Inflation

Tight Margins, Tough Choices: How Row Crop Farmers Can Weather Today’s Financial Squeeze

Tue, 10 Feb 2026 20:16:40 GMT

Row crop farmers across the U.S. are facing a financial environment that leaves little room for error. Rising production costs, persistently high interest rates and commodity prices that have failed to keep pace are combining to pressure margins at nearly every level of the operation.

From the ag lending perspective, Alan Hoskins, president and national sales director at American Farm Mortgage and Financial Services, says the current cycle is forcing producers to rethink not just their numbers, but how they approach decision-making altogether.

During the 2026 Top Producer Summit, Hoskins says both farmers and ag lenders need to remember there’s a clear differentiation between profit and cash flow. And he says when it comes to cash flow, that’s something farmers should be looking at on a monthly basis.

“There are definitely a fair number of challenges out there,” Hoskins says. “When you look at 2026, the numbers don’t have the appearance of being better than what we saw in 2025.”

Input Costs Lead the Pain

Among the many pressures facing producers, Hoskins says higher input costs remain the most immediate and widespread challenge.

“Over the past few months, the increase in input costs is a significant driver in what we’re seeing across agriculture,” he says. “Commodity prices being where they are certainly contributes to that as well.”

Hoskins notes that while producers are keenly aware of rising costs, marketing decisions can sometimes compound the problem. In volatile markets, hesitation to price grain can leave margins exposed.

“There are times where there’s a little bit of inertia on the part of producers to take advantage of sales opportunities when they present themselves,” he says. “There’s always the hope that the margin will improve, but that’s exactly where a written marketing plan becomes extremely valuable.”

A marketing plan, Hoskins says, helps remove emotion from pricing decisions and provides structure during uncertain times.

Where Farmers Still Have Levers to Pull

Despite the headwinds, Hoskins believes producers still have meaningful opportunities to manage costs — particularly by scrutinizing inputs more closely.

“Looking at fertility levels across different farms and making sure you’re applying the proper amounts of fertilizer is one place to start,” he says. “Every field doesn’t necessarily need the same approach.”

He also encourages producers to evaluate field operations carefully, weighing whether a tillage pass truly adds value compared to alternative chemical applications.

“These are the kinds of decisions that, taken individually, may not seem significant. But collectively, they can have a real impact on the bottom line,” Hoskins says.

Insurance is another area he believes deserves renewed attention.

“With the increases we’ve seen in equipment values and real estate values, it makes sense to revisit property and casualty insurance,” he says. “There may be opportunities to adjust coverage levels and capture some savings without increasing risk.”

Financial Stress Is Real, And It’s Growing

From a lender’s vantage point, Hoskins says the financial strain facing row-crop producers is increasingly visible. While not every farmer lost money in 2025, many operations ended the year with thinner working capital and less flexibility.

“Were there producers who made it through 2025 without losing money? Yes, but they were more the exception than the rule,” Hoskins says.

Looking ahead, he doesn’t expect conditions to ease quickly. That makes proactive planning and communication critical.

“When challenges exist, don’t try to solve them on your own,” Hoskins says. “Use the resources available to you: your lender, your accountant, your advisers.”

He cautions against reacting too aggressively in ways that could harm long-term viability.

“The goal is to weather this cycle,” he says. “It’s not to cut the meat completely off the bone and compromise your ability to operate when conditions do improve.”

Adjustment to Higher Interest Rates

Higher interest rates remain a sticking point for many producers, particularly those accustomed to historically low borrowing costs. Hoskins says perspective is important.

“While rates are much higher than what we’ve been used to over the last 25 years, if you look historically, they’re not that far out of line with the last 40 or 50 years,” he says.

The bigger challenge, he adds, may be mental rather than mathematical.

“We were in a very low-rate environment for a long time,” Hoskins says. “Adjusting to today’s rates requires a shift in expectations.”

To adapt, he advises producers to closely examine their borrowing structure across operating loans, equipment financing and real estate debt.

“If you’ve got debt that’s been out there for 12 or 18 months, there may be opportunities to restructure,” he says.

He also encourages producers to take advantage of low- or zero-percent financing options on inputs when available and to maintain open communication with lenders.

“Your interest rate is a product of your risk profile,” Hoskins says. “Having honest conversations with your lender helps you understand where you stand and what options you have.”

Are More Farmers Exiting?

With margins compressed and financing tighter, Hoskins says some producers are choosing to exit the business, but for different reasons.

“There are producers looking at 2026 and even 2027 and saying, ‘I don’t see things improving materially,’” he says. “They don’t want to see any more working capital erosion or equity erosion, so they’re making that decision on their own.”

At the same time, Hoskins acknowledges others may not have a choice.

“There will be producers who are unable to obtain the funding they need to go another year,” he says. “In those cases, the decision to step away isn’t voluntary.”

Still, he does not expect a widespread collapse.

“I wouldn’t characterize this as something that’s going to be across the board,” Hoskins says. “But with the challenges we’re facing, we will see examples of both.”

Mindset Matters As Much As Math

While financial statements tell part of the story, Hoskins believes mindset plays an equally important role in determining how producers navigate difficult cycles.

“The key truly has nothing to do with numbers,” he says. “It has everything to do with mindset.”

Hoskins encourages producers to define clear goals, not just for the coming year, but over a longer horizon.

“What are your one-year goals? Your three-year goals? Your five-year goals?” he asks. “Having that longer-term perspective changes how you view short-term challenges.”

He believes producers who approach decisions with a clear sense of priorities tend to make more measured, sustainable choices.

“When you understand your priorities as people first and foremost, you start looking at the financials differently,” Hoskins says. “That ultimately leads to better decisions.”

USDA Numbers Confirm the Reality

USDA issued its first net farm income forecast for 2026 just last week, but the bigger surprise was the fact the agency revised its net farm income forecast for 2025, showing sharper declines than earlier estimates. Hoskins says those revisions align with what they are seeing on the lending side.

“It doesn’t surprise me that USDA lowered 2025 farm income,” he says. “As more data becomes available, it gives a clearer picture of where reality really lies.”

While the outlook remains challenging, Hoskins stresses agriculture has endured difficult cycles before.

“We’re not going to lose all of America’s farmers and ranchers,” he says. “But we do have challenges within this industry that need to be addressed.”

For producers willing to plan ahead, stay disciplined and lean on trusted advisers, Hoskins believes there is still a path forward, even in one of the tightest margin environments in recent memory.

Atlanta Fed Chair Bostic Recognizes Sectors of Agriculture Are in Crisis

Tue, 10 Feb 2026 00:20:02 GMT

Is an economic crisis brewing in farm country? That’s the question Raphael Bostic, outgoing president and CEO of the Federal Reserve Bank of Atlanta, is watching as balance sheets carry over operating expenses into the 2026 season.

“There’s a lot of distress in agricultural marketplaces and in a lot of our agricultural enterprises,” Bostic says. “I do think there’s a significant crisis here.”

During a fireside chat at the 2026 Top Producer Summit , he recognized the challenges facing farmers in today’s financial environment.

“I get to talk to a lot of smaller family farms and I worry about them, especially because the big operations, they are so large scale, it gives you a diversity of possible strategies,” Bostic explains. “You can tap into different types of credit that can allow you to weather volatility a bit more readily, and we don’t see that for a lot of the smaller folks.”

To help, USDA is set to release $12 billion in “ Farmers Bridge Assistance ” payments toward the end of the month.

“This is a short-run patch on something that could be a long-run problem,” Bostic says.

Rising Expenses and the Growing Debt Burden

USDA is expecting net farm income to be $153.4 billion, which is down $4.1 billion from 2025. Economists say this year’s latest outlook continues to reflect declining receipts and an ongoing reliance on help from the government, which is expected to increase by 45% in 2026 alone.

“Total production expenses are forecast to increase almost $5 billion or 1%,” says USDA economist Carrie Litkowski. “On the farm sector balance sheet, assets, debt and equity are all forecast to increase.”

The latest Purdue University - CME Group Ag Economy Barometer in January found 21% of farmers surveyed expect their operating loan to increase over a year ago. Of those, a third say it’s because they’re carrying over unpaid operating debt from the prior year. In 2023 that number was only 5%.

“We know that input prices for a host of products are up,” Bostic says. “We know that competition at a global level is up. We know that the tariffs have put tremendous pressure on the competitiveness of American products overseas because of those dynamics, and we also know many commodity prices haven’t changed to offset these things. These are all incredibly challenging dynamics to wrestle with, and how we move forward is really an open question.”

Fed Policy: Why Patience is Required for Rate Cuts

The Fed’s primary mandate of stable prices and maximum employment provides an environment with predictable growth, giving people the opportunity to invest for the long haul without having to worry about where the economy will be in five to 10 years.

“First we have to diagnose the problem,” Bostic says. “Is this an issue with labor availability, an issue in new technology or shifting climate patterns, etc., and then we need to think about what strategies will work for all of these new things.”

That mandate requires patience in seeing how current monetary policy impacts the market. Bostic notes inflation remains above the Federal Reserve’s target of 2%, but economic growth has been and will continue to be robust. One thing he’s not advocating for is a continuation of interest rate cuts.

“The government shutdown actually prevented a lot of data from being produced, so it is actually going to make the numbers a bit choppier in the next several months,” Bostic explains. “The usual signals we would get from those [reports] are actually going to be weaker than they would be otherwise. For me, that’s another reason why I think we want to be cautious. We want to be patient, and I think that’ll be prudent.”

Patience ahead of additional rate cuts would allow the Federal Reserve to see how tax cuts and deregulation stimulate growth into 2026 before cutting rates, which could spur inflation even further above the Fed’s target.

At the 2026 Top Producer Summit, Raphael Bostic, president and CEO of the Federal Reserve Bank of Atlanta, joins Bill Watts, Pro Farmer editor, to share insights into the economic forces shaping monetary policy and what that could mean for agriculture.

(Farm Journal )

The ag economy is seeing similar challenges to the economy as a whole. Bostic remarks while the top end of the economy is doing remarkably well, there is a growing number of U.S. consumers who are living paycheck to paycheck, evidenced by the increased rhetoric around a K-shaped economy. That has made itself evident in the ag economy by higher consolidation, with big farms getting bigger and smaller farms going out of business.

“This economy has continued to perform well at an aggregate level; consumers have continued to be resilient, and that’s a good thing,” Bostic says. “My outlook is that the resilience we’ve seen for much of 2025 will continue into 2026 and might even get a bit stronger, so we might actually see some of the tax benefits, some of the deregulation, those things could actually spur the economy to do even more than what it did last year.”

Consolidation and the Transformative Potential of AI

The latest red flag, a sluggish labor market has Bostic waiting on data and wondering if technology or AI are having an outsized role in the current new-hire economy.

“When you think about AI, for example, and those technologies, businesses are experimenting with ways to have AI introduced into their production processes to allow productivity that doesn’t require people,” Bostic admits. “You may have heard reports about a lot of entry-level hiring has happened at a much lower pace than it has in previous years. A lot of that is because the promise of AI has folks thinking, well, maybe I don’t need to do those hires, and I can get that same amount of productivity. That’s a structural change.”

From a farming perspective, those opportunities are also presenting themselves. Given the current challenges in agriculture, Bostic says it might be time to look at new ways to build toward the future.

“To the extent that work can be done, that is, generative, without necessarily needing a person to be there all the time, that’s potentially transformative,” Bostic says. “I know the day is long, seasons are hard, and if you can use technology to take two hours out of it that gives you space to do other things. The opportunity there is what do you do with that extra space?”

Farmers Face Budget Squeeze And Balance Sheet Challenges—Echoes Of A Decade Ago

Tue, 30 Dec 2025 21:13:24 GMT

If heading into 2026 feels a little like déjà vu, you’re picking up the same vibes Chris Barron, president and CEO of Iowa-based Ag View Solutions, is experiencing. He believes the next couple of years will echo the last big downturn farmers weathered a decade ago.

“It’s kind of scary that 2025, ’26 and ’27 look essentially like a repeat of 2015, ’16 and ’17,” Barron says. “If you remember that time frame and made it through, buckle down because I think we’re going there again.”

He says one of the clearest signals farmers are about to experience a repeat of a decade ago is based on the 2026 cost-of-production data from Ag View Solutions’ clients, who are based in 23 U.S. states and three Canadian provinces:

Soybeans: About $11.87 per bushel based on a 65-bu. average yield
Corn: About $4.69 per bushel (before basis) on a 223-bu. average, with many growers needing at least $4.85.

Some growers raising non-GMO seed beans or getting premium contracts can still make soybeans compete. But for many farms, soybeans are the weak link in the current economic cycle.

Right now, Ag View Solutions clients are expected to plant roughly 62% of their acres to corn and 38% to soybeans for 2026 — essentially the same as 2025. Barron says he doesn’t expect many acres to shift away from this mix to more soybeans “unless something really changes.”

Given current price relationships and crop insurance guarantees, Ag View Solutions data shows about a $50-per-acre advantage to corn over soybeans for the year ahead. Even if the dollars trend lower, he says corn often pencils out better because of gross revenue and risk management tools.

More Cost Pressures Heading Into 2026

It’s no secret production costs are increasing heading into the next season. Some of the key factors include:

Overhead costs (what Barron calls ‘”return to management”) for family and employee expenses, including phones, fuel and business-paid personal expenses, are up nearly 5%. After the past year or two of what Barron describes as hard belt-tightening, he says deferred spending is “snapping back” at higher levels.

Land rents are holding mostly steady, supported by higher property taxes and outside investor demand.

Interest expense is climbing as operating lines grow.

Fertilizer costs are a mixed bag. On corn, fertilizer costs are up about 7%, even though Barron believes most farms are staying with removal-rate applications. On soybeans, he says fertility costs will be lower, mainly because growers are putting less fertilizer on their bean acres and leaning harder on corn nutrients.

Machinery and equipment costs are also inching higher for the year ahead.

This Is Not A Repeat Of The 1980s

Despite the “red” many farmers will see on their spreadsheets in the year ahead, Barron says the current period is not a repeat of the 1980s farm crisis, for two key reasons:

Farmer equity is strong. Debt-to-asset ratios remain healthy for many U.S. growers, even if cash is tight.
Many farmer exits are voluntary. Today, many farmers are choosing to retire or scale back in order to protect equity.

Barron offers a recent example: “I got a call the other day on 7,000 acres, a 45-year-old farmer saying, ‘I’m not going to do this anymore. I’ve got a $5 million equity position, and I’m not going to go for a couple more years and chew away another million dollars. I’m just going to be done.’”

Strategies for the Current Climate

To survive — and potentially thrive — in this “repeat” cycle, Barron suggests focusing on these four areas in the year ahead:

Do the high-dollar work. Barron says the “$500-an-hour” work is crunching numbers in the farm office. “Know your true costs, stress-test budgets, analyze each profit center. A few hours spent with good numbers can be worth far more than another round in the tractor,” he says.
Protect yield. He advises against cutting seed, chemistry or other inputs that protect or enhance yield “just to save a few cents per bushel.”
Right-size your operation. Barron says some of the most successful turnarounds he’s seen with operations lately have come when farmers “right-sizes” — they’re doing less, but doing it better — instead of trying to be everything to everyone.
Use collaborative models. Barron says he is seeing more farmers share equipment and labor with their neighbors to spread fixed costs without extra capital.

Opportunity Will Still Knock

During a Top Producer podcast, Barron told Host Paul Neiffer that the tight times ahead will create new land-rent opportunities for some farmers who want to expand. What commonly happens when margins get tight is some farmers pull back, and that’s when expansion possibilities open up for others.

“We’ve had numerous clients call us about opportunities to rent land and not like in small amounts. When times are tight and when things aren’t good, that’s when these opportunities present themselves,” he says.

Barron’s message for those farmers in expansion mode: have your numbers, working capital and lender relationships in order now, so if the right block of ground comes available, you can move quickly and confidently on it.

If you’re interested in the ROI spreadsheet Barron’s team uses to analyze market trends, email cbarron@agviewsolutions.com .

