Inflation

Atlanta Fed Chair Bostic Recognizes Sectors of Agriculture Are in Crisis

Tue, 10 Feb 2026 00:20:01 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?”

Dairy Drives Food Inflation in June

Mon, 14 Jul 2025 17:00:00 GMT

Milk and dairy product prices have been a driving force behind food inflation, and high dairy product prices appear to be impacting demand, at least marginally. But milk and dairy product prices could moderate soon without hurting milk production if farm margins remain decent as expected, said Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, an agricultural consulting firm in Buenos Aires.

In June, robust butter prices were a main factor driving the Dairy Price Index (DPI) up again. Reported by the Food and Agriculture Organization of the United Nations, the DPI rose 0.5% from May levels to hit 154.4 points.

“The index has been moving higher almost continuously since late 2023 and now sits just 3.8 points shy of the record high notched in June 2022,” Ganley said. “While butter prices were the main culprit behind the increase in the dairy index, appreciating cheese prices also played a role. And while whole milk powder and skim milk powder values fell in June, the declines were insufficient to offset the price increases posted for the other dairy products.”

Dairy Inflation

(Fran Howard)

June’s overall Food Price Index (FPI) rose 0.5% to 128 points after dipping modestly in May. According to the index, food prices in June were 5.8% more expensive than a year ago, but they remain well below 2022’s record highs. Meat and cooking oil prices were also up, while sugar and cereal prices fell.

“Although higher food and dairy prices have the potential to negatively impact consumer demand, lower values could be on the horizon,” Ganley noted. “Milk volumes have risen across the world’s key milk-producing and exporting regions as favorable weather and margins have encouraged production growth. At the same time, geopolitical conflict and U.S. trade policy uncertainly could keep demand subdued over the balance of the year.”

While year-to-date milk collections in the EU-27 and the United Kingdom were up only 0.2% in the first four months of this year, output in the United States and New Zealand has been strong, and production in many South American countries has been making a comeback.

“Significant risks to the price outlook persist, but global dairy prices appear poised to at least moderate in the coming weeks and months, especially if consumers continue to cut back on spending.”

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

Fri, 20 Jun 2025 19:14:17 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.”

Economists Fear the U.S. Will See a Recession in 2025, And That Could Eat Into Consumers' Demand for Meat

Fri, 28 Mar 2025 17:56:25 GMT

Consumer meat sales hit record-breaking levels last year. The craze for protein-filled diets has been a storyline that’s helped drive meat demand, which is good news for meat producers. Ag economists warn, however, the major limiting factor for meat demand, and meat prices, in 2025 just may be what happens in the overall economy.

The March Ag Economists’ Monthly Monitor asked economists if they think the U.S. general economy will see a recession in 2025, and 62% said yes.

Recent reports agree with that sentiment, as the Federal Reserve’s key inflation index rose more than expected in February and consumer spending posted a smaller-than-projected increase, according to the Commerce Department. Both could be warning signs of what’s ahead.

As a follow up question, The Ag Economists’ Monthly Monitor survey asked, “In what ways does the U.S. economy impact meat demand in 2025?” Respondents had no shortage of opinions on that.

Here’s a rundown of some of their reactions:

“If real wages fall, there will be a substitution toward other protein/cheaper meat cuts.”
“Slower growth (even if the U.S. does not endure a recession) will reduce consumer willingness to spend, especially at a time when beef prices, in particular, are high.”
“A downturn in economic growth impacts disposable income and should slow animal protein demand.”
“There is a positive correlation between GDP and meat demand, particularly between GDP and higher end cuts.”
“When the U.S. economy is strong and incomes increase, consumers have more disposable income to spend on meat and higher quality cuts of meat. When the U.S. economy is weak and disposable income tightens, consumers may reduce meat in their diet or turn to less expensive meat options.”

Not all economists expect U.S. consumer demand to fall off though, even if the U.S. officially enters into a recession.

“Labor income is growing faster than inflation. Most U.S. firms are profitable - at least as of current earnings reports,” said one economist.

Another shared, “I do think consumer demand will be lower in 2025 than it was in 2024. That being said - 2024 consumer expenditures and demand were a lot higher than I anticipated at the beginning of the year. Two indicators that are showing up, and are unsustainable right now, are reducing savings accounts and increasing credit card debt. I think it leads to slower meat demand in 2025, partially due to lower meat availability and partially due to slowing consumer demand. Notice I said ‘slowing’ consumer demand and not ‘declining/negative’. Demand does not have to decline year-over-year to impact meat prices. Slowing can do the same thing.”

