments on the fly. When looking at older equipment and technology, think creatively about simple actions that can save you time and money.
Embrace Digitalization and the Next Generation of Technology
Once you lay the groundwork and gather key insights about your operation, you’re in a prime position to leverage the next generation of tools coming to your doorstep. To take advantage of AI and machine learning tools, you must provide sound data to the models. By having a solid baseline of historical data and information to feed to these tools, you can leverage the immense trend analyzing power these tools provide.
Start with simple digitization efforts and gradually move towards more complex systems. Focus on enabling technologies that increase operational efficiency before exploring disruptive tech. For example:
- GPS technology improves precision and efficiency in tillage, planting, spraying, and harvesting.
- Remote monitoring and connectivity tools from basic security monitoring cameras to application-specific products, like BinSentry, allow for constant oversight of your farm operations while freeing up manpower.
- Process improvement, inventory management and tracking tools, like One™ by Milc Group, allow you to be better control inventory, reduce waste, improve employee efficiency, and create more precise TMR rations.
At the end of the day, if you don’t question and examine what technology and data is telling you, you can’t learn from it or know how data benefits your farm and its unique story. When you leverage data available on your operation, you can enable your farm for the future with technology you already have and set yourself up to introduce new technology where it makes sense.
Have you integrated technology on your farm or made a change that’s been successful? I’d love to hear about it! Reach out to me at jwaddell@horizonfc.com to connect and share your story.
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'Tis the Season for Acreage Reporting
Ralph Stickman, Crop Insurance Agent
Spring crop acreage reporting time is upon us! If you haven’t already heard from your crop insurance agent or received a copy of your Map-Based Acreage Report (MBAR), don’t hesitate to reach out and request your copies. These maps are invaluable tools to have with you in the tractor to record your planted acres and planting dates as you finish fields.
While reporting, keep in mind it is crucial that your planted acres and planting dates are correct. Accurate planting dates ensure you have the proper coverage for the year, and precise acreage reporting allows us to provide a detailed report of your coverage based on the acres and dollar amount per acre. Incorrect acreage can affect your total financial coverage and impact your production average in future years.
For example, a field traditionally reported as 100 acres based on maps might plant to 92 acres due to obstacles and changes made over the years. We need to know the actual number of planted acres, not just the field or boundary acres. Insuring the entire amount leaves you paying a higher premium than you should, and at harvest time, it spreads your production across more acres, resulting in lower production averages.
5 Fast Facts About Spring Acreage Reporting in the United States:
(per USDA)
- Mandatory Reporting:
- The United States Department of Agriculture (USDA) requires all farmers who participate in federal crop insurance programs to report their planted acres annually. This reporting is crucial for determining the extent of coverage and ensuring that claims can be accurately processed.
- Deadlines Vary by State:
- Acreage reporting deadlines vary by state and crop, but they typically fall between late June and early July. Missing these deadlines can result in reduced coverage or ineligibility for certain programs.
- Technology Integration:
- Many farmers now use GPS and other precision agriculture technologies to map their fields and track planting dates. This data can be directly integrated into MBARs, making the reporting process more accurate and efficient.
- Financial Impact:
- Accurate acreage reporting directly impacts the financial protection farmers receive. Underreporting can lead to inadequate coverage, while overreporting can result in unnecessarily high premiums and lower production averages.
- Compliance and Verification:
- The USDA conducts regular audits and verifications to ensure the accuracy of reported acres. Discrepancies between reported and actual planted acres can lead to penalties or adjustments in coverage.
When it’s time to review and sign your MBARs for the year, carefully review each yield line to ensure that planted acres and planting dates are correct. Remember, accurate reporting is not just a regulatory requirement; it's a critical step in protecting your livelihood and ensuring the stability of your farming operations. Reach out to your crop insurance agent today to ensure you’re on track with your acreage reporting. As always, our team is here to assist you through every step.