Hear the complete discussion between Barron and Flory on Farm Journal TV . Also, you can listen to the Top Producer podcast discussion between Barron and Neiffer at the link below:

Ag Economists Warn of Lingering Farm Economic Strain: ’Not the 1980s, But Close’

Thu, 23 Oct 2025 22:35:02 GMT

The October Ag Economists’ Monthly Monitor paints a tough picture for U.S. farmers heading into 2026: weak trade demand, stubbornly high input costs and continued consolidation across agriculture. While experts say today’s challenges don’t match the full-blown crisis of the 1980s, most agree the current downturn is dragging on with few signs of a quick turnaround.

“High input costs and the inability of domestic soybean crush growth to offset lost Chinese demand” continue to weigh heavily on profitability, one economist explains.

Another adds: “The lack of trade opportunities, and high input costs, are doing the most damage right now.”

A third economist sums it up more bluntly: “Margins are collapsing, and optimism is evaporating fast.”

By the numbers, here are highlights from the latest Ag Economists’ Monthly Monitor.

(Lori Hayes )

Conditions Expected to Continue or Worsen Into 2026

One of the major themes in the latest survey is the fact negative margins could be a theme for row crop agriculture for the foreseeable future.

Nearly 60% (59%) of economists say the farm economy is worse off than a month ago, and almost 90% believe it’s weaker than last year. 76% expect the situation to persist or even worsen through 2026, while only a quarter expect any improvement in the next 12 months. As one economist puts it: “It’s not a collapse, but it’s a grind.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

Others emphasize the fatigue setting in across the countryside.

“Farmers have been absorbing higher costs for two years without any real recovery in prices,” says one respondent.

“That wears on you,” another adds. “It’s like death by a thousand cuts — not one thing is breaking the farm economy, but everything’s contributing.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

With nearly eight out of every 10 economists surveyed projecting conditions to persist or worsen over the next 12 months, Ben Brown, University of Missouri Extension economist, says it reiterates the concern that farmers could face more tough decisions next year.

“I think the expectation for conditions to stay challenging shows up in multiple points of the responses, just this continued downturn and extended pressure on farm finances absent some type of market rally. Maybe that’s a yield shortfall due to drought somewhere in the world. But absent of that, I think we’re this slow grind lower trying to figure out how to find an equilibrium point where producers are looking at moving cropland out of production, maybe putting it to more pasture or CRP,” Brown says. “Long story short, we’re looking for any of those available measures that reduce production enough to help rally prices.”

Even livestock markets, one of the few bright spots, come with caveats.

“Livestock returns have been better than nearly anyone expected at the beginning of the year,” one economist notes, “especially cattle and hogs.”

But another warns: “If consumer spending slows down, beef and pork demand could take a hit, and that changes the outlook quickly.”

Echoes of the 1980s — But Not the Same

While 69% of economists say today’s farm economy shows similarities to the 1980s crisis, most stress the safety nets are stronger now.

“There are far more safeguards today: crop insurance, FSA loan programs and countercyclical payments,” one economist says.

Still, they caution against complacency.

“While farm bankruptcies may increase, it’s not likely to reach the 1980s level,” another economist adds, “but let’s not understate how bad things are now.”

Another adds: “The lack of profitability for row crops and the number of farmers exiting the industry — that’s what feels eerily familiar.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

One economist offers a sobering parallel, saying: “Things are bad — even if it’s not the same type of bad as the ’80s. The difference is this time, it’s a slow burn instead of a crash.”

University of Missouri’s Brown says the similarities between now and the 1980s are glaring: Profitability and working capital have eroded for several consecutive years.

“That liquidity issue is really starting to impact some of the broader financial indicators,” he says. “That’s what’s similar [to the 1980s] is the tight liquidity margins. We’ve seen farm bankruptcies start to take up as well. They’re not as high as what we saw during the 1980s yet.”

Yet, Brown points out there are some clear differences, as well as indicators, such as land values, that signal this period is vastly different from the 1980s.

Farm Consolidation Pressures Mount

Nearly all economists see continued consolidation reshaping rural America. In the September survey , 91% of ag economists said they expect the current situation to accelerate the current rate of consolidation in agriculture. In this month’s survey, economists think this will cause fewer, larger farms, fewer service centers and higher barriers for beginning farmers.

“Larger operations will get larger, and we’ll lose some of the diversity that smaller producers bring to the industry,” one respondent says.

Another adds: “Fewer, larger farms mean fewer families in rural communities — and less political and economic diversity.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound )

Some economists express concern over how this trend could alter the future of farming.

“Higher barriers to entry for young farmers, dwindling rural populations and loss of local ag suppliers — that’s where we’re headed,” one respondent warns.

Another sums it up: “We’re becoming a nation of mega farms. That’s efficient, but it’s not healthy.”

Livestock Outlook Still a Bright Spot

Nearly half of the economists expect the cattle bull market to continue for another 19 to 24 months, while others see a slowdown by late 2026 as herd rebuilding begins.

“At current prices, we’ll see no or little herd expansion,” one economist warns. “Clear signals that domestic beef production is increasing may be the key catalyst for a market top.”

October Ag Economists’ Monthly Monitor

(Lindsay Pound )

Others were more optimistic, saying the current supply and demand picture will continue to provide fuel to the current cattle market.

“Tight supply and strong global demand could keep this market higher for longer,” one respondent writes, “but beef demand depends on consumers continuing to open their wallets.”

Another adds: “The market’s got legs — but it’s walking on thin ice.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

It’s key to note this survey was conducted prior to President Donald Trump saying the U.S. would start importing more beef from Argentina, while also suggesting the White House is working to bring beef prices down . Once that news broke this week, the cattle markets crashed, sending cattle futures limit down.

Why are U.S. farmers and ranchers furious about the Trump administration’s new allegiance with Argentina? Arlan Suderman says it’s all part of a 3D chess match with China. He explains the complex relationship, and the impact on U.S. farmers and ranchers, in the video below.

Trade Troubles Deepen

China’s cooling appetite for U.S. ag products remains a major worry. The October survey found 76% of economists believe China won’t return to 2022 purchasing levels, and 88% say pre-trade-war demand is gone for good.

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

“China has been working toward deleveraging from the U.S. for two decades,” one expert says. “This is the culmination of a long-term process.”

Another wrote: “China will not purchase U.S. ag products unless it has to; it will always prefer other suppliers.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound )

The biggest winner? Brazil. When asked who’s winning the trade war between the U.S. and China, 100% of economists said Brazil.

“Brazil has definitely benefited; it’s literally being handed additional market share,” another economist notes.

Others agree: “Make Brazil great again — that’s what’s happening,” one quips. Several economists warn if the U.S. doesn’t aggressively pursue new markets, “our export position could permanently erode.”

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

Looking Ahead

Despite stronger farm balance sheets and fixed-rate debt, the mix of low profitability, high costs and global oversupply continues to pressure producers. Labor shortages, rising cash rents and limited trade growth are adding to the strain.

“Rising cash rents are eating into margins faster than yields or prices can recover,” one economist says.

Another points to policy fatigue: “There’s too much focus on short-term trade aid and not enough long-term market strategy.”

As one respondent summarizes: “Things are bad, even if it’s not the same kind of bad as the 1980s. We’re in a long, grinding cycle — and patience is wearing thin.”

Survey High: 91% of Ag Economists Say Crop Sector in Recession, Losses Likely Through 2026

Fri, 26 Sep 2025 18:18:09 GMT

The financial squeeze gripping row crop agriculture is only growing more severe, according to the latest Ag Economists’ Monthly Monitor. As of September, 91% think the U.S. crops sector is in a recession, which is an all-time high for the anonymous survey, and few see relief in sight.

In July, 53% of ag economists responded agriculture was in a recession. That number was 72% in May .

Economists point to low grain prices, high input costs and trade uncertainty, especially with China, as t he biggest drags on the farm economy . Beef prices are providing some cushion, but economists say it’s not enough to offset row crop challenges.

“2025 is bringing negative returns for at least the third consecutive year across nearly all row crops, with 2026 setting up to be another negative returns year.”
“Multiple years of low to no profitability qualifies as a recession to me.”
“We are near record low prices and record high inputs.”
“Net farm income is consistently negative.”
“I fear that commodity prices may have found a ‘new normal,’ so adjustments may have to occur (painfully) on the cost side.”

Those economists who say row crop agriculture is not in a recession point to land values and cash rents as the main reasons.

“The U.S. crop sector is losing working capital, but cropland values are showing little weakness, either in terms of rents paid or cropland prices. Until the latter two start to weaken, the sector is not in a recession,” said one economist. “I understand government payments from crop insurance, commodity programs and ad hoc assistance are a key reason, but government payments have been a constant presence over the last 10 years. They are a second source of income. You cannot simply ignore them in answering this question, especially given the changes made in the 2025 farm bill.”

Consolidation Concerns Continue

As more farmers face financial collapse , 92% of economists think the situation will accelerate consolidation.

“We are currently in a sustained period of high costs and low prices across the crop sector — this will cause some farmers to go out of business sooner than expected.”
“Hard times drive us toward higher efficiencies, which often leads to consolidation.”
“Larger producers are likely to have more wherewithal to sustain losses than smaller producers.”
“The most efficient and well-capitalized producers will survive and absorb land from the least efficient producers.”

2026 Could Be Another Year of Negative Returns

46% of ag economists say the economy situation is “somewhat worse off” compared to last month and 27% say it’s “much worse off” compared to last year.

(Lindsey Pound, September Ag Economists’ Monthly Monitor )

Nearly half (46%) of ag economists say the ag economy is somewhat worse off in September compared with August, and 27% say it’s worse off versus 2024.

The outlook for next year is mixed. Fifty percent say it will be somewhat worse off or unchanged, while the other half expect the situation to slightly improve. Most economists expect continued financial stress into 2026, with projected losses of $100 to $199 per acre for corn and $100 to $199 per acre for soybeans.

Producers are Looking to Cut Costs

The September Ag Economists’ Monthly Monitor asked what is the most likely cost-saving option for producers for the upcoming year.

(Lindsey Pound, September Ag Economists’ Monthly Monitor )

Farmers are postponing major equipment purchases, a trend that’s plagued the equipment industry the past two years. The latest Association of Equipment Manufacturers (AEM) report for August 2025 showed U.S. tractor sales fell 8.2% and combine sales dropped 34.6% compared with August 2024.

With the majority of economists forecasting the row crop side of agriculture to produce negative margins in 2026, farmers could be looking to cut back even more. Other than reducing machinery purchases, the majority of ag economists (85%) think farmers will slow technology upgrades. Fifteen percent say farmers will reduce fertilizer use. None of the economists surveyed think farmers will sell farmland.

The China Effect on the Ag Economy

Economists say the lack of export demand from China is having a negative impact on U.S. agriculture. In fact, 77% of economists surveyed say current U.S.-China trade policies are hurting farmers. Half of the respondents (54%) in the September survey think China will buy soybeans in 2025.

Even though China has bought zero new crop soybean cargoes from the U.S., more than half of economists still think China will come to the table in 2025.
(Lindsey Pound, September Ag Economists’ Monthly Monitor )
“We have a demand problem — or more specifically we have a demand access problem,” said one economist.
“Record high cattle prices are helping to offset the challenging conditions for grain producers. Uncertainty related to China, trade policy and tariffs [is a major risk].”
“The long-term damage to our trade relations. It will take years to solve,” was another response.

Possible Economic Aid for Farmers

As China remains absent from buying U.S. soybeans , it’s having a negative impact on soybean prices. Areas that rely heavily on China’s business, such as the Northern Plains, are seeing cash soybean prices in the $8 range.

Secretary of Agriculture Brooke Rollins said Wednesday an economic aid package for farmers has been the focus of conversations at the White House. Some type of program and payments will be announced very soon, Rollins said, and while void of details, she promised such announcement will be made “in the next two weeks.”

President Donald Trump also made remarks in the Oval Office Thursday, saying he will use tariff revenue to bail out farmers.

“We’re going to take some of that tariff money that we made, we’re going to give it to our farmers, who are, for a little while, going to be hurt until the tariffs kick into their benefit,” Trump told reporters. “We’re going to make sure that our farmers are in great shape because we’re taking in a lot of money.”

62% of ag economists say direct payments like the Market Facilitation Program benefit crop producers.

(Lindsey Pound, September Ag Economists’ Monthly Monitor )

Considering the factors impacting farmers, such as trade policy, interest rates, commodity prices and input costs, 62% of ag economists said government direct payments benefit crop producers. Fifteen percent say such payments wouldn’t adequately address the challenges, while 23% think a different approach would be more effective.

Overlooked Issues in Agriculture

Ag lenders in some regions, such as the mid-South, warn farmers are experiencing the most financial stress since the 1980s . While the issues are at the forefront of conversations, the latest survey also asked economists to chime in on other agricultural issues currently being overlooked:

“The increasing percentage of farmland that is owned by absentee, non-operators … I’m seeing more investor activity, creating greater competition with actual operators.”
“Storage problems in the northwestern Midwest due to a lack of trains moving soybeans to the PNW.”
“The risk to the U.S. farm economy of weaker global economic growth … there is a broader set of macroeconomic uncertainties that affect world demand for agricultural products.”
Interest rate impact on asset values (not borrowing costs).
“Macroeconomic uncertainties that affect world demand for agricultural products, many of which have little or nothing to do with U.S. policies.”
“Tax rollover and the fact that even with significant losses, many taxes will become due this year.”
“The benefits of trade. I know it is talked about a lot, but it’s still not enough relative to how important it is.”

Ag Lender Warns Farm Finances Under Greatest Stress Since the 1980s

Fri, 19 Sep 2025 16:12:18 GMT

As combines chew through this year’s crops, farmers are faced with a bleak reality: this crop they’re harvesting is coming at a steep financial loss. And for some, this marks the fourth year in a row they won’t make any money.

“What the general public doesn’t realize is these things have not just occurred over the last six months. This started in 2021 and 2022,” says Tommy Young, who farms in Newport, Ark. “In our particular situation, we started noticing shortfalls in 2021 and 2022 simply because of the input costs.”

That worry and concern took center stage and was at the heart of a meeting in Brookeland, Ark., earlier this month. A meeting that was supposed to be just a handful of farmers at a local bank turned into more of a movement. And for farmers, there was one resounding message: We need help, and we need it now.

“I think when everyone, other farmers, started seeing how many farmers showed up, it changed the overall dynamic of the meeting. It made it become emotional. It made it become more than reverence, from the standpoint that it made me feel personally that I’ve not done anything wrong,” Young says.

‘It Felt Just Like a Funeral’

In the middle of harvest, farmers from across Arkansas, southern Missouri and Tennessee parked their combines to attend the meeting. Young says as he parked his vehicle and saw trucks lining the road and lines of people standing outside to get in, the somber mood became very real.

“It felt just like a funeral,” Young says. “And then when we got inside, you didn’t see signs being held up. You didn’t hear screaming or any kind of thing like that. You saw people that were genuinely concerned about the industry as a whole.”

Young says during that meeting, the frustration farmers voiced came down to three main concerns within the ag economy:

Record-high input costs
Low commodity prices
The loss of key export markets

It’s those three factors fueling a perfect storm, but farmers are considerably concerned about the record-high input costs and what’s fueling those in agriculture.

“All we can do is hope for the best, be as efficient as we possibly can be with what we’re doing, and then thinking things would change. Well, they have not changed. They’ve gotten worse,” Young says.

Ag Lender Says Farmers Are Seeing the Most Financial Stress Since the 1980s

Greg Cole is president and CEO of AgHeritage Farm Credit Services, which serves roughly 6,700 members across 24 counties in Arkansas. Cole started in ag lending in 1984, and he says as Arkansas farmers stare at loss on every crop they grow, it’s not a repeat of the 1980s, but it’s eerily similar.

“I can tell you this, this is the most stress I’ve seen since the ‘80s when you come to farm profitability, i.e. farmers losing money,” Cole says. “One positive we have now compared to the ‘80s is land values. Our land values are still positive, which gives some lendable equity —unlike in the 80s, when I started my career, when U.S. farmland prices plummeted in some areas up to 60%.”

