If your ancestors sailed to America, they might be amused to discover that you, their farming descendant, are still riding the waves — the waves of agriculture. But there’s a difference: Today’s agricultural waves are economic, and you ride them with management rather than a three-masted schooner.
Tailoring his advice to fit each of his client’s unique financial situations requires Ken Ferrie, Farm Journal field agronomist, to study agriculture’s waves — its cyclical nature.
“The farm economy follows a seven-to-10-year cycle, peak to peak and valley to valley,” he says, citing the corn price cycle graph. “In the valleys, commodity prices fall below cost of production. Profitability occurs during the waves when prices are well above the cost of production.
“A typical farmer experiences four to six of these waves in his career,” Ferrie continues. “While a rising and falling economy is nerve-wracking, it also provides opportunities. The challenge for farmers is to stay in business during the valleys of the cycle, so they will be ready to capitalize upon the next wave of profitability.”
64 Years of the Corn Price Cycle
This graph of corn prices shows how prices have cycled up and down since 1960. “The same trend dates back many more decades,” says Ken Ferrie,
Farm Journal field agronomist. “Price fluctuation often results from supply, demand, weather and sometimes numerous political factors such as tariffs and embargoes.”
Sometimes prices stay flat for an extended period — the toughest time to show a profit.
“It’s like fishing on a bright, calm day,” Ferrie says. “To be successful, you must be highly skilled and use electronic tools to find the fish. You can find opportunities in a flat grain market, but here, too, you must use knowledge and technology.”
“On the other hand, it’s easy to catch fish in front of or just behind a weather front,” he continues. “You might need nothing but luck. It’s like farming on the upside of a wave, when grain prices are rising but land and input prices haven’t caught up. Most farmers can make money, regardless of their skill level or technology.”
Among his clients, Ferrie has seen some beginning farmers misinterpret farming’s economic cycle.
“Some decide not to enter farming at the low point in the cycle and take up some other career,” he says. “They fail to realize the valleys of the cycle might be the best time to enter because costs are lower. Others think the wave is normal and adjust their standard of living accordingly. They are not prepared for the crash that inevitably follows.”
“The thing to remember is the entire cycle, from start to finish, is normal,” Ferrie concludes. “If you understand that, you can manage your way through the valleys and take advantage of opportunities that follow. Most of them occur on the front or back side of a wave. The sooner you grasp this, the more opportunities you — and your kids, if you teach them — will have.”
Waves, Valleys and Opportunities
This graph shows the relationship of corn prices to cost of production, using three different management systems, from 2015 through 2024.
“This is a normal cycle for agriculture,” Ferrie says. “Over four decades, I’ve seen the cycle repeat itself four or five times.”
“Seasoned farmers know that on the other side of each wave [2020 to 2023 in this case] is a crash [2024], when prices fall faster than input and machinery costs,” Ferrie says
“While income is increasing, as it did from 2020 to 2023, they prepare for future opportunities,” he continues. “They store up cash, pay down debt and repair equipment, knowing that on the back side of the wave, equipment will be cheaper and they can shop for good deals. Anticipating land values and cash rental rates to take off during the upside of the wave, they look at flexible leases, shy away from long-term leases with high cash rental rates, and pass on overvalued land purchases.
“Seasoned farmers share their lessons with kids who think the wave of high profits is ‘the new normal’ and want to sink profits into land, equipment or lifestyle expenditures.”
As the graph shows, farmers deal with flat or falling prices during most of a cycle.
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