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Horizon Farm Credit Announces 2024 First Quarter Financial Results
Horizon Farm Credit has announced its 2024 first quarter financial results. Net accruing loan volume for the first three months of 2024 was $6.6 billion, an increase of 6.7% compared to the same 2023 period. Net interest income for the first quarter of 2024 was $47.9 million, a 6.1% increase from the same period in 2023. Net income for the quarter was $32.7 million, a 4.4% decrease compared to the first quarter of 2023. The unfavorable impact of the 2024 first quarter results is principally related to a provision for allowance for credit losses recorded.
Nonaccrual loans increased $1.9 million in the first quarter of 2024 to $29.9 million, compared to $28.0 million at December 31, 2023, and decreased $4.2 million compared to $34.1 million at March 31, 2023. The Association’s nonaccrual loans as a percentage of total loans increased to 0.45% at the end of the first quarter of 2024 compared to 0.42% at the end of 2023, and decreased compared to 0.54% at the end of the first quarter of 2023.
“Horizon Farm Credit’s success is a direct reflection of our member-borrowers’ performance, and we are pleased to see continued growth,” said Tom Truitt, Horizon Farm Credit Chief Executive Officer. “Our mission is to provide consistent and reliable credit to rural America. We continue to be inspired by our members’ success, and we’re proud to support rural America as they make their dreams a reality.”
Members’ equity at March 31, 2024, totaled $1.2 billion — up 2.7% from December 31, 2023. Total Regulatory Capital Ratio was 15.84% as compared with the 10.5% minimum mandated by the Farm Credit Administration , the Association’s independent regulator. The Association paid a cash patronage distribution of $79.5 million to its member-borrowers in the first quarter of 2024.
For more information about the financial results and Horizon Farm Credit, visit horizonfc.com.
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Crop Insurance 101: Replant Coverage Explained
Jessica Clarke, Crop Insurance Agent
As we've already seen a lot of wet weather this spring, many farmers in the mid-Atlantic are behind on their planting, which raises concerns about the upcoming growing season. Understanding replant, late planting, and prevented planting coverage in your crop insurance is crucial during such delays.
Know Your Options
During challenging planting seasons, it's essential to know what's covered by your Multi-Peril Crop Insurance (MPCI) policy to recover from losses. Here's a breakdown of the coverage included:
What is Replant Coverage?
Replant coverage applies if your planted crop suffers damage, and you plan to replant the same crop on the same acreage. This coverage may reimburse a portion of your replanting costs.
To qualify:
- Contact your agent and file a claim before replanting.
- Replant at least 20 acres or 20% of the unit acres.
- Do not plant before the Initial Plant Date (specific to county and crop).
- Catastrophic (CAT) coverage policies are not eligible.
We offer two types of replant claims: Regular (for over 100 acres per unit) and Self-Certification (for under 100 acres per unit). Claims can't be paid until you file your acreage report.
Do I Qualify for Late Planting Coverage?
This applies when you plant after the Final Plant Date (FPD). Coverage decreases by 1% per day during the Late Planting Period (LPP), becoming uninsurable if planted after this period. Dates vary, so contact your agent for specifics.
Can I File a Claim for Prevented Planting Coverage?
This applies if you can't plant due to an insured cause, like widespread weather events. You may receive a percentage of expected revenue.
To qualify:
- File the claim after the Final Plant Date or within 72 hours after the LPP.
- Plant at least 20 acres or 20% of insured crop acres.
- Acreage must have been planted in one of the last four crop years.
- Report Prevented Planting Acres on your acreage report.
Consult your agent about rules for planting a second crop after Prevented Planting and be sure to contact your agent immediately if you might face a Prevented Planting situation.
For personalized advice, it’s always best to consult your crop insurance agent directly. Detailed records of plant dates and acreage are essential for claims processing.