With a drastic drop in commodity prices, but input prices still record or near-record high, Cole says farmers in Arkansas, specifically, have been eroding balance sheets for four straight years.

“We started seeing losses in ’22 when 40% of our producers lost money,” Cole says. “In ’23, about 50% lost money. And then last year, in ’24, 70% lost money, with the average loss of about $150 an acre. And that’s after they received about a $50 per acre ECAP payments. Today, we’re looking at where we stand now. We could have a similar level of losses in ‘25 that we had in ‘24. Even though in ’24, we had very strong yields. But now we have weaker yields.”

As mounting debt shows up on the balance sheets, Cole says there are two types of farmers seeing the most severe financial strain.

“The ones who rent most of the land, especially if they pay on the higher end of rent. And here in the Mississippi Delta, most farmers who have a lot of acres rent most of their ground,” Cole says. “And then young, beginning farmers who didn’t have the opportunity to build up a lot of equity. Those are the ones that have occurred these multiple year losses where their balance sheet debt has swollen to a level that’s hard to service a debt when you add the interest rate cost on top of it.”

Farmers On the Brink of Being Forced Out of Farming

Cole says in talking to farm credit colleagues from across the country, next to the central valley of California, farmers in the Mississippi region are in the most severe shape.

“There were 62 farm equipment sales in eastern Arkansas this past winter,” Cole says. “That’s the most I can recall, anecdotally speaking, than any time in my career since the 1980s. And I think what we’re looking at now is at least that many or more. It could be double that if we don’t get major intervention in the markets or an intervention from D.C.

Cole continues: “Really, what we need is another ad hoc payment, maybe in a form of an MFP-type payment that we received back in Covid. But we need some major help here, or we’re going to have a lot less farmers in 2026 and 2027.”

It’s a desperate plea across agriculture. Without some type of market or government intervention, some could be forced out of farming this year — similar to what happened in the 1980s.

“My dad, in 1978, went to Washington D.C., stood on the capitol and was there during that time when they drove tractors to D.C.,” Young says. “It was the same thing in Brookeland, Arkansas. And if this thing continues, I think it will go nationwide because we’ve got to get through this. And the president and congress have got to make it to where we have good markets, sustainable markets and markets that we can depend on long term.”

Largest Drop in Crop Cash Receipts Ever

It’s not just farmers in the Delta seeing the financial strain. Ag economist John Newton tells AgDay’s Michelle Rook that even though the overall net farm income picture from USDA looks strong, it’s a very different situation when you take out livestock and just look at crops.

“If you look at the data, crop cash receipts over the last three years have declined by $71 billion,” says Newton, executive head of Terrain. “When adjusted for inflation, that matches the largest decline that we’ve seen in history. So, the pressure in the crop space is very real.”

NCGA and ASA Also Sounding the Alarm

National Corn Growers Association (NCGA) is also sounding the alarm , saying agriculture is nearing a financial crisis. According to a new study released by NCGA, nearly half (46%) of U.S. farmers believe we are on the brink of a farm crisis, and 65% are more concerned now about their farm financials than a year ago.

American Soybean Association (ASA)CEO Stephen Censky also sees and hears the growing concern among farmers.

“It’s tough, and I can hear it in the stress in our members’ voices Our members and our board of directors are really concerned right now,” Censky says. “Some say if things don’t turn around, if we don’t get markets back or if we get economic assistance — which is not our first choice — this could be their last year in farming. That’s pretty scary.”

Censky says this time in agriculture is more serious than the last trade war simply because crop prices are lower than they were in 2018, and input prices are significantly higher.

“I will say while those programs we had, the market facilitation payments (MFP), they help keep folks in business. They stop the blood loss. They help farmers survive until the next year, but it’s not a replacement for markets,” Censky says. “And no farmer wants to be dependent on getting his or her income from the government, or from the mailbox, rather than from the marketplace.”

Farmers are also voicing frustration lately that when government assistance is given, they are simply a pass-through. The payments keep input prices elevated, and also seem to prop up high land values.

“One of the things is that when you provide economic assistance or any kind of government payments, whether that is through the reference prices and the ARC and PLC programs under the farm programs, yes, that helps. It helps keep farmers in business and helps them pay the bills. But longer term, any form of government assistance like that gets capitalized into land rents and land values, and that has consequences as well for farmers,” Censky says.

Yet, Censky was part of the Trump administration. He served as the United States Deputy Secretary of Agriculture from 2017 through 2020. That was also during the first trade war with China, and he knows the loss of the Chinese market is completely out of farmers’ control.

“We have not been publicly calling for another MFP-type program. Our priority has been ‘Let’s get a deal with China on soybeans’, because having that market is what soybean farmers want,” Censky says. “And by restoring and getting rid of the retaliatory tariffs, and ideally getting some purchase commitments from China, would be like we did under the Phase One trade deal with China. That would be great. And that also puts a lid on, or a damper on, Brazilian expansion, which has long-term benefits for the U.S. soybean industry as well.”

Lift the Fog: 4 Drivers of Farm Profitability To Watch in 2025

Fri, 20 Jun 2025 19:13:37 GMT

What is the status of the general ag economy? On the surface, strong livestock prices and recent government payments are making the farm sector look more positive than reality. Here are four drivers of farm profitability to watch this year and a glimpse into 2026.

There’s More Than Meets The Eye
As highlighted by Farmer Mac , an aggregate view of the agricultural economy doesn’t give a clear view of the driving forces and notably, the unknowns surrounding trade policy.

Farmer Mac highlights how the strength of the U.S. dollar might be the largest driver of commodity price movements over the past several months. A stronger dollar can make U.S. commodities more expensive on the global market, whereas a weaker dollar can lead to higher domestic prices.

Input Costs Vs. Commodity Prices
“The grain complex is under a lot of pressure,” says John Newton with Terrain Ag. “USDA just released their new cost of production estimates for 2026. We’re looking at record input costs for a number of crops. And commodity prices aren’t showing any signs of really rebounding.”

Per USDA, per-acre cost of production for corn in 2026 is forecast to be $915.51 — up from $897.44 in 2025. For soybeans, cost of production per acre is forecast to be $650.34 — compared with $639.15 in 2025.

Newton says the $30 billion in ad hoc payments to farmers approved by Congress is helping farmer sentiment and the ag economy’s health.

“Looking to the next year, that ad hoc support is not guaranteed to be there. Hopefully there’s more ‘farm’ in the farm bill because that’s also retroactive to the 2025 crop year. But again, input costs are projected to increase. Every single category is projected to be higher next year than this year. The only category projected to be lower is interest expenses,” he says. “Looking forward to 2026, it’s going to be a tight margin environment unless we get some strong tailwinds in agriculture.”

For livestock producers, the lower commodity prices have continued to bring lower feed costs. Specifically for swine feed costs, 2024 ticked downward , with lower costs expected through the rest of the year.

Interest Rates and Farmer Credit Health
“It’s a cash flow situation in the ag sector. That’s why they’re holding off on any large expenditures if they can. That’s the name of the game, which is why Congress has to approve a farm safety net. If they don’t, we’re in a world of hurt in the ag sector,” says Jim Wiesemeyer, a Washington policy analyst.

Earlier this week, the Fed left interest rates unchanged.

“I think the Fed is locked in, and it could be September at the earliest, if not October, before they actually have the data they want to begin cutting interest rates,” Wiesemeyer says.

Newton agrees.

“They’re waiting for inflation to heat up. They’re waiting for if unemployment is going to heat up. We continue to beat expectations on all of those,” Newton says. “We had negative GDP growth the first quarter. If that continues — if unemployment ticks up, if inflation ticks up, that’s what they’re watching for.”

Meanwhile, using data from the first quarter, the KC Fed released a report showing deteriorating ag credit conditions. Ty Kreitman and Morgan Mastrianni point to data showing how demand for farm loans continued to grow as farm finances tightened, but credit availability was steady. From their report, more lenders say they had tighter credit standards — the highest in over a decade.

USDA’s Next Net Cash Farm Income Report
In September, USDA will release its update on Net Cash Farm Income (NCFI).

“A knee-jerk reaction might be that USDA is likely to reduce its forecast for NCFI in September,” said a Farmer Mac report. “The reality is numerous factors influence farm sector revenues and profits.”

New Warning Signs Agriculture Is In A Recession

Thu, 27 Mar 2025 21:43:08 GMT

ADM and Syngenta are just two of the latest companies to announce layoffs in the agriculture sector. They join a long list of equipment manufacturers, seed and chemical companies and other agribusinesses who are restructuring and laying off employees to weather the current challenges in the ag economy. These are just the latest signs of a glaring reality: the U.S. ag economy is in a recession.

According to Farm Journal’s March Ag Economists’ Monthly Monitor, 62% of ag economists think the row crop side of agriculture is already in a recession. The survey of nearly 70 ag economists from across the country has been tracking the concerns of a recession for months, and as consolidation consumes agriculture, it’s a reminder of the fallout that comes with a downturn.

“Low cotton and wheat prices are a real disaster,” said one economist in the anonymous survey. “Corn and soybean prices continue to move around with some increases ahead of planting lately but they are not at great levels.”
“A recession is a sustained period of economic decline. We may not be able to say the entire agriculture sector is in recession, but the row crop sector has been in economic decline since 2022 and looks like that will continue into 2025,” another economist responded.
“Costs have outpaced revenue for some time now, and recent policy shifts are unlikely to alleviate that pressure,” one economist responded.

Recession concerns in agriculture

(Lindsey Pound )

One economist pointed out net returns are as tight as they have been since 2007, but even then, there are still 38% of economists who don’t think the row crop side of agriculture is in a recession.

“There are folks struggling for sure; however, this is part of the ebbs and flows of commodity agriculture. The difference this time is there was not as much liquidity saved during the good years to assist in the bad years. Therefore people are having to pull back,” one economist said. “ I don’t think the crop sector is in a recession because producer continue to be the dominant buyer of land and crop acreage estimates do not currently anticipate the American producer is going to drastically pull back on planting a crop. If we were in a recession, we would see declining land prices and people would be pulling back on production; neither is happening.”

Growing Concerns Among Ag Lenders
Eroding balance sheets are a concern echoed by agriculture economists, as well as ag lenders across the U.S.

“The end of the year last year was rough, but looking at projected cash flows for ‘25, we see that looking even worse,” Alex McCabe, agribusiness loan officer for CUSB Bank based in Iowa told “U.S. Farm Report.” “It’s unrealized, of course, but definitely looks like it could be a challenge.”

“Most have held together, but working capital has taken a hit,” says Tim Homan, relationship manager for Rabobank. “You’re a lot more confident in your balance sheet when you have good working capital with whatever comes along. It gets a little more nerve racking once that safety net on your balance sheet falls off.”

Concerns About More Consolidation Ahead

Consolidation concerns

(March Ag Economists’ Monthly Monitor )

With the majority of agriculture saying agriculture is currently in a recession, it lends itself to another tough reality: consolidation could continue. Eighty-five percent of economists who responded to the March Ag Economists’ Monthly Monitor said they think the current situation will accelerate consolidation not only on farms but also agribusinesses.

“Farmers who rent land, and some who own land, are not able to generate enough revenue to cover loan obligations and have to liquidate. Those who own land will likely be the ones to weather the economic downturn we are in,” one economist said.
“A sustained period of high costs and low prices will likely result in some farmers going out of business sooner than expected, which may be due to point of financial need or stopping by choice ahead of that. When farm consolidation is accelerated, there are fewer farmers buying inputs. Even those the acres are the same, fewer input retailers are needed to serve the customer base. Also, have greater pressure on the whole industry as big farmers grow,” another economist responded in the anonymous survey.
“Higher cost producers may be leaving the industry because they have to, not because they choose to,” one economist said.
“The agricultural industry has long valued hard work as a fundamental principle of it’s demographic makeup. For a while, government programs and loosening credit conditions have allowed people to receive more for less work. That is changing. I continue to hear conversations with ag service providers that they are focusing on those producers that are willing to put in the business planning themselves and not expecting someone else to do it for them. The process consolidates the sector by removing those that are inefficient and unwilling to do the work,” said another economist.

Another economist in the Ag Economist Monthly Monitor pointed out that when you look out there at available credit, the situation seems okay, but there are some reports out there of lenders having to deny loans.

“I don’t believe it’s widespread, at least not in my area,” said Homan, who is an ag lender in central and northeast Iowa. “There are probably certain areas that have been hit harder by weather and harder by price than what we have.”

No New Farm Bill as a Backstop
Those areas that are particularly struggling are the ones that rely heavily on rice and cotton, and without a farm bill, farmers in the south are worried the financial pain will accelerate in 2025.

Farm Bill timing

(Lindsey Pound )

The March Ag Economists’ Monthly Monitor also asked economists when they think Congress will pass a new farm bill. While just over one-third of economists think there’s still a chance to get a farm bill during the second half of 2025, 42% now say it could be 2027 before Congress passes a new farm bill.

“It’s really tough,” one farmer located north of Lubbock, Texas told Farm Journal. “Honestly, if I could get 50¢ on the dollar, I would sell out today. I’ve never been more disappointed. It’s not just commodity prices, but the fact we don’t have a farm bill that has been a real backstop for so long. We have used insurance way too much, and it’s just not sustainable anymore.”

Your Next Read:
92% of Ag Economists Say the U.S. is Already in the Middle of Another Trade War

Do Tariffs Work? Leading Ag Economists Weigh In

Mon, 03 Feb 2025 17:00:00 GMT

Tariffs are a tool used by President Donald Trump during both his terms. But do they work? Not even ag economists are in alignment, as the answer seems to be: It depends.

This past weekend, Trump signed three executive orders for tariffs , the first time a president has used powers granted under the International Emergency Economic Powers Act of 1977. The orders also include retaliation clauses that would ramp up tariffs if the countries respond in kind. Trump cut the levy on imports of Canadian energy to 10%.

By Monday morning, Trump had agreed to delay tariffs on goods from Mexico for one month to allow more time for negotiations. The agreement happened just hours before the tariffs were set to take effect.

President Claudia Sheinbaum said U.S. tariffs against Mexico will be delayed for one month after a conversation with Trump on Monday. Trump then confirmed the news on Truth Social.

Which Input Could Be Impacted Most by Tariffs?

Tariffs on the U.S.'s top three trading partners could have a major impact on agriculture. The January Ag Economists’ Monthly Monitor asked economists which input is most at risk. The top answer was fertilizer.

Ag Economists’ Monthly Monitor

(Lindsey Pound)

“From a headline standpoint, it’s probably potash,” says Samuel Taylor, farm inputs analyst, Rabobank. “We get 85% to 90% of our potash from imports from the Canadian market. The residual is made up by Russia and Israel, in principle, with some other markets coming in.”

One day after Trump announced he would move ahead with planned tariffs, Prime Minister Justin Trudeau stated tariffs targeting $30 billion in American products, such as alcohol, produce, household goods and industrial materials, will roll out in two phases starting Feb. 4, the same day the U.S. tariffs are set to begin.

The tariffs on the other $125 billion worth of goods will come in 21 days to allow impacted Canadian companies to adjust their supply chains. Trudeau emphasized Canada’s response would be “strong but appropriate,” while also considering non-tariff measures such as restrictions on critical minerals.

Do Tariffs Work?

With tariffs and a potential trade war brewing that begs the question: Do tariffs work?

It’s something Farm Journal asked the nearly 70 ag economists part of the Farm Journal Ag Economists’ Monthly Monitor. The survey asked economists: “Do tariffs work in trade policy?” Economists views were mixed:

“Tariffs can work in trade policy — that’s why nations continue to use them. The complex part that extends beyond the tariff action is potential long-term repercussions that can result from trade flow changes.”
“In limited cases, typically only if they result in a policy response in the targeted country. Much of the time, tariffs are like cutting off one’s nose to spite one’s face.”
“Tariffs provide short-term gains but have always failed relative to free trade in the long term.”
“Absolutely, when properly applied.”
“Not over the long term. They tend to affect who gets to supply different markets around the world.”

