From the desk of Jason Long, Director of Agri-Business Banking

 

The cool fall weather is upon us, and fall sports are soon ending. Families are busy carting children and grandchildren to various events. It is hard to believe Thanksgiving is less than a month away. While the rain has slowed harvest, we can be thankful for moisture that was missing for many during much of the growing season.

There is still plenty of certainty, with both reasons for optimism and potential headwinds that could alter markets. We strive to keep you up to date on industry happenings and how particular events may impact you and your operation.

Community Connections

Our Ag team will be out and about over the coming months. We'd love to connect with you! Stop by one of the events below and visit with a First Bank & Trust agri-business banker.

 Corn🌽

Harvest progress started slowly for many because late-season rainfall followed dry conditions for most of the growing season. Isolated areas caught meaningful rains, which provided a degree of variability to growing conditions. Concerns had emerged about stalk strength and disease pressure. In a somewhat surprising move, the USDA raised the national corn yield to just over 181 bushels per acre and revised the old-crop ending stocks higher. This resulted in pressure on prices, but the supply remains tighter than a year ago. The stronger El Niño weather pattern has typically resulted in lower yields for Brazil and our South American counterparts.

Exports have been slow to start the year, particularly with Mexico; there is belief that this is more of a leverage move amid USMCA negotiations. The USDA is forecasting significant exports, and demand domestically remains favorable. China has also agreed to temporarily suspend the 10% tariff on corn, wheat, and sorghum. Domestic usage remains optimistic, with year-round nationwide E15 consumption awaiting Senate approval. Retailers in California are also able to sell increased blended fuel. Ethanol plants are set to receive the 45Z tax credits. The plants are not mandated to share this credit, so producers are encouraged to have this discussion with local plants to determine their eligibility.

Traders have also taken an exceptionally large, long position, but responsible risk management is necessary should these positions be liquidated. Downside protection strategies give producers the ability to still capture upside potential. This could occur if actual harvest production figures come in below estimates, demand surges through heightened exports, or consumption exceeds expectations.

 Soybeans🌱

Harvest for many of the soybean acres is complete despite the precipitation received at the start of the season. The USDA is forecasting higher supplies with increases to planted acres and yields, particularly in the eastern regions. Markets will be closely watching South American weather, export activity (particularly with China), and domestic usage. With over 4 million additional acres, supplies were expected to be larger. The additional acreage could stem from rotational planning, and rising crop input costs may have been a determining factor in planted acres. Increased selling occurred as soybean plants offered favorable basis opportunities ahead of harvest, which drew down on the on-farm inventories. Basis will be closely evaluated as producers look for opportunities to sell at profitable margins.

The US biofuel policy has sparked increased plant capacity to meet the new Renewable Volume Obligations announced by the EPA. While production remains below the annual goal, it is nice to hear that a renewed focus has been placed on domestic consumption to mitigate export risks. China’s prior commitments have been filled and mostly shipped, but ongoing purchases will likely remain a source of leverage in ongoing negotiations.

The El Niño weather pattern may pose concerns for the South American crop, which warrants attention as things develop. This could force buyers to look towards the US to fill orders. If the crush and biofuel demand, along with export activity, materialize, there’s support and potential market upside. Traders are historically heavy in a long position, but there is risk if the funds attempt to rebalance positions. Downside protection would be beneficial, and basis will be an ongoing factor to capitalize on, as opportunities do exist.

Beef🥩

The beef market remains structurally positioned to support higher prices because of supply-side concerns. The dry conditions are compounding the supply issue and causing a surge in hay prices. Ranchers face numerous headwinds that make growing herds a challenge. Drought conditions have impacted a vast majority of the herd, and the El Niño weather pattern has yet to bring relief. Beef markets experienced significant shocks with the announcement of temporary tariff relaxation on imported beef ahead of an upcoming election. Border re-openings and plant closures have disrupted markets as well.

There is some skepticism about whether the allowed 300,000 metric tons of imported beef will materialize given the logistical challenges. Traders exited their positions with headline risk, compounding the selloff. High-quality beef cuts command a premium, which has allowed box beef prices to stabilize. Demand for beef remains exceptionally strong in relation to its protein counterparts. Strong demand has allowed for a stabilization in prices while feed, fuel, and interest costs weigh on profitability levels.

Dairy🥛

Production of milk-related products remains highly elevated as culling rates have declined because of opportunities in the beef-cross calf market. Robust milk production has tested the processing sector’s capacity, creating discounts on milk over quota rates. Cheese and butter continue to be heavily reliant on the export market, particularly with Asian partners. Over the past two years, the US has gained a 10% share in butter exports and a 6% share in cheese exports. Domestic consumers appear focused on higher protein diets, causing a surge in demand for products like whey and nonfat dry milk.