Farm Credit's crop insurance agents are ready to review your policy and discuss replant coverage and options. We're here to help you manage risk and gain peace of mind this planting season! Contact us today at 888.339.3334 or learn more here.
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Farm Credit Distributing $79 Million to Members Through Unique Patronage Program
“Farm Credit’s cooperative structure allows us to share our profits with member-borrowers to significantly reduce their cost of borrowing, and this unique program distinguishes us from other lending institutions,” says Tom Truitt, Horizon Farm Credit Chief Executive Officer. “We’re proud to serve rural America and to be a trusted partner in providing reliable, consistent credit.”
Horizon Farm Credit is a part of the national Farm Credit System. Each Association determines its patronage payout, which is dictated by its total income, expenses, market conditions, and the Association’s bylaws. All patronage distributions are at the discretion of the Board of Directors, whose objectives are to ensure financial stability, fund future growth, and maximize returns to members.
“Patronage is a great benefit of being a Farm Credit member and we are very proud to be able to return this portion of our income to our members and communities,” says Brian Rosati, Horizon Farm Credit Chief Financial Officer. “We are committed to ensuring that the patronage program remains strong to support our members’ future successes.”
This year’s distribution will arrive to members in mid-April. To learn more about Farm Credit’s patronage program and to calculate your estimated patronage distribution, please visit horizonfc.com/patronage.
About Horizon Farm Credit
Horizon Farm Credit is a member-owned agricultural lending cooperative, providing consistent and reliable financing and related services to full- and part-time farmers, agricultural-related businesses, and rural landowners. The Association serves 100 counties across Delaware, Pennsylvania, and parts of Maryland, Virginia, and West Virginia. The Association has more than 22,100 members and over $6.5 billion in loans outstanding. Learn more at horizonfc.com.
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Ag Insights: Forest Products
by Matt Speacht, and Ron Weisenstein, on behalf of the Forest Workgroup
A Review of 2023
As we flip the calendar into 2024, it is important to look back on 2023 and reflect on the year’s impact on the forest products industry.
After the severe drop in hardwood lumber prices in the last half of 2022 through January 2023, markets started to stabilize. Prices for black cherry, hickory, hard maple, soft maple, yellow poplar and low-grade continued to slowly decline in 2023. Prices of white ash and red oak were generally stable throughout the year, and prices for white oak and walnut increased. Markets for railroad ties were fair and moving steadily. Blocking lumber prices dropped severely and the pole-wood markets were slow and lower priced.
While 2023 was marked by challenges and volatility for the industry, it also saw resiliency among the producers. Forest products businesses navigated a complex landscape shaped by various factors, including reduced home building, higher interest rates compared to recent years, technological advancements, and labor shortages, among others. Despite facing these challenges, many forest products businesses demonstrated resilience and adaptability in leveraging innovative strategies to sustain operations and capital on emerging opportunities.
Softwood lumber prices were mostly range-bound for the majority of 2023, which is directly related to both home building — commonly referred to as housing starts — and interest rates. Housing starts in 2023 were approximately 1.4MM, which was below economists’ expectations for the year, but above 2022. Housing starts in 2024 are expected to fall around 1.5MM, while a 7% increase from 2023 Freddie Mac economists believe this figure still puts the U.S. approximately 4MM housing starts short of meeting demand.
For timber prices and housing starts to rebound further, there likely needs to be a material decline in interest rates. The Federal Reserve is expected to make cuts to the Federal Funds Rate multiple times this year, which should bring relief to homebuyers and builders. From a labor standpoint, scarcity of manpower drove up labor costs for forestry businesses, impacting profit margins.
Given the weak timber markets and increased labor costs, many operations evaluated how they could reduce expenses while maintaining, or even improving, efficiency. Many businesses chose to pursue technological advancements for their operations. Innovations in forestry management software, remote sensing technologies, and precision forestry techniques allowed operations to optimize resource utilization, enhance productivity, and minimize environmental impacts. However, the adoption of these technologies varied across the industry, impacting efficiency and competitiveness among different market players.