The Ag Economists’ Monthly Monitor also asked: “When tariffs are used as a ‘tool’ in trade, who pays the tariff?” Not all economists were aligned on that answer either, saying sometimes it’s farmers and consumers, but it can also be the exporting countries.

“When the U.S. imposes tariffs on imports, importers in the U.S. pay taxes to the U.S. government on their purchases from abroad. When another nation imposes tariffs, importers in that nation pay import taxes to their government on their purchases from abroad. Often, when a tariff is implemented, another nation retaliates, and you end up with importers in both nations paying the price on whatever products the tariffs apply toward.”
“If an importing country places a tariff on the exporting country, producers in the exporting country and consumers in the importing country both lose (i.e., receive lower and higher prices, respectively). Conversely, producers in the importing country and consumers in the exporting country win (i.e., receive higher and lower prices, respectively).”
“In the short run, consumers who purchase goods with a tariff might see higher prices if the tariff is not absorbed elsewhere. In the long run, the tariff might result in changes to the supply chain that result in higher prices but also create other economic opportunities in America (e.g. reshoring of domestic manufacturing).”
“The correct economist answer is: It depends. Tariffs drive a wedge between prices in the exporting country and in the importing country. It depends on the circumstances of particular markets and how much is reflected in higher prices in the importing country and reduced prices in the exporting country.”
“Both the exporting nation and the importing consumer pay some portion of the tariff depending on who has more flexibility to adjust to trade barrier. If exporting countries can easily switch to supplying other markets, they won’t have to ‘pay.’ If consumers can easily find cheap substitute goods, they won’t have to pay.”

USDA Says Farm-level Egg Prices Could Jump Another 45.2% in 2025 Due to Avian Flu

Fri, 24 Jan 2025 20:54:38 GMT

The January 2025 Food Price Outlook released Friday shows while food price inflation has slowed overall, key sectors like eggs and beef remain volatile due to supply chain and input cost pressures.

Egg prices saw the biggest spike, according to USDA’s data, up 37% year-over-year. But the U.S. Bureau of Labor Statistics data shows the price of Grade A eggs in December was up 93% since January 2024. And when you look ahead, USDA expects outbreaks of highly pathogenic avian influenza to continue to cause egg prices to climb.

When it comes to USDA’s specific outlook released Friday, the agency uses recent trends in food prices based on Consumer Price Index (CPI) and Producer Price Index (PPI) data through December 2024.

Key Highlights of the report include:

Overall inflation trends:
- Food prices increased by 2.5% year-over-year as of December 2024
- Food-at-home prices rising by 1.8% and food-away-from-home prices increasing by 3.6%.
2025 forecasts:
- Food prices expected to rise by 2.2%, slower than the historical average.
- Food-at-home prices predicted to grow by 1.3%, while food-away-from-home prices are forecast to increase by 3.6%.
Insights Within Categories:
- Egg prices saw a sharp rise of 36.8% year-over-year in December 2024, with 2025 prices projected to climb by 20.3% amid ongoing supply constraints.
- Beef and veal prices are expected to increase modestly by 1.5% in 2025, following a 4.9% rise in 2024.
- Pork and fats/oils prices are forecast to decline in 2025, with decreases of 0.8% and 1.6%, respectively.
- Fresh fruit prices are anticipated to rise by 0.7%, while dairy product prices are expected to increase by 1.3%.

Producer Price Insights:

The PPI, which tracks wholesale prices, suggests continued volatility in farm-level and wholesale markets, with significant fluctuations predicted for eggs, milk, and fruits due to factors such as extreme weather and disease outbreaks. Farm-level egg prices are expected to see a sharp increase of 45.2% in 2025, with a wide prediction interval reflecting uncertainty.

Overall, while food price growth is expected to moderate compared to recent years, specific categories remain susceptible to sudden price shifts driven by global and domestic factors.

What’s the Deal with Egg Prices?

Sticker shock with eggs stared shoppers in the face to end 2024. According to the U.S. Bureau of Labor Statistics, the increase is even more staggering. They show the average cost of a dozen Grade A large eggs was $4.15 in December, up from $3.65 in November and $2.15 in January 2024.

According to livestock economists at Texas A&M University, the widespread outbreaks of highly pathogenic avian influenza, or HPAI, continue to be the culprit, driving egg prices to record highs across the U.S. Commercial laying flocks have been hit especially hard.

“There is seasonality to egg prices based on demand, but the cutting of supplies, in this case by disease, has driven prices higher,” says David Anderson, Ph.D., AgriLife Extension economist and professor in the Texas A&M Department of Agricultural Economics . “I wouldn’t be surprised to see them go higher in the next report, but there is price volatility when you consider the supply and demand factors in play.”

USDA’s Animal and Plant Health Inspection Service reports since first detected in 2022, 1,410 flocks have been impacted, including 637 commercial operations. As a result, 134.7 million birds have been culled.

Georgia Hit for First Time By Avian Flu

Just last week, the largest poultry producing state in the nation reported its first case of avian flu. The Georgia Department of Agriculture confirming the virus at a farm in Elbert County. In reaction, the Georgia Depart of Agriculture says all poultry exhibitions, swaps, meets and sales have been suspended as a precaution. The Department says cleanup is currently underway and nearby operations are under quarantine.

According to Greg Archer, Ph.D., AgriLife Extension poultry specialist and associate professor in the Texas A&M Department of Poultry Science , one reason the HPAI is spreading so quickly is because of environmental conditions. According to Archer, the disease prefers temperatures below 90 degrees.

“Farmers take biosecurity seriously because they’ve been dealing with the threat for years,” he said. “The big question this time is the strain mutations and how outbreaks in poultry facilities are occurring.

Archer also says migratory birds have historically been the main carrier of the disease. The pathogen will enter the poultry house through migratory bird feces on the bottom of the show or by a truck of vehicle that transports materials or feed between farms.

The Time It Takes to Rebuild

Once a flock is hit, the operation culls the animals, and replacing lost birds takes times. According to Archer, it can take 20 or more weeks for birds to develop from incubated eggs to pullets to production-ready laying hens.

In some cases, entire farms are wiped out. Archer says farmers bring those farms back online in phases to stagger their production by new and older birds.

As they do so, the eggs produced by younger and older birds are typically smaller while hens in their prime lay large to jumbo eggs.

And the key in building back the supply of eggs in the U.S., according to Archer, is rebuilding the flocks impacted by avian flu.

The other recent wild card, is recent transmission patterns in new animals, including dairy cows and pigs.

Consumer Demand and the Unknown

Now the question is how much consumers are willing to pay, and if it will impact demand?

“Producers will be expanding their flocks to produce more eggs to meet demand and capitalize on the high prices, while consumers might cut back,” says Anderson. “That combination aligning with fewer instances of avian influenza as the weather warms up would likely put downward pressure on prices. There is a natural ebb and flow to egg prices from seasonal supply and demand, and HPAI has just added volatility to the market.”

How Higher Interest Rates Could Impact Farmers in 2025

Tue, 05 Nov 2024 17:49:00 GMT

The Federal Reserve is expected to cut interest rates this week, which would mark the second time this year. However, the Fed’s decision to cut the benchmark interest rate last month is only providing relief on short-term rates. The mid- and long-term rates have actually gone up, not down.

“The market trades the two-year break-even inflation rate — the expectation of what inflation’s going to average over the next two years,” says Arlan Suderman, chief commodities economist with StoneX Group. “In the last six weeks or so, we have seen it jump a full percentage point. That is a significant short-term jump, saying that reinflation fears are coming back in a hurry.”

Suderman points out the Fed can influence mid- and long-term rates, but the agency can’t control them. Concerns about inflation are pushing those rates back up again.

“That could all change over the next couple of weeks, or it could be reinvigorated,” Suderman says. “Longer term, what I’m looking for is a return to the interest rates we saw in the ‘90s and early 2000. But I think there’s going to be a lot of volatility in getting there.”

Real Rates Move Higher

Krista Swanson, lead economist for National Corn Growers Association, says the day before the September FOMC meeting the 10-year Treasury was at 3.63%, but today it’s 4.21%.

“There are a number of reasons the 10-year Treasury is rising,” she says. “Among those, are market expectations for the Fed to slow rate cuts as recent macro data has reduced recession fears. Investor moves are showing growing confidence in the U.S. economy. In other words, the market is driving real interest rates higher, despite the lower federal funds target range. The federal funds rate is the interest rate that banks charge each other to borrow funds overnight.”

Like Suderman, Swanson says the Federal Reserve can influence the interest rates farmers/consumers/businesses pay on loans through changes in the Fed Funds Rate. However, the amount charged by the lender to the customer includes a spread (their profit) and depends on borrower specific factors such as credit score, size of loan, type of loan, loan term, etc.

Interest Rates

(NCGA)

The Interest Rate Wildcard and Impact on the Ag Economy

When you look at what could impact both livestock and row crop producers the next six months, a major wild card is interest rates. The October Ag Economists’ Monthly Monitor asked economists how much farm interest rates need to fall to find economic stability for farmers, and 46% said 2%.

The Monthly Monitor also asked economists to list topics or stories that could impact agriculture over the next 12 months but aren’t currently getting covered by the media enough. Some economists say it’s interest rates.

“I think one of the things is the return to higher interest rates, which is what we’re seeing play out and how that could negatively impact agriculture at a time when it’s struggling from depressed prices and lingering high input costs,” Suderman says. “As higher interest rates continue that impacts not only your operation costs, your operating note expenses, etc., but it also increases the cost of storing grain, whether you could pay off loans or put that money into interest. All that has an impact on your marketing and marketing strategies.”

Dr. Vince Malanga on U.S. Economy

Dr. Vince Malanga, president of LaSalle Economics, signals future economic stability might be threatened by conflicting survey data, recent steepening of the yield curve and a federal deficit near 7% of GDP.

The real GDP grew at a 2.8% rate during the summer, with inflation at 1.8%, signaling strong corporate profits if sustained, Malanga says. Federal spending and consumption were key drivers, he adds, while trade and construction underperformed. Although business investment was stable, external events such as hurricanes and strikes had an impact.

Malanga also points out long-term rates might be rising due to investor concerns over fiscal sustainability, potentially signaling discontent with growing federal red ink. Housing markets showed signs of a recovery but were negatively impacted by rising rates.

Both presidential candidates have not focused on addressing the deficit, favoring tax cuts and subsidies instead, Malanga adds. The Federal Reserve, which has traditionally stayed clear of fiscal policies, might need to step in, he believes, with Chair Powell likely considering whether to counter deficits or monetize debt.

Malanga’s bottom line: The sustainability of the current growth and low inflation relies on fiscal responsibility and economic adjustments moving forward.

Election Impact on Ag

Ahead of the election, the Ag Economists’ Monthly Monitor asked economists which presidential candidate will be more effective at taming inflation. Fifty-three percent said Donald Trump.

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

Harris Unveils Her Economic Agenda Ahead of the DNC This Week

Thu, 12 Sep 2024 15:29:51 GMT

Democratic National Convention begins Monday in Chicago. The cost of Vice President Harris’ new proposals is uncertain, but the Committee for a Responsible Federal Budget (CRFB) estimates the plan would increase deficits by $1.7 trillion over the next decade.

The 2024 Democratic National Convention (DNC) in Chicago begins Monday and will be a significant event, with key activities and speakers planned.

An estimated 50,000 people are expected to visit the convention, according to the DNC, and the theme that will guide programming through the four nights of the convention is “For the People, For Our Future.”

Nomination and key speeches:

Vice President Kamala Harris, who has been nominated as the Democratic presidential candidate, will deliver the final speech on Thursday. Her running mate, Minnesota Governor Tim Walz, will speak on Wednesday. The convention will feature a ceremonial roll call since Harris and Walz have already been confirmed as nominees through a virtual vote.

Harris Unveiled Economic Agenda Ahead of DNC

Friday in Raleigh, North Carolina, Vice President Kamala Harris announced a comprehensive economic agenda she said is aimed at reducing everyday costs for Americans in what she calls an “opportunity economy.” She also hit back at Donald Trump’s plans to impose large tariffs on all imported goods, dubbing it a “Trump tax.”

Trump responded to Harris’ tax attack: “A tariff is a tax on a foreign country, that’s the way it is, whether you like it or not. … It’s a tax on a country that’s ripping us off and stealing our jobs. And it’s a tax that doesn’t affect our country.”

Harris’ controversial and populist proposals include a federal ban on price gouging for groceries, $25,000 in down payment assistance for first-time homebuyers, and tax incentives for builders of starter homes.

Harris also plans to expand the child tax credit to up to $6,000 for children in their first year and broaden the earned income tax credit for lower-income workers without children. (This followed a suggestion earlier this month from Sen. JD Vance (Ohio), the GOP vice-presidential nominee, that the credit be raised from $2,000 per child to $5,000.)

Additionally, she aims to lower health insurance premiums through the Affordable Care Act and build 3 million new housing units.

Harris emphasized her commitment to fighting high costs in food, housing, and healthcare, and outlined her plans for the first 100 days in office if elected president.

She also addressed the need for a stable business environment with clear regulations and criticized former President Donald Trump’s economic policies.

The cost of Vice President Harris’ new proposals is uncertain, but the Committee for a Responsible Federal Budget (CRFB) estimates ( link ) that the plan would increase deficits by $1.7 trillion over the next decade. This figure could rise to $2 trillion if Harris’s housing policies, initially intended to last four years, were made permanent.

Harris’ price-gouging plan would include authorizing the Federal Trade Commission (FTC) to impose large fines on grocery stores that impose “excessive” price hikes on customers, her campaign said. This approach is intended to deter companies from engaging in excessive price hikes that are not justified by increases in production costs. The FTC’s role will include investigating corporate practices and imposing financial penalties on violators, similar to how state attorneys general enforce state-level bans.

Details to come, but… While the specifics of how price gouging is defined and regulated are not fully detailed, the proposal draws inspiration from existing state-level bans, which typically involve prohibiting significant price increases during emergencies or sudden supply-demand imbalances. However, Harris’ proposal may not require an emergency condition to trigger enforcement, reflecting a broader application to address ongoing price increases in the grocery sector.

Determining whether a price increase is excessive, particularly in the context of grocery price gouging, is a complex task for the Federal Trade Commission (FTC). The process involves several steps and considerations:

• Data collection and monitoring: The FTC collects and reviews data on prices to identify unusual changes. This involves comparing current prices to historical data to spot anomalies that might indicate excessive increases not justified by market conditions.

• Econometric models: The FTC uses econometric models to analyze pricing data. These models help determine whether price changes are anomalous compared to historical trends and whether they result from market-driven causes or other factors.

• Market analysis and investigations: When price increases do not appear to be market-driven, the FTC may consult with other agencies, such as the Energy Information Administration, and state Attorneys General to discuss potential actions. This could include opening investigations to determine if anticompetitive practices are involved.

• Defining excessive pricing: Defining what constitutes an “excessive” price increase is challenging. The FTC must balance consumer protection with the need to allow firms to cover costs and invest in the market. The agency may look for evidence of manipulation or practices that lessen competition to justify enforcement actions.

Cost estimates

(CRFB)

• Economic and social policies: Harris is expected to provide more details of her economic policy plan which she unveiled Friday in North Carolina. It includes expanding child tax credits, banning price gouging, and lowering prescription drug costs. These themes will be central to her campaign message and the party’s platform. Harris is expected to offer more policy details than her Republican counterparts, who largely avoided specifics in their platform. By doing so, she aims to showcase the Democrats’ commitment to substantive governance and provide voters with a clearer sense of their plans. However, Harris is likely to carefully navigate the level of detail she provides, ensuring she avoids being locked into positions that could become controversial or politically damaging later. This approach allows her to address key issues and differentiate the Democratic platform from the Republicans’ while maintaining the flexibility to adjust or refine policies as needed. Harris wants to strike a balance between offering enough detail to appear substantive and informed, while remaining vague enough to avoid potential pitfalls that could arise from more rigid commitments.

