Navigating Agricultural Challenges in Technology, Labor and Rising Costs

Navigating Agricultural Challenges in Technology, Labor and Rising Costs

Author:  Amos Alstrom, Vice President, Agribusiness Banking

Agriculture, like many sectors, is facing a series of hurdles and opportunities that will shape the industry’s future. Standing at a crossroads, today’s ag businesses must navigate a maze of new technology while also grappling with age-old issues.

Technology Moves Agriculture into the Future

Technology is a driving force propelling the agricultural industry into the future. A recent survey indicates that 61% of North American farmers are using or plan to adopt farm management software to streamline operations. However, ag producers aren’t limiting technology adoption to efficiency gains. They are also broadening their horizons with a variety of technology-enabled enhancements, such as precision farming, smart machinery and data analytics, to name a few.

Through the use of technology, farmers have improved decision-making and revolutionized crop management. One prime example is the use of drones equipped with advanced sensors. These new tools can monitor crops for signs of stress, pests or disease, allowing for precise, timely interventions that positively impact costs by minimizing the use of pesticides.

Despite the advantages, technology also presents some agricultural challenges. One of the most significant hurdles is high costs. Purchasing cutting-edge machinery, sensors and software can be financially burdensome for small- and medium-sized farms and narrow profit margins for larger operations.

Winning the Talent War

Despite the productivity gains obtained through recent technology advancements, agriculture will remain largely dependent upon human labor across many sectors. For farmers, finding a way to win available talent without breaking the budget will be a significant obstacle to scale.

According to the U.S Department of Agriculture’s annual Farm Labor Report, average gross wages rose 7% in 2022, to $17.56 per hour. Looking ahead to 2024, while all states will experience rising wage rates, 43 states can expect to pay H-2A workers at least a dollar more per hour.

For many farmers, these wage hikes come at a time when other factors are also impacting agriculture’s ability to attract quality talent. For instance, a recent survey of ag retailers indicates that workforce expectations are changing, with fewer workers willing to relocate. In addition, even the most competitive salaries and benefits aren’t always incentive enough to keep top talent.

To tackle the labor challenge, some proactive farmers are exploring options like flexible work arrangements and continuous workforce training opportunities. Additionally, there is a rising interest in leveraging technology not only for automation but also to optimize labor efficiency.

Tools like smart scheduling systems, wearable technology and data-driven insights can help ensure that every hour of work contributes to maximum productivity. As we look ahead at the future of agriculture, addressing these labor-related hurdles will be crucial for sustaining industry growth and the livelihoods of those who depend on it.

Rising Production Costs

USDA predictions for 2024 paint a dim picture when it comes to cost controls and pricing. The USDA’s first 2024 cost-of-production forecast for major field crops suggests that input costs will remain elevated in 2024, at the third highest point ever. The rising cost of fertilizer is the biggest factor for 78% of farmers.  

The hike in input costs comes at a time when income is forecasted to decrease, and competition is rising, with Brazil expected to lead exports of corn in 2024. Farmers should not expect input costs to fall as quickly as pricing, so margin pressures could persist.

The livestock industry is seeing some positive developments as range conditions have improved, and drought has decreased. According to May USDA-NASS reports, the percentage of pastures and ranges rated in good to excellent condition was 47%, compared to 34% last year, and hay stocks are up 47% year over year.

Meeting the Future Head On

Despite current agricultural challenges, there is one bright spot the industry can always count on. What goes around comes around, and low points eventually reverse to high points.

Another piece of good news is this: leading financial institutions that offer a range of agricultural banking services can help producers and agribusinesses weather the tough spots and position themselves for future growth. Your bank can help secure capital for future operations through lending and offer strategies for long- and short-term growth of profits.

In addition to providing loans and deposits, commercial bankers are skilled at financial forecasting and can assist ag operations with budgeting. Working with your banker can help to ensure that credits are sized appropriately and that balance sheets are constructed well.

Agribusinesses selling internationally, or looking to expand overseas, will want a bank partner with global payment capabilities. A global banking team can help you identify viable markets and structure your efforts for the greatest success. Your bank will also provide tools to hedge exchange risk and will offer important advice on proper payment methods.  

With the right banking partner, farmers and agribusinesses can navigate the complex financial landscape more effectively, paving the way for sustained success in the ever-evolving world of agriculture.

Find out what agribusiness services FNBO offers or connect with an ag lender.

About the Author

Amos has been involved with Commercial Lending since 2001. He appreciates the opportunity to be involved with agriculture in a way that helps farmers grow their business. His clients and colleagues appreciate his detailed nature as he pursues his duties in facilitating new relationships for FNBO.