Overall, forest products businesses in 2023 demonstrated resilience, adaptability, and a commitment to sustainability and innovation, laying the groundwork for continued growth and success in the years ahead.
Key Factors Influencing the Industry
Forest Pests
In 2023, there were 1.2 million acres of forest defoliation across Pennsylvania, mostly from spongy moth. The counties hit the hardest were in central Pennsylvania. After three years of heavy defoliation in some areas, oak mortality is increasing and will continue to increase as other stressors have an impact. A spongy moth population collapse is hoped for this year from nuclear polyhedrosis virus (NPV) which kills caterpillars over a short period of time in the heavily infested areas. Pennsylvania’s Department of Conservation and Natural Resources (DCNR) and the Pennsylvania Game Commission are expected to spray 347,000 acres for spongy moth in 2024. Control efforts are also planned for Maryland, Delaware, Virginia, and West Virginia.
(Spongy Moth)
Additionally, the hemlock woolly adelgid (HWA) has been found throughout Horizon Farm Credit’s territory. The adelgid can cause mortality of hemlocks within five years of infestation. Mortality from HWA has been heaviest in the central and northcentral areas of Pennsylvania. The loss of the Pennsylvania state tree is significant and can affect stream temperature and quality in some exceptional value trout streams.
The black cherry trees in Northwestern Pennsylvania are widely considered the best in the world. Since 2010, black cherry decline continues to be a serious issue, causing dieback, reduced masting, poor regeneration success, and heavy mortality. Black cherry decline is being researched and much remains a mystery. Some possible causes are tree age (too old), increased pathogens (cherry scallop moth, peach borer, root rot, leaf spot disease, and more), decreased nitrogen in the soil, atmospheric nutrient inputs, or the loss of pollinators. Most likely, it is a combination of factors.
Within the Mid-Atlantic and Northeastern U.S., beech trees continue to be plagued by both Beech Leaf Disease and Beech Bark Disease. Beech is a climax species in our forest and is important for wildlife. Thus far, beech has suffered a minimum of 50% mortality in our region. That number will likely move to 90% over the next decade.
Over the last decade, Horizon Farm Credit’s territory lost 95% of the ash trees growing in its forests to the Emerald Ash Borer. A very small percentage of trees show resistance, and the hope is those few trees will propagate and hundreds of years from now, ash trees may once again be a larger part of our forested landscape.
The Spotted Lantern Fly (SLF) has now been found in all counties in our territory. The SLF feeds on the sap of a variety of species, showing preference for grapevines, fruit trees, maple, black walnut, willow, and birch. The long-term effects on our forests are not yet known, but SLF feeding causes additional stress to trees, which in combination with other factors, can cause decrease in health and in some cases, mortality.
The above notes are just a few of the pests that are affecting hardwood forests in our region. For more information on invasive pests, contact USDA APHIS, your state Bureau of Forestry, or Extension.
Perspectives and Projections for the Year Ahead
The first quarter of 2024 has seen black cherry, hickory and yellow poplar prices continue to decline, while white ash and black walnut were stable. Modest price increases in hard maple, soft maple, red oak, and white oak have occurred. There are some signs that blocking prices have hit bottom and are slowly edging back up. Due to a wet and unfrozen winter, pole-wood inventories at mills have dropped and mills are readily buying wood currently, although, still at relatively low prices.
It appears that the much-anticipated recession may not occur, and the U.S. economy is relatively strong. Inflation has subsided from the highs of the last couple of years. High mortgage rates continue to impact housing starts, but a very modest increase is expected this year. Hopefully, this keeps hardwood markets stable or encourages a slight increase throughout 2024.