On other issues:

• Inflation: Kamala Harris is taking steps to distance herself from the economic challenges faced under President Biden’s administration, starting with a frank admission that inflation has significantly impacted the cost of living for American families, particularly in areas like food, gas, and housing. Her acknowledgment resonates with concerns across the political spectrum, even drawing an approving response from the Trump campaign, which used her remarks to underscore the difficulties Americans are facing.

• Border security: Recognizing Donald Trump’s advantage in polling on immigration issues, Harris has begun to emphasize a tougher stance on border security. Her recent ad campaign focuses on plans to hire more border agents and crack down on issues like fentanyl trafficking and human trafficking. While this approach is more assertive than previous Democratic positions, it stops short of Trump’s more extreme measures, such as mass deportations. Nonetheless, this marks a significant shift in the Democratic Party’s stance on immigration over the past four years.

• No tax on tips: On the same day she secured the endorsement of Nevada’s influential Culinary Union, Harris committed to eliminating taxes on tips, a move designed to appeal to working-class voters. This promise has sparked anger from Trump, who had made a similar pledge two months earlier, highlighting the competitive nature of the race to appeal to labor groups and service industry workers.

• No fracking ban: Harris continues to maintain a position of “strategic ambiguity” on energy issues, particularly regarding fracking. While she previously supported a ban on fracking on federal lands, she has since softened her stance, likely to avoid alienating voters in key swing states like Pennsylvania. This shift reflects the importance of energy policy in the upcoming election and the need for Harris to balance environmental concerns with economic and electoral realities.

• Protests and security: Protests are expected, particularly concerning the Democratic Party’s stance on the Israel-Gaza conflict. Designated protest areas have been established near the United Center, with Union Park being a primary location for demonstrations. In response to the expected protests over U.S. policy toward the war in Gaza, Harris will likely navigate a delicate balance. While she has attempted to show greater empathy toward the suffering of Palestinian civilians compared to President Biden, this has not been sufficient to satisfy protest groups that are demanding a complete reversal of U.S. support for Israel. Harris could emphasize the importance of a diplomatic solution to the conflict and the U.S. role in facilitating peace talks, hoping to address the concerns of protesters while maintaining the administration’s broader policy objectives. However, given the intensity of the opposition from some protest groups, which seek a more drastic change in U.S. policy, her efforts may only partially quell the discontent. The protests are likely to continue, with demonstrators pushing for more substantial shifts in U.S. foreign policy.

Prominent Speakers During DNC:

Monday, Aug. 19:

• President Joe Biden will speak on the opening night. Biden is expected to make defense of democracy and his partnership with Vice President Harris the central themes of his prime-time address. (Reuters reported Saturday First Lady Jill Biden is likely to join her husband on stage.)

• Former Secretary of State Hillary Clinton will address the convention.

Tuesday, Aug. 20:

• Former First Lady Michelle Obama

• Former President Barack Obama will deliver remarks

• Illinois Governor J.B. Pritzker

Wednesday, Aug. 21:

• Former President Bill Clinton will speak before Minnesota Governor Tim Walz, who will deliver his vice-presidential acceptance speech.

Thursday, Aug. 22:

• Vice President Kamala Harris will close out the convention with her presidential acceptance speech.

Meat Industry Urges Harris to Stop Using Meat As a Scapegoat And Distraction For Root Cause of Inflation

Thu, 12 Sep 2024 15:29:51 GMT

Today in Raleigh, North Carolina, Vice President Kamala Harris is expected to propose several economic measures aimed at addressing key voter concerns such as housing and grocery costs. Her proposals include:

• Federal ban on price gouging: Harris plans to introduce a federal ban on price gouging in the food and grocery sectors, particularly targeting the meat processing industry, which she claims is highly consolidated and contributes to rising grocery prices. Harris has declined to detail what her administration would consider “excessive” price gouging and how they would go about targeting companies, appearing to leave much of those decisions to FTC discretion. Calling out companies for running up the price of some food products polls well with swing-state voters and is supported by progressive groups. Several factors have made grocery prices volatile since the pandemic, including supply chain disruptions and a big shift in consumer buying patterns.
• Price controls: The vice president also envisions new price controls on groceries, and expanding limits on out-of-pocket prescription drug prices to all Americans. Harris says she would push the government to negotiate additional drug savings faster, and cap the monthly cost of insulin at $35 for all Americans. Jason Furman, a Harvard economist who worked in the Obama administration, warned about potential market disruptions that such pricing policies could unleash. If prices don’t rise as demand grows, companies might be less inclined to increase supplies. “This not sensible policy and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” he told the New York Times.
• Housing initiatives: She will propose tax incentives to facilitate the creation of 3 million new housing units over four years, surpassing previous initiatives. This includes unspecified tax advantages for builders focusing on entry-level buyers and affordable rental properties, as well as a $40 billion fund to assist local governments in financing housing developments.
• Down payment assistance: Harris is set to propose providing up to $25,000 in down payment support for first-time homebuyers, a plan that her campaign suggests could benefit over 4 million buyers.
• Tax relief on tips: Harris will advocate for eliminating federal taxes on tips, a proposal also supported by former President Donald Trump.
• Tax credits: Harris’ plan would expand the child tax credit to $3,600 from $2,000 per dependent, with a $6,000 credit for newborns. She also proposes expanding the Earned Income Tax Credit for childless low-wage workers and increasing subsidies for those who purchase insurance on federal health exchanges.

These proposals are part of her broader economic agenda aimed at reducing costs for consumers and addressing inflationary pressures, which remain a significant concern for voters despite a generally strong economic performance.

Of note: Harris’ price-gouging initiatives are unlikely to pass in Congress due to insufficient support. Her plan mirrors stalled legislation from Democratic Sens. Elizabeth Warren (D-Mass.), Bob Casey (D-Pa.), and Tammy Baldwin (D-Wis.), which has faced strong opposition from Republicans.

Meat Industry Speaks Out

The meat industry has strongly rejected Harris’ pointing to meat prices at the center of food inflation.

“It’s time for this administration to stop using the meat and poultry industry as a scapegoat and a distraction for the root causes of inflation and the significant challenges facing our economy,” National Chicken Council Interim President Gary Kushner said in a statement.

The Meat Institute issued the following statement from Meat Institute President and CEO, Julie Anna Potts, in response to news reporting of a Harris Campaign proposal to place a federal ban on price gouging:

“Consumers have been impacted by high prices due to inflation on everything from services to rent to automobiles, not just at the grocery store. A federal ban on price gouging does not address the real causes of inflation.

“The Harris campaign rhetoric unfairly targets the meat and poultry industry and does not match the facts. Food prices continue to come down from the highs of the pandemic. Prices for meat are based on supply and demand. Avian Influenza, a shortage of beef cattle and high input prices like energy and labor are all factors that determine prices at the meat case.

“Prices that livestock producers receive for their animals are also heavily influenced by supply and demand. Prices for cattle producers especially are at record highs, surpassing the 2014-2015 previous record highs. Today, well into 2024, cattle prices remain at record levels because the US has the lowest cattle inventory since Harry Truman was President.

“Major meat companies have reported losses during the Biden-Harris Administration, with some closing facilities and laying off workers.”

— Donald Trump held a press conference yesterday where he labeled Harris’ plan as “communist” and warned efforts to control grocery prices would lead to “food shortages, rationing, hunger, dramatically more inflation.”

— Do food price controls work?
While food price controls can offer short-term benefits in specific situations, such as during acute supply disruptions, they are generally seen as economically unsound in the long term. They tend to create more problems than they solve by distorting market mechanisms and leading to shortages. Most economists recommend targeted income support and structural economic policies as more effective alternatives for addressing food price inflation.

— The Biden administration has previously raised concerns about potential price gouging in the food industry, particularly in the context of rising grocery prices. However, these charges have not been proven. Vice President Kamala Harris has been vocal about the issue, emphasizing the role of corporate price gouging in driving up grocery costs, particularly in the meat industry, which she claims has seen significant price increases. The administration has proposed measures to address these concerns, including advocating for a federal ban on corporate price gouging. This proposal aims to hold large corporations accountable for maintaining high prices on essential goods. Despite these claims, the economic community remains divided on the issue. Many economists argue that the primary drivers of recent price increases are supply chain disruptions, changes in consumer behavior, and increased demand due to government stimulus measures, rather than corporate practices. Some economists have criticized the administration’s focus on price gouging as a political maneuver rather than a substantive economic policy.

— Fed study: Corporate price gouging not a significant factor in U.S. inflation surge. Earlier this year, a study published by economists at the Federal Reserve Bank of San Francisco concluded that corporate price gouging has not been a significant factor in the recent surge of U.S. inflation. The study, led by researchers Sylvain Leduc, Huiyu Li, and Zheng Liu, found that while there were spikes in markups for specific sectors like motor vehicles and petroleum products, the overall markups for U.S. goods and services have remained relatively stable. This suggests that rising corporate profits and price increases were not the primary drivers of inflation during the post-pandemic recovery.

The study contradicts the narrative that corporate greed, often referred to as “greedflation,” is a major cause of inflation. Instead, it attributes the inflationary pressures to supply chain disruptions, a decrease in labor supply, and a surge in consumer demand during the recovery period. The easing of inflation is credited to improvements in supply chains, increased immigration, and reduced demand due to higher borrowing costs as the Federal Reserve raised interest rates.

— Several recent U.S. presidents have attempted to implement price controls, with varying degrees of success and consequences.

• Richard Nixon: Wage and Price Controls (1971-1973): President Richard Nixon is perhaps the most famous for implementing wage and price controls in the early 1970s. In August 1971, Nixon imposed a 90-day freeze on wages and prices to combat inflation, which was part of a broader economic strategy that included taking the U.S. off the gold standard. These controls were initially popular and appeared to be effective in curbing inflation temporarily. However, once the controls were lifted, inflation surged again, leading to economic distortions and shortages. The controls were largely seen as a failure in the long term, as they did not address the underlying causes of inflation and led to economic inefficiencies.

• Gerald Ford: President Gerald Ford did not implement new price controls during his administration. Instead, he focused on ending existing controls. In response to the economic issues of the mid-1970s, Ford proposed ending price controls on domestic oil as part of his broader energy policy. This was part of a compromise with Congress, which allowed for a gradual phasing out of these controls over a forty-month period. Ford believed that removing price controls would stimulate domestic oil production and align with his free-market philosophy. However, this decision was contentious, with Democrats worried about potential long-term price increases and conservative Republicans dissatisfied with the compromise. Ultimately, Ford’s administration focused more on tax and spending policies, such as the “Whip Inflation Now” (WIN) campaign, which aimed to combat inflation through voluntary measures rather than mandatory controls.

• Jimmy Carter: President Jimmy Carter, facing high inflation, introduced a program of voluntary wage and price controls in 1978. This approach was part of a broader anti-inflation strategy that included government restraint and efforts to reduce the federal deficit. The voluntary nature of the controls, however, led to skepticism about their effectiveness. Critics argued that voluntary controls were insufficient to curb inflation, which continued to rise during Carter’s presidency. In addition to voluntary controls, Carter also dealt with energy price controls. In response to the energy crisis and rising oil prices, he gradually deregulated oil prices starting in 1979, while also proposing a windfall profits tax to address public concerns about oil company profits. Despite these efforts, inflation remained a significant issue throughout Carter’s term, contributing to economic instability and public dissatisfaction.

Is the Fed Running Out of Reasons to Not Cut Interest Rates? Important Insights From Powell's Testimony Today

Thu, 12 Sep 2024 15:29:15 GMT

Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee provided several key insights into the current economic landscape and potential future monetary policy actions. Here are the main highlights:

Cooling job market and economic slowdown. Powell noted a noticeable cooling in the job market, with the unemployment rate rising to 4.1% for the third consecutive month. Despite this, hiring remains solid, indicating a slowdown rather than a halt in economic activity. He also mentioned a general deceleration in economic growth following a period of robust expansion last year.
Inflation and interest rates. Powell emphasized that while significant progress has been made in controlling inflation, it remains above the Federal Reserve’s 2% target. This persistent inflation, coupled with the slowing job market, has led to discussions about the potential for interest rate cuts soon. Powell’s testimony suggested a shift from the Fed’s previous focus on combating inflation to a more balanced approach that also considers economic growth and employment.
Potential rate cuts. Market participants and economists are anticipating a possible interest rate cut at the Federal Reserve’s Sept. 17-18 meeting. Powell’s remarks have bolstered these expectations, with many interpreting his statements as a signal that the Fed is open to adjusting rates to support the economy. Democratic senators, including Elizabeth Warren (Mass.), have been vocal in urging for rate cuts, aligning with market sentiments.
Political implications. The testimony comes at a politically sensitive time, with the presidential campaign season underway. Voters’ dissatisfaction with high prices has put additional pressure on the Federal Reserve’s decisions. Powell’s cautious approach aims to balance economic needs without appearing to influence political outcomes. His emphasis on avoiding delayed policy adjustments that could harm economic activity and employment was well-received by the markets.
Market impact: Markets want to believe the Fed will cut rates in September, so they are taking the basic remarks and now taking them as suddenly backing a rate cut in September. But the Dow is flat and CME Fed funds futures for September have a 70% probability of a rate cut. Yesterday that was 71%.

“We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation. At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” Powell said during his testimony.

Powell was asked when the Fed would cut rates. “I’m not going to be sending any signals about the timing of any further actions,” Powell said.

Overall Outlook
Powell highlighted the importance of monitoring economic indicators closely to avoid past mistakes of delayed responses to inflation. Thursday’s release of the Consumer Price Index for June is expected to show a slight decrease, further indicating a gradual moderation in inflation.

“The Committee has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent. Incoming data for the first quarter of this year did not support such greater confidence. The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” Powell said during his testimony.

Bottom Line
Powell’s testimony underscored a cautious optimism regarding inflation control, a recognition of a cooling job market, and a potential shift towards interest rate cuts to support the economy amidst evolving conditions.

Is the Fed Cutting Interest Rates Now Imminent?

Thu, 12 Sep 2024 15:29:14 GMT

The Federal Reserve has four more chances this calendar year to cut interest rates. As it prepares for its next meeting at the end of July, the Fed is watching two data points: the new inflation data to be released later this week and the mixed jobs report released last week. Since July 2023, the Federal Reserve has kept its benchmark interest rate steady at a 23-year high of 5.25% to 5.5%.

When and how many interest rate cuts continue to be a contentious point of debate. On the heels of the Federal Reserve deciding to leave interest rates unchanged during their June meeting, the June Ag Economists Monthly Monitor asked economists how many rate cuts, if any, we will see this year. Seventy three percent think the Fed will make one interest rate cut this year, 18% think it will be two cuts. That compares to the April survey when 44% of ag economists said they were becoming more pessimistic about interest rate cuts in 2024 .

When Will the Fed Cut Rates?

The Fed is not expected to cut rates at its upcoming FOMC meeting July 30 to Aug. 3. But after that, inflation data will be the key barometer. Investors currently see a 77.9% chance of a quarter-point rate cut by the Sept. 17 to 18 Fed meeting. There’s a 97.3% chance of at least one quarter-point cut by the final Fed meeting of the year on Dec. 17 to 18. However, some analysts believe the Fed could initiate its first rate cut in September if economic conditions continue to show signs of cooling. Others expect the first cut to come in the last quarter of 2024, possibly after the U.S. presidential election Nov. 5 (the FOMC meeting is Nov. 6 to 7).

Federal Reserve Chairman Jerome Powell has consistently stated the Fed is “data dependent,” which is particularly the case relative to inflation. That’s why the market will be watching the latest inflation data in the Consumer Price Index (CPI), which will be released on Thursday, along with production inflation numbers out Friday. Powell has emphasized they need “greater confidence” that inflation is sustainably moving toward their 2% target before considering rate cuts.

Many economists and investors are now anticipating two quarter-point rate cuts before the end of 2024. But the Fed’s current “dot” map signals only one cut the remainder of this year. That assumption could of course change in the months ahead.
_______________________________________________________________
Related News: The Subtle Change To Notice From The Latest Fed Reserve Meeting
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Factors influencing the decision, besides inflation, include recent data showing a cooling job market and moderating wage growth. The pace of economic growth and any signs of recession will be closely monitored.

