The agriculture industry is entering a new period. This most recent stage is called margin compression, reports CattleNetwork.com. It occurs when revenues are depressed and costs remain elevated. Basically what’s happening is, commodity prices have come off of their recent highs, but production costs still remain high.
As a result, profit margins have narrowed, which creates what’s called profit margin compression. Net ag incomes are projected to be down in 2016, and farming profits are will probably remain thin. Commodity prices are also expected to stay lower this year.
The poor agricultural outlook for this year also means landowners should expect tenants to try and renegotiate their cropland leases. Tenants may be locked into rates they agreed to back when profits were at their peak. Now, as profits decrease, these rates have become too high.