West Virginia recently experienced a loss after the closure of one the largest producers of hardwood lumber in the U.S., which operated seven hardwood sawmill locations. It is not fully understood what impacts that loss may have on hardwood markets and if the mill locations will be purchased to run again. The seven locations produced approximately 180 million board feet per year and employed over 800 people. A loss of this volume may cause a temporary increase in prices, at least until that production is replaced.
Interested in reading our other 2024 Ag Insights? Check out our other articles on:
The information in this article is a summary of select economic conditions and agricultural industries prepared by Horizon Farm Credit staff. This material is for informational purposes only and cannot be relied on to replace your own judgment or that of the professionals you work with in assessing the accuracy or relevance of the information to your own operations. The information provided in this report is not intended to be investment, tax or legal advice and should not be relied upon by recipients for such purposes. As with any economic analysis, the information is based upon assumptions, personal views and experiences of those who provided the source material as well as those who prepared this summary. These assumptions, conclusions and opinions may prove to be incomplete or incorrect. Economic conditions may also change at any time based on unforeseeable events. Horizon Farm Credit assumes no liability for the accuracy or completeness of the summary or of any of the source material upon which it is based. No commitment to lend, or provide any financial service, express or implied, is made by posting this information. In no event will Horizon Farm Credit be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.
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Ag Insights: General Outlook
by Maureen O’Shea-Fitzgerald, Rob Goodling, Jacob Lantzsch, Philip Taylor
It’s difficult to ignore the impact that the world and United States economy has on agriculture within the Horizon Farm Credit territory, which includes 100 counties in Delaware, Maryland, Pennsylvania, Virginia, and West Virginia. The following is a review of key economic factors and their influence on the agricultural industry.
International Perspectives
Global Inflation and Supply Chains Normalize
The 6.8% estimated global inflation rate for 2023 is continuing a trajectory lower from the highs of 2022 to an estimated 5.8% inflation rate in 2024 and 4.4% in 2025. This trend is showing a faster fall in inflation than previous estimates have shown. The world is trending slowly back toward pre-2020 levels of both inflation and Gross Domestic Product (GDP) growth, as shown in Figure 1.1. Emerging markets, such as Asia, continue to have higher GDP growth, as well as higher inflation.
Figure 1.1: Global Inflation Trends Month over Month with Seasonal Adjustments
Supply chain constraints, which were greatly impacted during the COVID-19 pandemic, have mostly returned to normal levels. Ship container freight costs are comparable to pre-2020 costs, while other modes have also reduced in cost but remain higher than pre-2020 costs to adjust for inflation. Most mainstream items — cars, equipment, and parts — have returned to normal inventory levels and lead times, except niche items. To streamline the constraints, manufacturers have shrunk their offerings especially around specialty items. These effects can be felt with older equipment electronics as the components could be unavailable sooner than what was seen in the past. Manufacturers continue to experience smaller interruptions on certain components as they search for vendors to fill holes left by sanctions on Russia, as well as some manufacturers choosing not to use Chinese businesses as suppliers.
Global Conflicts Continue to Disrupt
Global conflicts impact the United States, and specifically the agricultural sector, in many ways. Below is an overview of a few current global headlines and their effects on agriculture.
The Israel-Hamas war has been in the headlines since October 2023after Hamas launched a surprise attack on southern Israel from the Gaza Strip. While the war has imposed significant impacts in many ways, there has not been a large impact from a global agricultural perspective. Both Israel and countries in the Gaza Strip do not contribute greatly to agricultural imports or exports. However, there is concern that increased tensions in the Middle East could escalate and affect oil prices. A slight rise in global oil prices was seen following the initial outbreak of this conflict, but quickly returned to pre-conflict levels as fears around a larger Middle Eastern conflict subsided.
As the war in Ukraine enters the start of its third year, the markets have already adjusted to the impacts. With no real progress being made to end this war, it is unlikely it will affect markets in 2024. The most noticeable impact in the three-year conflict was felt in European countries that purchased cheap grain from Ukraine, which drove grain prices down for European farmers. This was one of the many issues European farmers protested recently related to the war.