“If there’s an easing in labor market conditions that would encourage them, especially in front of the election, to cut rates, even if the inflation target is not met,” said Vince Malanga, Pro Farmer economic consultant and president of LaSalle Economics, recently on AgriTalk. “If the unemployment situation is softening, especially three or four months before an election, I think you’re going to start to hear some people yelling at the Fed that they’ve overdone it.”

The Labor Department’s June jobs report released Friday showed employers added 206,000 jobs, but concerns remain about the labor market. Despite a slight increase in the unemployment rate of 4.1% due to more people entering the work force, labor force participation among prime-age workers is at its highest point in over 20 years.

However, job growth is slowing, with downward revisions for May and April totaling 111,000 fewer jobs. Nearly three-quarters of June’s new jobs were in government, healthcare and social assistance. While the report doesn’t indicate an imminent recession, it shows an increasing role of government spending in job creation.

Fed Officials Weigh In

Farm Journal spoke to Austan Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago , during the Iowa Farm Bureau’s Economic Summit in June. With more work to do in order to get to the Fed’s target of 2%, he says the Fed is also watching the jobs market closely. Up until this point, Goolsbee has been impressed with the resilience of the general economy.

“If you look, for sure internationally, at the U.S. growth, we’ve grown a lot,” Goolsbee says. “We’re actually higher than where we would have been when people were making predictions of where the GDP would be at this point before they had ever heard of COVID. We’re actually above where they were predicting we would be. We’re the only economy where that’s true. I’ve been very impressed with that resilience.”
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Related News: Is the U.S. Ag Economy Heading Toward a Recession? A One-on-One with the President of the Chicago Fed
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Goolsbee says if inflation data continues to come in lower, and the jobs growth posts strong gains, then the Fed could cut rates to more normal levels. But until then, Goolsbee insists the Federal Reserve won’t budge on interest rates.

John Williams, Federal Reserve Bank of New York president, stated that although inflation has recently decreased toward the Fed’s 2% target, reaching the goal will take more time. Currently, inflation is around 2.5%, reflecting significant progress, but sustained 2% inflation is still a way off. Williams reiterated the Fed’s commitment to achieving this target during an event at the Reserve Bank of India in Mumbai.

He emphasized the importance of maintaining “well-anchored” inflation expectations and discussed the challenges of measuring key economic indicators, such as the long-run neutral interest rate, or r-star. He disputed claims that the neutral rate has increased since the pandemic, noting estimates that place it near pre-Covid-19 levels in both the U.S. and Eurozone. In June, officials raised their longer-term rate estimates to 2.8% from 2.6% in March.

How Do You Know When Agriculture Is In A Recession?

Wed, 04 Sep 2024 19:38:23 GMT

Agriculture can sometimes act as a buffer during broader economic recessions, as demand for essential food items tends to remain relatively stable. However, when multiple indicators align, it can signal a recession in the agricultural sector.

According to analysts and economists, pay particular attention to the following:

Declining farm income. A significant drop in net farm income is a major sign. For example, USDA forecasts another major decline in farm income for 2024, on top of the big decline in 2023. That would be the largest ever two-year decline.
Sharply declining commodity prices. Weak prices for major crops and livestock products can indicate economic trouble for farmers. Crop prices have seen sharply declining prices, with the meat sector showing continued strength.
Elevated input prices costs. When input costs such as fertilizer, fuel and labor remain elevated while commodity prices fall, it squeezes farm profitability.
Reduced agricultural exports. Slowing exports and a growing trade deficit in agriculture can signal economic challenges. USDA forecasts the third straight year of a U.S. ag trade deficit , with the fiscal year 2025 at $42.5 billion.
Debt vs. cash flow. Increasing farm debt relative to cash flow combined with higher borrowing costs due to interest rate increases can strain farm finances.
Weakening credit conditions. Lower repayment rates on farm loans and increased loan renewals/extensions can indicate financial stress.
Declining demand for agricultural products. Reduced consumer spending on discretionary food items during broader economic recessions can impact certain agricultural sectors.
Falling farmland values. Higher interest rates and lower farm profitability can lead to downward pressure on land prices .
Increased inventory levels. Growing stockpiles of crops and livestock products can spur further price declines.
Widespread financial stress. When a large number of farmers across different regions and commodity sectors experience financial difficulties simultaneously it can point to an industry-wide recession.

Your Next Read: More Than 50% of Ag Economists Now Think the U.S. Ag Economy is Already In a Recession

U.S. Consumer Prices Rose Moderately in July; Annual Increase Slows to Below 3%

Wed, 14 Aug 2024 21:28:54 GMT

U.S. consumer prices rose moderately in July and the annual increase in inflation slowed to below 3% for the first time since early 2021, further strengthening expectations the Federal Reserve will cut interest rates next month.

The report from the Labor Department on Wednesday added to a mild increase in producer prices in July in suggesting that inflation was firmly back on a downward trend. That should allow the U.S. central bank to focus more on the labor market amid growing concerns of a sharp slowdown.

“The relay race to Fed cuts is on,” said Lindsay Rosner, head of multi-sector fixed income at Goldman Sachs Asset Management. “The Fed is on track to cut some amount in September, and we’ve got two more legs of this race to go.”
The consumer price index increased 0.2% last month after falling 0.1% in June, the Labor Department’s Bureau of Labor Statistics said. The rise was in line with economists’ expectations. A 0.4% increase in shelter, which includes rents,accounted for nearly 90% of the rose in the CPI. Shelter costs increased 0.2% in June.

Food prices gained 0.2%, matching June’s rise. Gasoline prices were unchanged after falling for two straight months. In the 12 months through July, the CPI increased 2.9%. That was the first sub-3% reading and smallest gain since March 2021. Consumer prices advanced 3.0% on a year-on-year basis in June.

Annual consumer price growth has moderated considerably from a peak of 9.1% in June 2022 as higher borrowing costs cool demand. While still elevated, inflation is moving towards the Fed’s 2% target.

The odds of a half-percentage-point rate cut at the Fed’s Sept. 17-18 policy meeting are around 59%, with the remainder of bets on a quarter-percentage-point drop, according to CME Group’s FedWatch tool. The rate pricing mostly reflects the jump in the unemployment rate to near a three-year high of 4.3% in July.

Economists, however, argue the labor market would have to deteriorate considerably for the central bank to deliver a 50-basis-point reduction in borrowing costs. The fourth straight monthly increase in the jobless rate was mostly driven by an immigration-induced rise in labor supply rather than layoffs.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for more than a year, having raised it by 525 basis points in 2022 and 2023. Excluding the volatile food and energy components, the CPI rose 0.2% in July after rising 0.1% in June.

In the 12 months through July, the core CPI advanced 3.2%. That was the smallest year-on-year increase since April 2021 and followed a 3.3% gain in June.

“Unless the global economy experiences another shock, the Fed will most likely cut rates by a quarter percent in September,” said Jeffrey Roach, chief economist at LPL Financial. “The probability of the Fed cutting by a half percent is still elevated since investors are still somewhat skittish from recent events.”

(Reporting by Lucia Mutikani; Editing by Paul Simao)

There Are New, Early Signs of Ag Sector Financial Pressure

Tue, 13 Aug 2024 19:19:26 GMT

Agricultural credit conditions in the Tenth Federal Reserve District tightened in the second quarter of 2024 due to declining farm income, lower crop prices, and high production costs. Farm incomes continued to weaken, particularly in crop-heavy states like Kansas, Missouri, and Nebraska, while cattle prices provided some support. Farm borrower liquidity declined, and loan demand increased sharply, but repayment rates fell, indicating growing financial pressure on farmers.

Farm income was lower in all states, but the retraction remained especially pronounced in areas more impacted by low crop prices. The index of farm income was lower in Kansas, Missouri, and Nebraska, where crops make up a larger share of farm revenues (Chart 2). After strengthening last quarter, farm income in the Mountain States and Oklahoma declined in the second quarter as 30% of lenders in those states reported lower farm income than a year ago.

Farm income by state

(Federal Reserve Bank of Kansas City)

Despite these challenges, agricultural credit stress remained limited, though signs of financial strain are emerging. Interest rates on farm loans stayed relatively high, and farmland values grew more slowly, with ranchland values showing relative strength. Lenders expect land values to stabilize, with some anticipating further declines in cropland values and increases in ranchland values. Overall, the agricultural sector is experiencing modest financial deterioration amid ongoing economic pressures.

Banker Comments Q2 2024

“Beef producers have experienced good margins over the last 12-18 months, but increasing replacement costs and interest costs will reduce margins moving forward.”– Kansas

“Lower grain prices and continued drought are causing stress.”– Kansas

“Inflation has increased family living expenses for our producers. Lower crop prices compared to a year ago is also worrisome to farmers in the area but continued high livestock prices have helped our cattle producers.”– Kansas

“Inflation is having a substantial effect on family living. Equipment upgrades and new purchases are a rare conversation with stressed cash flows.”– Missouri

“We expect profit margins to be reduced in the row crop sector while we should see significant improvement in profit margins in the cattle sector.”– Missouri

“The cattle market has provided much needed profit for cattle producers, but expansion and replacements have a lot of risk for borrower and lenders if a correction is to take place in the near future.”– Missouri

“We are seeing quite a few of our farm lines of credit approaching their max already, which would be a few months earlier than normal.”– Nebraska

“Inflation is keeping household spending higher, liquidity took a hit and we have seen some refinancing needed against land, but land prices are still high even with higher interest rates.”– Nebraska

“Interest rates and commodity prices and primary concerns in our area.”– Nebraska

“If cattle prices maintain, cattle producers will be okay until stockers are purchased, but if cattle prices deteriorate, it could be ugly. Crop farmers with low prices are hurting and yields were all over the spectrum.” – Oklahoma

“Cost of living is increasing significantly, and equipment and parts cost are increasing significantly.” - Oklahoma

“Higher rates are straining farmers cash flow and ability to operate with increasing input costs.” - Oklahoma

How Agriculture Could Be Impacted by Any U.S. Recession

Tue, 13 Aug 2024 17:44:20 GMT

Talk of a recession in the U.S. is making headlines. A U.S. recession can have varied impacts on the ag sector, influenced by factors such as commodity prices, input costs, and consumer demand.

Here are some key points to consider:

Impact on farm income and commodity prices

1. Decline in farm income: Farm income is expected to decrease significantly, with projections indicating a decline of $43.1 billion in 2024 compared to 2023. This decline is attributed to lower commodity prices and higher production expenses.
2. Commodity price fluctuations: Recessions often lead to decreased demand for certain agricultural products, particularly those considered discretionary, such as cotton, dairy, specialty meat products and vegetables (more on this below). This can result in lower prices for these commodities, affecting farmers’ revenues.
3. Input costs: Despite potential reductions in fuel prices, other production costs, such as labor, marketing, and transportation, are expected to rise. This increase in expenses can further squeeze farm profitability.

Consumer demand and market stability

1. Stable demand for essentials: The demand for essential food items tends to remain stable during recessions, as consumers still need to purchase basic food products. This can provide some stability to the agriculture sector, particularly for staple crops like corn and soybeans.
2. Shifts in consumer spending: While overall food demand remains stable, there may be shifts in consumer spending patterns, such as reduced spending on higher-end food products and dining out, which can impact certain segments of the agriculture market.

Financial and economic considerations

1. Credit and loan challenges: With declining farm incomes and high input costs, farmers may face difficulties in meeting loan obligations, leading to increased credit risk for agricultural lenders.
2. Impact on rural economies: Reduced farm income can have a ripple effect on rural economies that depend on agricultural spending. This can lead to economic challenges for businesses in these communities, potentially resulting in business closures and job losses.
3. Risk management: Farmers may need to adopt risk management strategies such as crop insurance or revenue protection programs to mitigate the impact of lower commodity prices on their income.

During a recession, certain ag commodities are more vulnerable due to changes in consumer spending and economic conditions. Here are the commodities that in the past have been most susceptible:

Vulnerable commodities

1. Cotton: Cotton is particularly vulnerable during a recession because it is considered a discretionary item. Consumers tend to cut back on non-essential purchases, which affects the demand for cotton and cotton-related products. As a result, cotton prices often decline during economic downturns.
2. Specialized meat and vegetables: Niche products, such as specialized meat products and high-end vegetables, also face greater recessionary pressures. These items are often sold at higher prices and are more likely to be purchased when consumers have disposable income. During a recession, consumers may opt for more affordable alternatives, reducing demand for these specialized products.
3. Dairy: Dairy farms are among those that could experience financial stress if farm income declines further. The dairy sector’s vulnerability is linked to its reliance on stable commodity prices and the ability to manage production costs effectively.

Of note: Commodities tied to discretionary spending are more vulnerable to the impacts of a recession.

Resilient commodities

Conversely, some commodities are less affected by recessions due to their status as staple goods:

• Poultry, eggs, wheat, and peanuts: These commodities are considered staples and tend to maintain stable demand even during economic downturns. As essential food items, they are less likely to experience significant drops in demand.

Bottom line:

Overall, while the ag sector can act as a buffer during economic downturns due to stable demand for essential products, it is not immune to the broader economic challenges posed by a recession. Farmers and agribusinesses may need to navigate these challenges through strategic planning and risk management. This is why Title I of the farm bill is so important and why some lawmakers stress the current safety net will prove woefully short of helping farmers in any significant price downturn.

Farmland Values in Iowa Fall for the First Time in 5 Years

Mon, 12 Aug 2024 12:28:47 GMT

Lower commodity prices and higher interest rates are starting to show up in land values. Two ag lenders say farmland values in Iowa fell for the first time in five years.

Farm Credit Services of America and Frontier Farm Credit released its benchmark farmland values report.

It showed since January, land values have made modest gains in Eastern Kansas, Nebraska, South Dakota and Wyoming. It’s a different story in Iowa, however, where the value of cropland has declined overall 2.4 percent.

“The combination of higher interest rates and tighter margins for grain producers is having an impact on cropland values,” said Tim Koch, executive vice president of business development for the two Associations, which operate as part of a collaboration.

Farm Credit Services of America and Frontier Farm Credit release benchmark farmland values report showing trends and market changes

(FCS America )

But they say despite the pullback, Iowa’s real estate values are up nearly 60-percent since 2019. and across all five states they serve, values remain at or near record levels.

View the full report here .

2023 And 2024 Will Go Down As The Largest Drop In Net Farm Income Ever

Wed, 31 Jul 2024 16:09:42 GMT

There’s a silent stress growing across rural America. Farmers are focused on growing this year’s crop, hoping to outyield the low commodity prices. They’re keeping their head down and trudging through the day-to-day grind, but their angst can’t be ignored. Many farmers say they have a gut feeling 2024 will go down as the worst financial year they’ve ever had.

The reality is glaring. USDA’s net farm income forecast for 2024 is a $43 billion drop from 2023 to $116.1 billion. That is a 25.5% decline in just one year. What makes it even more jarring is that follows the 2023 net farm income figure, which saw a 16% drop from 2022. If USDA’s forecast holds true, that will mark the most significant two-year farm income decline in U.S. history.

“The $90-billion drop over a two-year period is certainly the largest dollar value drop, adjusted for inflation, that we’ve seen in our history,” says Ben Brown, an agricultural economist with the University of Missouri. “It exceeds the previous record set in the mid-1970s. When it comes to percentage changes, we’ve seen larger percentage changes. But you’d have to go all the way back to the Great Depression era and the early 1930s to find bigger percentage declines.”

However, 2023 may end up being even worse than what USDA currently has projected.

As USDA showed in the June Grain Stocks report, farmers are still holding onto a lot of their 2023 crop. In fact, USDA thinks on-farm storage is the highest since the 1980s. The reason: as commodity prices fall, farmers are reluctant to sell below the cost of production. That means USDA’s 2023 net farm income forecast may be even worse than what it is today.

