WASHINGTON (DTN) -- After several years of profits that helped build working capital, tighter margins are forcing grain producers to focus on preserving the liquidity they have left.

Production costs, interest rates and equipment expenses are putting pressure on farm cash flow, while strong land values can bolster balance sheets without necessarily putting more cash in producers' hands.

The result is a much different farm economy than producers experienced just a few years ago, said Rudi Pitzer Perry, regional vice president of agricultural lending at Farm Credit Mid-America.

"There are a lot of things you can't control," Perry said. "That can be overwhelming because that list feels a lot bigger than the things you can control."

Perry pointed to four financial trends shaping farm decision-making.

1 -- LIQUIDITY: CASH IS KING

The working capital built during several profitable years is becoming harder to maintain. After two years of tighter margins, many producers are drawing down those reserves to cover operating needs.

"We're to the point where, in a lot of these operations, we've burned through a lot of that liquidity the last two years, and so the conversations look a little different," Perry said.

As a result, producers are paying closer attention to break-even costs, scrutinizing expenses and looking for opportunities to preserve cash. This week, that includes the use of red dyed diesel on roads in some states and applying nitrogen earlier in the season on an as-needed basis.

"We're definitely seeing some balance-sheet migration from a credit standpoint," she said.

In purchasing trends this year, that often means delaying equipment purchases and extending machinery replacement schedules.

August data from the Association of Equipment Manufacturers shows that year-to-date sales of two-wheel-drive tractors were down 12.3% from 2025 levels. Four-wheel-drive tractor sales were down 24.4%, and self-propelled combine sales were also down 9.1%.

See AEM's data: https://www.aem.org/…

2 -- STRONG LAND VALUES SUPPORT BALANCE SHEETS, NOT CASH FLOW

Farmland values in Ohio have remained resilient because of strong competition for available acres and continued liquidity in the marketplace.

"Our land values have not only held but increased," Perry said. "That's not what we would expect to see a lot of times during an ag downturn." But competition for land and available capital has continued to support farmland values despite weaker farm profitability.

While rising land values strengthen producer equity and balance sheets for farmers who own land, they do little to improve cash flow. They also make it more difficult for farmers to access land, pushing some producers to consider variable cash-rent arrangements and other alternatives, she explained.

The latest Western Ohio Cropland Values and Cash Rents study by The Ohio State University found western Ohio cropland values are expected to range from a 0.1% decline to a 0.9% increase from 2025.

The same is being seen westward.

While Iowa cropland slid modestly in cropland values, -1.4% in year-over-year change, benchmark values across the region overall are flat, according to Farm Credit Services of America. Nebraska, South Dakota and Wyoming values have inched up since January, with gains in both cropland and pasture.

3 -- ARC AND PLC PAYMENTS CAN HELP RESTORE LIQUIDITY

With ARC and PLC payments expected to reach many commodity producers this October, Perry said those funds can play an important role in rebuilding financial flexibility.

"I always caution people not to go buy capital assets with it," Perry said. "Anything to maintain or restore liquidity. So, payables, cash in the bank."

Rather than purchasing machinery or other long-term assets, producers may be better served by paying down operating expenses, reducing accounts payable or strengthening cash reserves, she explained. "Anything that'll help them restore liquidity," Perry said.

While still unofficial, USDA officials estimate the total payout to be over $15 billion.

4 -- HIGHER INTEREST RATES CONTINUE TO PRESSURE CASH FLOW

Interest rates remain another headwind for producers carrying significant short-term debt.

"The prime rate directly impacts operating loans," Perry said. "When the prime went up ... within about four to six weeks, my interest rates on all the operating loans here from Farm Credit will go up because we reset them once a month."

Higher borrowing costs add to an already long list of expenses that producers face, including fertilizer, fuel, seed and crop protection products.

"None of those things by themselves are enough to break one farm," Perry said. "But it feels like death by a thousand paper cuts by the time you get to the end of the year."

DTN Farm Business Editor Chris Clayton examined how a Federal Reserve rate cut does not necessarily guarantee cheaper credit in the bond market. Read more here: https://www.dtnpf.com/….

Perry noted that even modest rate increases can have significant impacts because farm debt levels are higher than they were just a few years ago. A quarter-point increase may seem small, she said, but it matters more today because producers are carrying more short-term debt and operating capital has become more expensive.

FCS America's Land Benchmark: https://www.fcsamerica.com/…

Jake Zajkowski can be reached at jake.zajkowski@dtn.com

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