Protests by European farmers have made major headlines across the world. As outlined in a recent article by American Farm Bureau Federation, European farmers are using the protests to urge European Union officials to address issues over prices and bureaucratic rules. Some of the biggest issues being protested include environmental regulation, trade deals, and pricing. While the European protests have not directly impacted the U.S. yet — as production hasn’t increased or fallen due to the protests — there could be future impacts on the U.S.
U.S. Economy
Consumer Price Index Drops
Nationally, inflation is seeing some positive trends, with Consumer Price Index (CPI) dropping significantly in Q3 2023 and Q1 2024. The high inflation from 2021 through most of 2022 left a lasting impact on the current economy, with CPI during that period above the 5% mark, as depicted in Figure 2.1. For many goods and services, Americans are paying significantly more compared to this time three years ago. While some groups of products are seeing a negative current rate of inflation, like the energy sector, products or services — like medical costs, utilities, and labor — are not likely to recede from their inflated positions in early 2024.
In its current view of the economy for 2023 to 2025, the U.S. Congressional Budget Office expect inflation to slow over the next two years and approach the Federal Reserve’s target rate of two percent.
Figure 2.1: 12-month percentage change of Consumer Price Index (all items), not seasonally adjusted, for past 20 years
Consumer Food Spending
The U.S has historically enjoyed an abundant, safe, and inexpensive food supply. Figure 2.2 shows that during the 40-year period from 1960 to 2000, the share of Americans’ disposable income spent on food dropped from 17% to 10%. It remained below 10% until 2013 when food prices increased, partially due to the drought of 2012. In addition, food purchases away from home increased during this time and contributed to higher food spending. Since the pandemic of 2020, the share of disposable income spent on food has increased sharply through 2022. While no 2023 data is available, based on food inflation numbers for 2023, it is expected that the share of disposable personal income spent on food decreased in 2023 with a shift back to more food-at-home spending.
Figure 2.2: United Stated Share of Disposable Personal Income Spent on Food, 1960-2022
Despite inflationary rises in prices, consumers are still demanding animal proteins. This demand is not uniform across sectors. Multiple years of sub-optimal conditions for beef cattle has forced the beef market to contract from eight years of growth. High cattle prices with moderate increase in retail prices leave packers with tight margins for the foreseeable future. Poultry, specifically chicken, is poised for growth in 2024. Favorable grain prices should allow consumer prices for chicken to moderate, resulting in moderate growth. Concerns remain for supply disruptions from Highly Pathogenic Avian Influenza, which had limited impact in 2023. Pork has remained weak domestically but has found some ground in exports which help to maintain its slight increase in production in 2024.
Interest Rates and Construction Costs Plateau
In its Budget and Economic Outlook: 2024 to 2034, the Congressional Budget Office (CBO) projects interest rates to decline in the second quarter of 2024. However, Chairman Powell of the Federal Reserve Board indicates an unlikely reduction in rates until later in 2024. Interest rates, therefore, are expected to maintain their elevated level from recent historical lows during 2010 through 2021. Fifty years of bank prime loan rates (Figure 2.3) demonstrate that even despite interest rate increases during the past two years, the current rate is below historical levels prior to 2010.
Figure 2.3: Bank Prime Loan Rate Changes – 1975-2024
The U.S. Bureau of Labor Statistics reports that the annual price growth in residential construction goods cost dropped over 10% in 2023 from 15% to 1.3%. While this is good news, the downside is that the price level rose significantly in 2021 and 2022. More broadly, construction costs are expected to remain elevated in 2024. Figure 2.4 demonstrates the increase in ready mix concrete from 1982 (base year) through 2023. In 2024, construction costs are expected to hold near 2023 year-end levels, however, those levels are historically high in the short term.