“The big change I think we could see in an update would be the 2023 farm income numbers revised lower even from where they were,” says Brown.

Farmers aren’t just caught trying to market the current crop growing in fields today. Many still have last year’s crop sitting in bins. And corn and soybean prices are seeing another bloodbath to close out July.

Farmers Hope to Outyield Low Prices

Wading through a sea of soybeans, Arkansas farmer Becton Bell stares at one of his best crops ever, and he’s trying to focus on that positive right now.

“We’ve had a pleasant year,” says Bell, who farms in Mississippi County, Ark. “Rains have been, for the most part, pretty timely.”

The reality for Bell and other farmers marketing 2024 crops currently is they face, potentially, deep economic losses.

“It’s been the markets, to be honest,” says Bell, when asked what his biggest challenge is this year. “There just hasn’t been a good marketing opportunity. It’s kind of like catching a falling knife, trying to market soybeans and corn. Nobody wants to catch that falling knife.”

In his area of Arkansas, farmers rely on irrigation. And even though he’s irrigated some this season, timely rains have helped reduce the need to irrigate as much as usual.

“We’ve probably irrigated half of what we normally do so, you know, it could very easily mean several hundred-thousand-dollar savings to our bottom line,” he says.

Those doses of rain and short spurts of heat in northeast Arkansas mean growing conditions there have been like a greenhouse this year.

“It’s just almost scary to say this, but rains have been almost perfect as far as our timing goes,” says Bell. “Our corn crop looks like it could be one of our best corn crops we ever had, as does our soybean crop. So, I’m optimistic about the crops.”

While input costs remain relatively high, he’s hopeful the extra bushels will help soften the blow of lower commodity prices, but nerves are still high. And that’s the case for not just Bell, but many other farmers this year.

Stress in Farm Finances Already Showing Up

Farm financial stress is already showing up in the form of liquidity. One ag banker painted that dismal picture for Congress when he testified about the state of the farm economy on Capitol Hill earlier this week.

“With rising input costs and lower commodity prices, farmers and ranchers have worked through the liquidity and working capital they built up over the past few years at a more rapid rate than anticipated. Now they’re beginning to leverage equity through refinancing debt,” says Tony Hotchkiss, chairman of the Ag and Rural Bankers Committee for the American Bankers Association. “This has made ag bankers feel like they are looking over the cliff when it comes to the farm economy.”

Ag industries are struggling as well. Just last week, Deere announced more employee layoffs, citing the severe headwinds in the ag economy. Farm Journal Washington Correspondent Jim Wiesmeyer says other agribusinesses are feeling the pain of similar costs of production and labor issues faced by farmers and ranchers, as well.

There are some silver linings, Wiesemeyer reports. He says while ADM’s earnings for the second quarter were somber, Juan Luciano, chairman of the board and CEO, expressed confidence in the company’s full-year expectations, citing anticipated improvements in crush and ethanol operations. So, despite all the obvious gloom in ag, Wiesemeyer says it’s not all doom.

Top Fed Officials Say They Are Getting 'Closer' to Cutting Interest Rates

Thu, 18 Jul 2024 20:04:52 GMT

Top Federal Reserve officials said on Wednesday the U.S. central bank is “closer” to cutting interest rates given inflation’s improved trajectory and a labor market in better balance, remarks that set the stage for a first reduction in borrowing costs in September.

Fed Governor Christopher Waller and New York Fed President John Williams both noted the shortening horizon toward looser monetary policy, with Waller highlighting it in a speech at the Kansas City Fed and Williams voicing it in a Wall Street Journal interview.

Separately, Richmond Fed President Thomas Barkin said he is “very encouraged” that declines in inflation had begun to broaden. “I’d like to see that continue,” he told a business group in Maryland.

Related News: Is the Fed Cutting Interest Rates Now Imminent?

The remarks are the latest in a rush this week of commentary from top U.S. central bank officials - including Fed Chair Jerome Powell - to note their increased confidence that the disinflationary trend that began last year is continuing, despite a short-lived bump in inflation earlier this year.

Price pressures appear to be easing across the board, the Fed officials said, with goods prices falling, housing cost increases slowing, and more moderate wage growth feeding into a long-awaited easing of price increases in the services sector.

Williams and Waller appeared to rule out a rate cut at the Fed’s July 30-31 policy meeting, a view reflected in financial markets that are now pricing the probability of a move at that meeting at less than 5%.

Waller listed September through December as the potential time frame when conditions for a rate cut could be right, omitting July.

Related News: Is the Fed Running Out of Reasons to Not Cut Interest Rates?

In his WSJ interview, Williams said, “We’re actually going to learn a lot between July and September. We’ll get two months of inflation data.”

All three policymakers who spoke on Wednesday were “pointing to September” for a start to the policy easing, Karim Basta, chief economist at III Capital Management, wrote.

Financial markets agree, and on Wednesday kept bets the U.S. central bank, which has held its policy rate in the 5.25%-5.50% range for the past year, will cut borrowing costs again in November and December, bringing the benchmark policy rate to the 4.50%-4.75% range by the end of 2024.

Waller, who in May had said he would need several more months of improved inflation data to convince him that rate cuts would be warranted, said data last week showing the first monthly drop in the consumer price index in four years “was the second month of very good news.”

He laid out what he saw as three scenarios for how inflation may play out in the months ahead. The two most likely of those, Waller said, suggest inflation will continue to moderate toward the Fed’s 2% target in the months ahead, albeit in one scenario more rapidly and consistently than the other. The third and least likely possibility was for inflation to reaccelerate and keep rate cuts on hold.

Still, Waller said, “given that I believe the first two scenarios have the highest probability of occurring, I believe the time to lower the policy rate is drawing closer.”

Williams, who is also vice chair of the central bank’s rate-setting Federal Open Market Committee, said: “I feel like the past three months - and I would include in June, based on what we’ve seen - seems to be getting us closer to a disinflationary trend that we’re looking for. I would like to see more data to gain further confidence inflation is moving sustainably towards our 2% goal. We’ve got a few good months now.”

‘SOFT LANDING’
More Fed policymakers have suggested they are getting increasingly comfortable that the pace of price increases is more firmly on track back down to 2%, after higher-than-expected readings earlier in the year.

While inflation has eased notably from its high-water mark two years ago, progress has been lumpy with uneven contributions from important categories.

On Tuesday, though, Fed Governor Adriana Kugler said she saw goods, services and now housing contributing to easing price pressures.

“We’re seeing more progress on all three categories now,” Kugler told a National Association for Business Economics seminar. “I’m cautiously optimistic that we’re seeing progress and the type of progress that we need to get back to 2%.”

By the Fed’s preferred measure, inflation in May was running at a 2.6% annual rate, down from the 7.1% peak reached during the COVID-19 pandemic. The data for June is due on July 26.
Fed chief Powell on Monday also said that inflation readings over the second quarter of this year “add somewhat to confidence” on its downward path, suggesting a start of an easing cycle may not be far off.
The U.S. central bank “may well be able to achieve the soft landing” of bringing down inflation without triggering a painful recession and sharp rise in unemployment, Waller said on Wednesday.

But noting that the unemployment rate rose to 4.1% in June, Waller added, “there is more upside risk to unemployment than we have seen for a long time.”

(With reporting by Harshita Meenaktshi and Lindsay Dunsmuir; Writing by Dan Burns and Ann Saphir; Editing by Andrew Heavens, Tomasz Janowski, Andrea Ricci and Paul Simao)

The Reasons Behind the Painful Surge in Grocery Prices

Wed, 17 Jul 2024 15:59:05 GMT

The post-Covid surge in grocery prices has been a noticeable and financially painful part of the rising U.S. cost of living. Shoppers couldn’t miss the sharp price increases, such as the doubling cost of a can of tomatoes or the significant rise in beef prices.

Economist Thomas Klitgaard from the Federal Reserve Bank of New York analyzed the causes of this increase . Here are the key findings:

Food prices

(Liberty Street Economics)

Stable prices before pandemic: The consumer price index (CPI) for food-at-home was stable for the five years prior to the pandemic, indicating little change in grocery bills from 2014 to 2019.

Sharp increases during pandemic:
• 2020: Prices rose by 4%.
• 2021: Prices increased by 6%.
• 2022: Prices jumped by 12%.

Overall, the food-at-home index increased by 25% from Q4 2019 to Q1 2023.

Key components driving price increases:
• Commodity Prices: The underlying price of commodities, especially grains, saw significant increases. This rise cascaded down to other food items like beef, pork, poultry, eggs, and dairy products.
• Wages: The wage bill at supermarkets rose substantially, contributing to higher grocery prices.

Minor Impact:

• Price gouging: Klitgaard’s analysis suggests that price gouging by companies was not a significant factor in the price increases.

Wages

(Liberty Street Economics )

Bottom line:

The surge in grocery prices was driven mainly by substantial increases in commodity prices and supermarket wages, rather than price gouging. The stability of grocery prices before the pandemic underscores the dramatic impact of these factors during the early 2020s. While grain prices have slumped since 2022, the wage bill keeps going up — with average hourly earnings up 6% in May from a year before. And Klitgaard warns that may bode ill for shoppers going forward. “An open question is whether grocery inflation can stay as moderate as it has been since early 2023 with grocery worker wage inflation still elevated,” he wrote.

Land Values Have The Resilience Of a Dandelion

Mon, 08 Jul 2024 21:38:55 GMT

Though the ag economy is facing headwinds in interest rates, inflation and commodity prices, all classes of land across the country have gained in value, according to Farmers National Company’s July report .

“Despite these negative pressures, the land market has remained relatively resilient but is showing signs of settling in general, including single-digit decreases in specific areas,” says Paul Schadegg, senior vice president of real estate operations at Farmers National Company.

The decreases Schadegg references can be found in the eastern part of the country - in states such as Indiana, Kentucky, Ohio and Michigan. The overall stability of the market, however, is something Steve Bruere, president of Peoples Company, chalks up to simple supply and demand.

“Commodity prices are softer and interest rates are higher, yet the farmland markets have been incredibly resilient. That’s because there’s still more capital out there that wants to own farmland than there is supply available,” Bruere says. “I talk to folks who say they want to buy farmland, but they want the market to cool off a little bit. I don’t know if the market will cool off to the degree they think that it should because there’s just not going to be supply.”

Correlation Between Farmland and Inflation
Another factor that might keep the land market from significantly settling is inflation, which, based on data from Peoples Company , is shown to be very strongly correlated with farmland values.

This chart from Peoples Company combines data from USDA, BLS and TIAA Center for Farmland Research to show the connection between farmland values and inflation

(Peoples Company)

“There’s a strong belief that we’re at the beginning stage, because of the fiscal policy in this country, where inflation is going to last quite a while and is going to get much more severe,” Bruere says. “If you believe that and that’s the camp you’re in, then you probably want to own farmland versus being in a fixed income like a T-bill.”

But this doesn’t necessarily mean owners who are considering selling should wait for this environment to occur to get a higher price at auction.

“If you’re considering selling, and you’re saying ‘OK, next year, the farmland market is going to be more vibrant than it is today, so I’m going to wait two or three years’, I think it’s going to take a little while for this interest rate and inflation environment to sort itself out,” Bruere says.

What To Watch
The timelines for inflation, interest rates and global conflict create a lot of unknowns in the market. As always, location and type of land plays an important role in overall land values.

“We anticipate variations in land value changes across our regions in the U.S.,” Schadegg says. “Areas with strong supply/demand scenarios, an expansion of alternative land use projects and irrigation water concerns might experience more dramatic increases or decreases in values.”

This sentiment is echoed by Bruere, who says he’s never been more bullish about land.

“There’s some uncertainty around where farmland is going. But if you have a long-term timeline, there’s just never been a period where you buy a piece of farmland that it’s not going to be worth more at 10 years than the day you bought it.”

Is the U.S. Ag Economy Heading Toward a Recession? A One-on-One with the President of the Chicago Fed

Wed, 19 Jun 2024 16:15:17 GMT

The Federal Reserve voted to keep the benchmark interest rate steady last week. The news didn’t come as a big surprise. Taming what’s been sticky inflation has proven to be a challenge, despite some promising inflation data that was reviewed during the Fed’s meeting, but agriculture is also feeling the pinch as higher input costs and high interest rates are eating into the outlook of the ag economy this year.

The Consumer Price Index (CPI) for May was also released last week, showing inflation cooled slightly in May. The CPI climbed 3.3% year-over-year, according to data released last Wednesday by the Bureau of Labor Statistics. The index was flat month-over-month.

“The most recent inflation readings have been more favorable than earlier in the year, however, and there has been modest further progress toward our inflation objective,” said Federal Reserve Chairman Jerome Powell. “We are maintaining our restrictive stance of monetary policy in order to keep demand in line with supply and reduce inflationary pressures.”

Inflation and Higher Interest Rates Pain Point for Farmers

Inflation may have cooled for at least one month, but inflation and higher costs are also a growing pain point for farmers and ranchers. Net farm income is projected to fall back to levels agriculture saw in 2020, but the difference today is higher costs are eating into balance sheets across the U.S.

Farm Journal spoke to Austan Goolsbee, president and chief executive officer of the Federal Reserve Bank of Chicago , during the Iowa Farm Bureau’s Economic Summit last Friday. It was the first day Goolsbee could speak to the press after the big Federal Reserve meeting. He acknowledged input costs are creating pain for farmers and ranchers.

“There are some parts of the ag sector really feeling the pinch. If you look at hogs, if you look at dairy, the basic dilemma is the output is sort of reduced and sales prices are down, but the input costs are not down. If anything, they’re up. Then, if you add on top of it the credit costs being as high as they are, I think that is where people are still getting squeezed,” Goolsbee says.

Goolsbee says the May inflation data was promising, but he also notes that’s only one month of data. However, he says if there is more progress on taming inflation, then the Federal Reserve could start to cut rates to what he calls more “normal” levels, but he wouldn’t comment on how many rate cuts or the size of rate cuts the U.S. could potentially see this year.

“I’m hopeful that if we can make progress nationally on inflation, and rates could come down, that might give some relief in that space. Right now, repayment rates, if you look at delinquencies, they’re rising. They’re not to levels that you would call a recession, but they are rising. So, I think that’s an area of vulnerability,” says Goolsbee.

Layoffs and Job Cuts Hit Agriculture

The impacts of tighter margins are affecting demand for everything from equipment and tires to seed and chemicals. Bayer, a global agricultural and pharmaceutical company, cut 1,500 jobs during the first three months of 2024 , about two-thirds of which were management positions. More layoffs and early retirements are said to be on the way.

Just this month, John Deere announced it’s offered 103 early retirement buyouts and eliminated 650 total jobs across its Iowa operations as of June 1. More job cuts are expected from the large equipment manufacturer based in the U.S. John Deere has also announced its intention to move its production of mid-frame skid steer loaders and compact loaders from its plant in Dubuque, Iowa, to a proposed new production facility in Mexico.

Related Story: As Farmers Look to Cut Costs for 2025, Machinery and Technology Could Take the Biggest Hit

Meanwhile, Bridgestone Americas announced last week it’s laying off 118 workers at its Des Moines, Iowa, plant citing lower demand for ag tires.

“I think the ag economy is a little bit of a different story than the general economy,” Goolsbee tells Farm Journal. “And partly, we’re readjusting. We just went through three-plus years that were extremely unusual, and in many ways, very strong for the ag economy. So, part of this is getting back to a more normal set of circumstances. And we’re going to have to adjust to that part of this.”

The latest AgLetter produced by the Chicago Fed was released in May. It showed:

District agricultural credit conditions weakened a bit during the first quarter of 2024.
Repayment rates for non-real-estate farm loans were lower in the January through March period of 2024 compared with a year ago, and the renewals and extensions of these loans were higher.
In the first quarter of 2024, demand for non-real-estate loans relative to a year ago was up for the second consecutive quarter, while the availability of funds for agricultural lending was down from a year earlier once again.

Goolsbee says while farmers are dealing with the impacts of high input costs and higher interest rates, it’s also important to note agricultural companies, like Deere, are also very sensitive to high interest rates, as well.