Margins have compressed due to several factors. Rising feed costs, fuel prices, and interest rates have all contributed to higher costs of production amid lower milk prices. The beef-cross markets have lifted operational revenues but have recently seen a modest decline. This creates a situation in which careful decisions will be critical to managing margins and should be a factor when looking at expansion opportunities. Assessing the culling and beef-cross strategies should be examined along with the labor, feed, and interest costs associated with such programs.

 

   

  

🌾Did You Know?

Succession planning is about more than deciding who will take over the farm or ranch. Starting early can give your family time to think through goals, discuss priorities, and prepare for the future of the operation.

Interested in learning more? Contact your local First Bank & Trust ag banker to start the conversation.

 

 

Pork🥓

Inventories are not expanding and stand roughly 2% lower than a year ago. Inventory levels were impacted by the PRRS virus outbreak that made its way through Missouri, South Dakota, and Illinois at higher rates. Cold storage levels have come up but are still well below the longer-term average. This signals that supplies are not a major issue given the current demand.

Exported inventories are up by volume but stagnant by value. Mexico remains the largest partner for the US, and exports to it have been relatively flat thus far, while Japan has been a growing partner in 2026. The lack of export growth at a time when domestic demand has been low in comparison to its protein market counterparts is problematic. Poultry and beef have been preferred by consumers at a growing rate.

Margins continue to slide downward as feed and operating costs move in an adverse direction. Both corn and soybean meal prices are shifting higher as price expectations have been weak. At this point, producers will be faced with the need to have a disciplined cost structure and marketing plan until some of the issues can be resolved.

Machinery🚜

As farm fleets begin to age, there has been struggling demand for new equipment amid the ongoing profitability concerns. Instead, producers appear more interested in lightly used items to control costs. Larger ticket item sales like combines are down just shy of 40% while larger four-wheel drive tractors are down over 30%. The costs per acre continue to climb with both the rising values of new/used equipment and higher repair costs. This will be a key overhead metric warranting attention as direct input costs continue to remain at very high levels. Producers are encouraged to look at new purchases with a “want versus need” assessment while looking to maintain appropriate working capital levels.

Land🖼️

Real estate levels remain strong, with the 2026 SDSU iGrow Survey showing a 15.9% increase in overall land values. The northeast, east central, and southeast portions of the state are experiencing a nearly 7% increase, while areas to the west experienced steeper valuation changes. Values remained strong through the rise in interest rates. While direct property cash flows do not support the cost, the appreciation and lack of supply seem to be the primary drivers.

Macroeconomics📈

From a broader market perspective, export headwinds exist with a strengthening US Dollar that had cooled prior to harvest and has since strengthened. Equities have been resilient when looking at the S&P 500 and the Dow Jones Industrial Average. Variable interest rates have been impacted by recent Federal Reserve hikes. Fixed rates have also been impacted by the rise in US treasuries, particularly the 10-year rate. Oil has climbed with geopolitical tension in the Middle East and the conflict between Russia and Ukraine. As the markets move, so will traders who are looking for opportunities. This impacts agricultural commodities, which will require producers to have a sound grasp of their breakeven levels to manage profit margins. We encourage producers to protect their position with responsible risk management plans.

Managing Beyond Margins👨🏻‍🌾

Many producers have worked tirelessly to build an operation that can serve as a legacy and to provide the next generation with an opportunity to live out their dreams. This can be a daunting thought in the minds of many while balancing the age-old question of fair versus equal. The answer is rarely the same, but most people have good intentions to do their best to find balance. Fortunately, you are not alone. First Bank & Trust has experts, data, and products within our Ag Banking and Wealth Management teams to help craft plans that remain viable today and well into the future. It’s a process, but once completed, it gives many great satisfaction and peace of mind.

 

 

Planning for the Future of Your Operation

Succession planning can feel overwhelming, but breaking it into manageable steps can make the process easier. Start by thinking about what you want your farm or ranch to look like in the future, who will be involved, and how ownership and responsibilities may transition over time.

A thoughtful succession plan can address everything from family roles and ownership structure to retirement income, taxes, asset transfers, and legal documents. It’s also important to consider how the operation will support multiple generations during the transition and how you can help protect the farm or ranch for the future.

You don’t have to figure it all out at once. Involve your family and trusted advisors, work through the details one step at a time, and revisit your plan as your operation and goals evolve.

Talk with your local First Bank & Trust ag banker to think through your options, connect with trusted advisors, and take the next step with confidence.

 

 

Looking Ahead Together

 

Our advice is to communicate with your local banker at First Bank & Trust to develop plans for your operation. We understand no two operations are the same. Together, we can work to help you understand where you stand today and to assist in planning with your shorter- and longer-term objectives in mind. You and your family can take comfort in knowing that our experienced team is ready to listen and help you when making these decisions. We wish you all a safe and happy harvest!