Figure 2.4: Producer Price Index (PPI) Commodity Data: Ready Mix Concrete Base = 1982
Fuel and Labor Costs Remain Elevated
The current unemployment rate hovers below 4%, remaining at or near historical lows dating back to 2004, according to the U.S. Bureau of Labor Statistics. The wage growth tracker, maintained at the Federal Reserve Bank of Atlanta, shows the rate of wage growth slowing in 2023 after several months of rapid growth. The average hourly earnings of all private employees continued to rise at a consistent linear rate in 2023, as seen in Figure 2.5. From pre-pandemic levels when the average rate was $28.55 per hour to the February 2024 level of $34.57 per hour, the average annual increase was 1.5%. U.S. employers will be able to find workers but will need to pay higher wages or offer other compensation to entice workers to change jobs. Farm employers will continue having challenges finding and keeping good workers, particularly those competing with businesses offering strong entry level hourly rates.
Figure 2.5: Average Hourly Earnings of All Employees, Total Private
Like labor, issues with fuel continue to ripple throughout the economy. When the cost of fuel increases, the cost to manufacture and transport goods increases the cost of those goods. One bright spot on the economic horizon is the retail price of gasoline and diesel fuel. Figure 2.6 shows that both are expected to decrease in 2024 and 2025, according to a January 2024 report by the U.S. Energy Information Administration. Unfortunately, those prices are not expected to return to pre-2022 levels. As mentioned previously, CPI inflation for energy decreased 5% from 2022 to 2023. This current forecast for 2024 and 2025 indicates the rate of reduction will be slower.
Figure 2.6: Monthly U.S. retail fuel prices (Jan 2019-Dec 2025).
Source: U.S. Energy Information Administration
Farm Economy Recedes
GDP & Ag’s contribution
The CBO projects the growth of real GDP — inflation adjusted) — will slow from 3.5% in 2023 to 1.5% in 2024, primarily due to generally higher interest rates due to higher-than-expected GDP growth in 2023. For 2025 through 2034, the CBO expects a moderate 2.01% average GDP growth rate. Figure 3.1 provides the CBO’s historical Real GDP growth and growth projections through 2034.
Figure 3.1: Growth of Real Gross Domestic Product
How does agriculture contribute to GDP? According to USDA Economic Research Service (ERS), in 2022 agriculture, food, and related industries had a 5.5% share of the GDP, a slight increase from 2021. The output of America’s farms increased from 0.7% of U.S. GDP in 2021 to approximately 0.9% in 2022. Based on USDA 2023 data and 2024 predictions for reduced revenues and lower net farm income from agricultural operations, the short-term agricultural contribution to the GDP will likely stagnate. Figure 3.2 from USDA ERS shows the value added to U.S. GDP by agriculture and related industries. This contribution is expected to continue.
Figure 3.2: Value added to U.S. GDP by agriculture and related industries, 2017-2022
(Source: USDA ERS - Chart Detail)
ERS Net Farm Income Projections
Evaluating estimates for net farm income — an indicator of farm level profits — the USDA predicts an inflation-adjusted 27% drop in 2024 net farm income compared to 2023, and 40% below the record high realized in 2022. When evaluating the inflation adjusted net cash farm income, a similar reduction from both 2023 and 2022 levels is expected. Net cash farm income looks at cash income, including federal program payments, less cash expenses. It does not include adjustments for depreciation or changes in inventory. As shown in Figure 3.3, both metrics are poised to drop below the 20-year average. These lower expectations are based on predictions of lower ag commodity prices — more so in the crop sector than animal and animal products sector — higher than average production costs, and reductions in direct government payments. Initial reviews of 2023 profit positions of farms within Horizon Farm Credit’s territory suggest that 2023 was an average net farm income year, with expectations for 2024 to perform slightly below average.
