Downward trend in the profitability of arable farming

July 5, 2024

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4 minutes reading time

During its annual conference from 14 June to 17 Agricultural benchmark The Cash Crop Network discussed recent developments in global crop production.

The conference was hosted by the Spanish Ministry of Agriculture, which, together with its operating company Tragsa, has built up and managed an outstanding network of 37 typical arable farms. Around 55 international experts from all over the world discussed current results and issues in global crop production.

Economically, 2023 was a typical year for most Agricultural benchmark farms compared to previous, admittedly very profitable years. Due to high farm-gate fertilizer prices – despite the downward trend on the world markets -, rising machine costs and lower producer prices, many farms had to accept a massive decline in land yields.

The forecasts for 2024 of the Agricultural benchmark The network coordinated by the German Thünen Institute is even more pessimistic. The likely relief from lower fertilizer prices will not fully compensate for the increase in machinery costs. In addition, based on global price forecasts, producer prices are likely to be lower in 2024 than in 2023. The consequence: many typical farms will likely struggle to pay for their land at current rent prices.

Below the reader will find some further highlights from some selected topics discussed.

Renewable diesel boom in the US – how soy production could increase in the US

Several US states have introduced renewable fuel blending targets. As a result, renewable diesel production has increased significantly. By 2029, this will result in an annual need of 8 million tons of soybean oil for renewable diesel production (FAPRI-MU, 2024), representing an increase in demand of 3 million tons compared to 2020. The additional supply could be generated by increasing domestic processing or increasing the area of ​​soybean cultivation; most likely, a combination of both options will be used.

To meet this increased demand for soybean oil by expanding soybean area, approximately 5.1 million hectares (+15% of current soybean area) of additional cropland would be required. An increase in soybean area could be achieved either (a) by switching from continuous corn rotations to corn-soybean or (b) by switching corn-soybean rotations to corn-soybean-soybean. Based on Agricultural benchmark Margaret Lippsmeyer of Purdue University used data to show that option (a) would require a 6% increase in the price of soybeans and option (b) would require an 8% increase to favor these crop rotations over existing ones.

Ukraine’s grain exports: No particular impact on producer prices in Central and Eastern Europe

At national level Agricultural benchmark The producer data showed no indication that producers in Central and Eastern Europe suffered from the influx of Ukrainian grain. As the attached graph shows, the respective wheat margins between Western Europe and Central and Eastern Europe even decreased. Agricultural benchmark Partners mentioned that lower prices than usual were observed in regions close to the Ukrainian border.

EU sugar production: growing and quite profitable in 2023

Due to high EU sugar prices in 2022, EU production increased by 7% in 2023. This made the EU a net exporter again. As global sugar prices were still quite high, the negative impact on domestic prices was small. Thomas de Witte of the Thünen Institute explained that the profitability of sugar beet production was extraordinarily high – an advantage of 1,000 to even 2,000 €/ha compared to other crops could be observed. A possible future reduction in beet prices of 15 to 30 €/t (or 20% to 40%) would still allow beet to be competitive against wheat prices of 230 €/t.

Regenerative agriculture – a promising option for reducing the ecological footprint?

The members of the Agricultural benchmark The network intensively discussed the concept and environmental impact of regenerative agriculture. Many industry leaders and politicians are promoting this idea to address public concerns about agriculture; influential global consulting firms are trying to educate farmers about the profitability of proposed measures such as cover crops and no-till farming. It turned out that proponents seem to significantly overestimate the potentials, especially in terms of greenhouse gas savings and economics. In addition, the two main sources of greenhouse gas emissions – nitrogen use and land use change – are not taken into account. Considering these shortcomings, the network will publish a thesis paper on the topic and propose more meaningful indicators to define targets that will effectively reduce greenhouse gas emissions and reduce pressure on biodiversity.