“If you look at Deere and durable goods makers, in the strongest years, a lot of farmers bought a lot of equipment. So, when you look at just the durable goods cycle, there’s not as much demand, it’s kind of slowed. And for sure, high rates don’t make that any easier. So, I think part of this is cyclical and part of this is about that trend,” he adds.

What’s Causing Sticky Inflation?

Last week, Powell said it’s a “balancing act” to lower inflation , manage the “very strong” labor market, and keep the economy growing. The Fed’s goal is 2% inflation, and Goolsbee says the Fed won’t veer off course before it reaches 2%.

There are several things that feed into the overall inflation number, including food, housing, services and energy. The food and energy portions, according to Goolsbee, are so volatile that the Fed tends to not look at those as much.

“Goods inflation is back down to what it was pre-pandemic levels. It’s still above where we want it to be, but it’s improving. The puzzle, or the hard part, has been housing. Inflation there has been down a bit, but it’s still well above what it was before the pandemic,” Goolsbee says. “I’m a closet optimistic. Over the past 18 months, we’ve made a lot of progress at getting the inflation rate down. That’s something different than saying our prices are going to go back to the level we were at pre-pandemic.”

What’s driving inflation? Goolsbee says that is a puzzle as well, but he says there are two major pieces to the sticky inflation situation that’s continuing to hang over the economy.

“One is it just got way too high, and then the second is, it’s proved more persistent and stickier than what we thought,” says Goolsbee. “I think that’s a big component. And you see that in the ag economy in Iowa with input costs and the supply-side damage. Some of it came from COVID, but that deterioration led to a lot of the inflation. As that’s been healing, that’s allowed the inflation rate to come down without a recession.”

Related News: A Margin Squeeze is Setting in Across Row-Crop Farms, and 80% of Ag Economists Are Now Concerned It’ll Accelerate Consolidation

Goolsbee says never in history has the U.S. seen inflation fall as fast as it has without a recession. But in 2023, he says inflation came down without a recession, which was good to see.

“I think the other component is the Fed, by setting the rates higher, has put some restriction on the economy to try to reduce the amount of overheating. And that’s also, I think, contributed to getting inflation down. We’ve made a lot of progress, but there’s still a fair amount to go,” Goolsbee says.

The Future of Fed Interest Rate Cuts

With more work to do in order to get to the Fed’s target of 2%, Goolsbee has been impressed with the resilience of the general economy.

“If you look for sure, internationally, at the U.S. growth, we’ve grown a lot,” says Goolsbee. “We’re actually higher than where you would have been when people were making predictions of where just the GDP would be at this point before they had ever heard of COVID. We’re actually above where they were predicting we would be. And we’re the only economy where that’s true. So, I’ve been very impressed with that resilience.”

Goolsbee says if inflation data continues to come in lower, and the jobs growth posts strong gains, then the Fed could cut rates to more normal levels. But until then, Goolsbee insists the Federal Reserve won’t budge on interest rates.

As Farmers Look to Cut Costs for 2025, Machinery and Technology Could Take the Biggest Hit

Fri, 31 May 2024 16:24:27 GMT

Commodity prices have seen a bit of a rebound over the past month, but even with optimism beginning to surface with prices, agricultural economists think net farm income could fall more than expected, and the fallout could be felt with just how much farmers scale back what they purchase over the next year.

The May Ag Economists’ Monthly Monitor , a joint survey of nearly 70 ag economists conducted by the University of Missouri and Farm Journal, is one metric to help gauge the health of the ag economy. As global weather and geopolitical events continue to impact the markets, ag economists grew slightly more optimistic on the health of the overall ag economy in the past month.

“I think you can look at things like crops in South America, you know, we’ve had some disease issues in places like Argentina, we’ve had some wet weather in Brazil, some of those things, I think, have been helpful to boost prices at the same time. The wheat situation in Russia, I think, has also been important in terms of prices,” says Scott Brown, interim director, Rural and Farm Finance Policy Analysis Center (RaFF), University of Missouri.

Brown helps author the Ag Economists’ Monthly Monitor, and he says the May Monitor shows even with more optimism for some commodities, ag economists’ views on the net farm income picture slightly eroded over the past month, falling from the $117.82 billion projected in the April survey, to $110.4 billion in May.

“I think it’s important to remind ourselves, the changes happen really quickly,” Brown says. “The volatility up and down, is going to continue in front of us. So, although we generally say the trend is down, there will be opportunities for better prices in front of us at times.”

Arlan Suderman, chief commodities economist for StoneX, is one of the nearly 70 ag economists surveyed each month. He says even with the global grain and oilseed supply weather issues around the globe, his outlook on the ag economy hasn’t changed course.

“I don’t think it really has, if anything, I think it’s become a little bit more challenging,” Suderman says. “But I say that within the context. I think that the new world we’re in is going to have more challenges. But those challenges will also create more opportunities. It just means we’re going to have to be more strategic. We went through several years where you could be a lazy marketer and do pretty well - build equity in your farm, expand your operation and buy equipment. We’re going to have to be more strategic in it now. And I think the opportunities are going to be there for the person willing to do so.”

Farmers Forced to Cut Costs

Last month’s survey found nearly 80% of ag economists think current commodity prices, plus higher input and operating costs will spur consolidation within the row crop sector. This month, the survey asked what purchasing decisions may take a hit in the months ahead.

At the top of the list of purchase changes for 2025 was decisions regarding equipment. When asked if farmers would reduce machinery purchases for 2025, 50% of ag economists responded “most likely,” and the other 50% said “somewhat likely.”

“It seemed scaling back on machinery purchases was really the number one purchase change, and I don’t think that’s a big surprise. Almost everyone thought that was one place where we would see cutbacks in terms of trying to reduce costs,” Brown says.

“I think in the short-term, that is the easy answer is they’ll scale back on equipment purchases, and we’ve seen that,” Suderman says. “We would also anticipate them to scale back on some of those fertilizers that have less short-term impact, maybe phosphorus, potassium, some of those. I think farmers will stick with the seed technology, they’ll stick with the technology they think gives them the efficiencies that they need in their production.”

Economists point out machinery purchases are likely to slow, which will reduce capital costs, but could also potentially increase repair and maintenance expenditures.

Another change ag economists think farmers will make is to slow technology upgrades. 35% responded a move to scale back technology upgrades is “most likely,” and 41% said “somewhat likely.”

The May Ag Economists’ Monthly Monitor also found ag economists think more farmers will make the switch to more generic products, with 73% surveyed responding with “somewhat likely.”

Economists also think another change for the upcoming year could be looking for lower interest rates. 65% said “somewhat likely,” 27% said “most likely.”

“I think for producers, in terms of what they want to add in 2025, are already beginning to focus on the changes they can make to be more efficient,” Brown says. “This idea of how to reduce costs when the prices for those inputs maybe aren’t going to change as much as they would like, and how to manage those margins, there is really going to be some opportunities to do that to try to make 2025 a better year.”

Economists Paint Mixed Picture on Price Outlook

As farmer possibly look at ways to cut back on spending, volatile commodity prices have become the new norm for farmers. As economists point out, the direction of commodity prices also now hinges on more than just supply and demand.

“Well, I think the biggest impact is probably geopolitical risks, and the advent of the funds, trying to interpret all of that,” Suderman says. “And as you look at the management of billions of dollars now invested in commodities, either being long and buying them or being short selling them, based on what they see happening in geopolitics, based on what they see in the economy, are we in a re-inflation period? Are we in commodity deflation period? And that’s really driving the economy, more than the actual supply and demand fundamentals.”

Still, Suderman and other economists say in the short-term, the outlook for grain prices will center around supply and what happens with weather. One of the major wildcards for the summer is the transition from El Nino to La Nina, and not only how quickly it occurs, but what areas of the U.S. crop and cattle production could be hit by dry and hot weather.

Suderman still thinks the health of the U.S. and global economies will be a critical piece to watch over the next 12 months, particularly if we reestablish inflation.

Other economists also pointed to inflation in the May Monthly Monitor. “I expect a return of inflation and tighter credit due to expanding Congressional spending and the expanding national debt,” said one economist in the anonymous survey.

Beef Prices and Demand

The inflation piece is something Suderman says could impact both grain and livestock prices, especially considering demand and the health of global economy will have a major impact on prices as we test just how much consumers are willing to pay.

“We’re in a world economy where imports of beef in the first quarter of this year were up 25% year on year. So, when we get too expensive, we simply import more. And then the consumer is the driver of what that the demand factor is moving forward,” Suderman says. “If we keep the consumer confidence and we prop it up, they’re willing to pay more, which means import more but holding up our domestic prices. If they’re not, then those imports start to overwhelm us and pressures beef prices even more.”

Pork Price Outlook

Impressive export demand has also been a bright spot for U.S. pork producers. The strong export picture has propelled prices for hog producers across the U.S., which helps paint a more positive picture for an industry that was hit hard over the past 12 to 14 months.

“Hog prices, I think, have been the surprise, and a surprise in a good way,” Brown says. “We started 2024 with lower prices. Generally, those in the survey answering about pork prices would have been slightly more optimistic relative to the last. So, I think when you look at where wholesale pork prices are today, they could be supportive of yet higher hog prices.”

Brown points out consumer demand is also a major factor for the trajectory of hog prices the remainder of the year.

“If consumer demand were to slow, and that’s just as much international demand that has the attention of the economist in terms of international demand has been good for pork this year, if it were to waver in the second half, that could be more troubling for where we’re at the pork market,” Brown says.

What else are economists saying about the ag economy? You can view previous Ag Economists’ Monthly Monitor updates here .

Fallout From Falling Net Farm Income and Stubborn Interest Rates: Ag Economists Reveal What’s Now at Risk in 2024

Mon, 11 Mar 2024 18:40:51 GMT

As farmers face the reality of falling commodity prices and tighter margins in 2024, the latest Ag Economists’ Monthly Monitor shows a projected major drop in net farm income this year with interest rates not expected to improve much if any in 2024.

The Ag Economists’ Monthly Monitor is a survey of 70 ag economists from across the country. The latest survey shows pessimism is growing regarding the farm economy.

“I think there were really two things that were important from the February Monthly Monitor,” says TaylorAnn Washburn, program director for the University of Missouri Rural and Farm Finance Policy Analysis Center .

“Each month we ask our economists to share their sentiment on the economic situation of the U.S. ag economy and, since December, our respondents have continued to be pretty pessimistic about the state of the ag economy compared to previous months and the previous year.”

Economists surveyed expect net farm income to shift down to $117 billion in 2024, which is much lower than what USDA anticipates. The USDA is projecting $121.7 billion for net farm income this calendar year.

At the same time, operating costs are expected to stay high due to elevated interest rates. The February Monthly Monitor shows more than 40% of those surveyed expect interest rates to fall no more than 1% this year, and 44% of economists are becoming more pessimistic about any interest rate cuts in 2024.

With net farm income expected to take a hard fall this year, the latest Ag Economists’ Monthly Monitor asked economists to outline the potential fallout that could occur in the ag economy over the next couple of years.

“Generally, the consensus was the immediate fallout was likely pretty minimal. But if farm income continues to drop in 2025 and beyond, there are some concerns that the fallout will grow,” says Washburn. “Some potential impacts that were mentioned by our economists include a slowdown of equipment sales, some moderation of land values and rental rates, consolidation across farm businesses on the service side of things, and then some negative impacts to financial ratios.”

The anonymous survey revealed several possible outcomes from a sharp drop in net farm income. One economist pointed out for those producers who thought 2021-2022 was a new normal for commodity prices, they and may be overextended heading into the latest downturn. Another economist said corn farmers could face the steepest losses this year.

“It looks like corn prices will be below production costs for many producers. We have not had that for a long time, especially since the ethanol boom started almost 20 years ago. The struggles this time will be for corn farmers. Producers of other crops like cotton, wheat and rice have had difficult years,” said one economist.

The ripple effect of the sudden downturn, according to other economists, could be a slowdown in new equipment sales and a correction in land values.

“A slowdown in new equipment sales, slow upward creep in loan defaults, some leveling off of growth in land values,” responded one economist, citing his concerns.

“Moderation of land value gains on the one hand, and deteriorating financial conditions for farmers involved in U.S. wheat enterprises,” said another economist in the latest survey.

“Producers without significant cash reserves will start to get squeezed. I would expect rental rates to slow down or even fall,” said one economist.

According to the latest survey, some economists think a slump in net farm income could be cushioned by Congress. One economist stated that a Congressional push, during an election year, could cause more money to flow to farmers. Other economists think the strength of the U.S. balance sheet will also help cushion the fall.

“The 2024 net farm income is similar to the average since 2007. Given the strength of the U.S. balance sheet, I expect the fallout to be minimal unless net farm income is even lower in 2025,” said one economist in the anonymous survey.

“This forecast is following the outlook that there will be a cost-price squeeze in agriculture and that it could be more severe in 2024 than earlier thought. This may be the financial pressure needed to complete the next farm bill,” said another economist.

Economists were also asked to outline the most negative and positive aspects regarding the outlook for U.S. agriculture. On the positive side, economists said they expect:
• Relatively strong farm balance sheets to weather periods of stress and handle downturns.
• Demand for biofuels and opportunities for new markets.
• Declining costs for some inputs.
• Strong consumer demand, specifically for beef, and broader strength for other commodities.

Among the negative aspects of the ag outlook, economists in the Monthly Monitor said they anticipate:
• Higher interest rates for longer than anticipated.
• Over-production and creation of a situation when the U.S. is oversupplied relative to demand.
• Volatile, declining commodity prices and broader declines in profitability, which creates uncertainty.

“There was one sentiment made that I really like about the spirit and resilience of the American farmer, which is a really positive piece of what’s going on here with the U.S. farm economy. That general theme of resilience really came through in this month’s responses,” Washburn says. “Some of our economists rallied around the sentiment of being able to withstand some periods of stress and potential downturn due to some relatively strong farm balance sheets over the last few years, and being able to weather the storms that are possibly ahead.”

Washburn says another positive that stems from the latest Monthly Monitor is ramped-up demand from renewable fuels, specifically renewable diesel and Sustainable Aviation Fuel (SAF) and the opportunity to grow that new demand source in the months ahead.

Will Inflation Return in 2024 and What Does It Mean for the Grain Markets?

Wed, 10 Jan 2024 21:16:14 GMT

Speakers at the Water Street Solutions Edge Conference in Tucson, Ariz., say they expect inflation to return in 2024. Not only will it have an impact on the interest rate environment, but it could bring the fund or speculative community back in to buy commodities, which would be positive for the grain markets.

Inflation cooled in 2023 following a series of interest rate hikes by the Fed. However, Arlan Suderman, chief commodities economist for StoneX, says there are already economic signs inflation could rear its ugly head in 2024.

“With interest rates coming down, we’ve seen a resurgence in interest in buying houses once again at lower mortgage rates,” he says. “Those are two sticky areas of inflation that can bring it back.”

Despite the markets pricing in lower interest rates this year, he doesn’t expect the Fed will cut rates, at least in early 2024.

“I believe that means higher for longer from the Federal Reserve, but the Federal Reserve will start to lose its influence on interest rates this year, particularly the longer end of the yield curve, as we see what’s projected to be a 23% increase in debt certificates offered onto the Treasury market because of government spending,” Suderman says.

That means the Fed most likely won’t be able to use interest rate hikes to curb inflation. That could cause the funds to buy commodities as a hedge against inflation, after being in a deflation mode for the last 21 months and short in many markets such as corn and wheat.

Darren Frye, CEO, Water Street Solutions, says: “The Fed has a tendency once they come out of something they go the other way. I think we could have a catalyst to get them flat and then we’d see if there’s something optimistic enough to get them long. But we might find out we have another surge in inflation and that would be bullish to commodities if that happened.”

Suderman adds that could support grain prices. “That doesn’t necessarily mean we get a big rally in prices, bit it does make it easier for the market to respond to any type of a friendly story that comes along,” he explains.

This environment might also pressure the U.S. dollar index, which is friendly for ag exports and prices.