Figure 3.3: U.S. Net Farm Income and Net Cash Farm Income, Inflation Adjusted 2003-2024F
Land Values Continue to Rise
Land values regionally continue to be a driving factor on expenses and capital investment into the business. Nationally, USDA National Agriculture Statistics Service (NASS) reported farm real estate values — land and buildings on farms — increased 7.4% and cropland increased 8.1% over 2022 levels, according to the USDA NASS August 2023 Land Values: 2023 Summary report. This marks the third year of increases in land values since the price plateaued around $3,100 between 2015 and 2020 — a 30% increase over the last three years. Cash rent data released by USDA showed a slightly lower increase in cash rent trends. Given cash rents are a lagging indicator, these higher land values will contribute to greater increases in cash rents in the next few years. Within Horizon Farm Credit’s territory, there are pockets of accelerated increases in real estate beyond state or national trends. These prices are primarily driven by continued strong demand and limited availability of acreage. Agricultural producers relocating from higher cost regions to lower cost regions are also contributing to higher-than-average increases. The projected net farm income reductions in 2023 and 2024 could have a dampening effect on these price increases for the foreseeable future.
Biosecurity and Animal Welfare Concerns
Today’s social and economic positions for the average consumer afford them greater opportunity to scrutinize what products they purchase based on perceived issues. This can put downward pressure on the sustainability of current systems. For example, consumers perceive a need for greater welfare in farm animals, yet this concern is not uniform across species. Consumers tend to have minimal understanding of existing farm and welfare issues, and this has no consistency in the ability to fund enhanced animal welfare. All members of the food chain — farmers, processors, and consumers — need to be aware and informed of these evolving sentiments to help consumers understand and stay engaged in the conversation to maintain their good will of the population they are feeding. (Source: Consumers’ Concerns and Perceptions of Farm Animal Welfare - PMC (nih.gov))
Farm Bill Update
The Farm Bill is a five-year comprehensive package of laws primarily focused on national agricultural and nutrition policy, while also encompassing 10 other titles including conservation, trade, credit, energy, crop insurance, forestry, horticulture, research and extension, rural development, and a miscellaneous title capturing other programs like those that support beginning farmers. The 2018 Farm Bill represents the most recent such package and was set to expire in September 2023, before being extended for one year through September 2024.
Farm Bills provide certainty to America’s farmers and ranchers, helping them make short and long-term decisions impacting their businesses for years to come. It is important that the agricultural industry remains engaged in the development of every Farm Bill, providing input on issues and programs important to producers, supporting industries, and rural communities.
Although extensive outreach on agricultural policy and potential changes to the current Farm Bill continues by both the House and Senate Agriculture Committees, as of publication, no new Farm Bill has been formally introduced and an election year Congressional calendar makes the prospect of an extension in September increasingly likely.
The remainder of this document includes in-depth discussions on dairy, forest products, grain, and poultry, all these agricultural industries can be found within Horizon Farm Credit’s territory across Delaware, Maryland, Pennsylvania, Virginia, and West Virginia.
Interested in reading our other 2024 Ag Insights? Check out our other, commodity specific articles on:
Dairy
Forest Products
Grain
Poultry
The information in this article is a summary of select economic conditions and agricultural industries prepared by Horizon Farm Credit staff. This material is for informational purposes only and cannot be relied on to replace your own judgment or that of the professionals you work with in assessing the accuracy or relevance of the information to your own operations. The information provided in this report is not intended to be investment, tax or legal advice and should not be relied upon by recipients for such purposes. As with any economic analysis, the information is based upon assumptions, personal views and experiences of those who provided the source material as well as those who prepared this summary. These assumptions, conclusions and opinions may prove to be incomplete or incorrect. Economic conditions may also change at any time based on unforeseeable events. Horizon Farm Credit assumes no liability for the accuracy or completeness of the summary or of any of the source material upon which it is based. No commitment to lend, or provide any financial service, express or implied, is made by posting this information. In no event will Horizon Farm Credit be liable for any decision made or actions taken by any person or persons relying on the information contained in this report.