The GLP-1 Effect
What could have an even bigger impact on meat demand, and even more so than inflation and a recession, is the use of GLP-1 drugs for weight loss. GLP-1 drugs not only moderate users’ blood sugar levels, but also affect their appetites by suppressing hunger cravings.

“U.S. consumer preference for meat demand is strong, though I would be paying attention to the growing use of GLP-1s as it relates to all agricultural product demand,” one economist responded.

The good news is studies have shown those who use GLP-1 drugs often crave healthier items and often consume more protein versus unhealthy foods.

Starting From a Place of Strength
Forecasting meat demand in 2025 relies on a number of factors. But a positive trend is how consumers, especially the millennial generation, are buying more meat. As PorkBusiness.com reported this week, consumers are buying more meat than ever. In 2024, meat sales hit a record high of $104.6 billion and total pounds sold increased by 2.3%, which was cited in the latest Power of Meat.

More people want meat today, but economists are concerned any economic pain could eat into overall meat demand.

New Warning Signs Agriculture Is In A Recession

Fri, 28 Mar 2025 14:04:53 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.”

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)

Presidential Poll Results: How Farmers and Economists View Candidates' Impact on Agriculture

Thu, 10 Oct 2024 21:42:28 GMT

Nov. 5 — election day — is fast approaching. A few weeks ago, we asked which candidate do you believe will have a more positive impact on farming policy programs, trade, biofuels policies and inflation.

Based on 4,776 respondents, here are the results:

We also asked about the candidate’s impact on agriculture overall. Here’s that breakdown by state. Make note of the seven swing states, Georgia, Nevada, Wisconsin, Michigan, Arizona, Pennsylvania and North Carolina, outlined in black.

Farmer Rationale On Harris Vs. Trump

While various polls suggest Trump has a clear edge among rural voters and there’s significant support for Trump among farmers, Jim Wiesemeyer, Farm Journal Washington correspondent, is quick to remind the community is not uniform in its voting intentions, with policy preferences and personal values driving individual decisions.

In general terms, Wiesemeyer says farmers support Trump because they:

Believe Trump better understands rural America and agricultural issues
Are concerned about his trade policies and confrontation with China
Have concerns about border security and illegal immigration under the current Biden/Harris administration
Are of the opinion Trump will lower costs for farmers, especially related to energy
Oppose what they view as socialist or anti-American policies from Democrats

Farmers support Harris because they:

Back environmental policies and renewable energy
Approve of the Biden/Harris administration’s efforts to strengthen farm workers’ rights
Believe in Harris’ food and nutrition policies
Support Harris’ economic policies aimed at working-class Americans

Economists’ Views On Harris Vs. Trump

The September Ag Economists Monthly Monitor, a Farm Journal survey of nearly 70 ag economists, revealed a more mixed view of the presidential candidates’ impact on trade.

When asked if a Harris or Trump administration would help or hurt trade, the survey found the following:

“Farmers are definitely concerned about trade,” says Michael Langemeir, an agricultural economist from Purdue University who helps author the Purdue University/CME Group Ag Economy Barometer and is one of the economists surveyed by Farm Journal each month. “We don’t ask specific questions related to tariffs in the Ag Economy Barometer, but one question we do ask is if they expect exports to increase, decrease or stay the same? Really, this is the most pessimistic they’ve been for about five years with regard to trade.”

Tariffs are a tool both the former Trump administration and the current Biden/Harris administration have used.

During the first presidential debate, Trump didn’t waver from his staunch stance on tariffs and trade, reiterating his plan to use tariffs to protect U.S. industries and increase revenues. Trump reinforced his plan to impose a 10% tariff on all imported goods and a 60% tariff on goods from China.

During the debate, Harris stated tariffs are essentially a “sales tax” on American households. The Biden/Harris administration recently extended the Trump-era tariffs, while also imposing its own set of tariffs in May. Biden directed the U.S. Trade Representative to “increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion of imports from China to protect American workers and businesses.”

“That’s why I get really worried when both candidates start talking about tariffs. It’s really uncharted waters, if you will. There’s already the perception we’re struggling a little bit with trade. As we enter these uncertain waters, we’re going to struggle more,” Langemeier explains.

Do Tariffs Work?

The controversy over tariffs and if they’re a good trade policy tool is long standing. The September Ag Economists’ Monthly Monitor 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 September 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.

Trump Threatens Tariffs on Deere

During a policy roundtable in Smithton, Penn., organized by the Protecting America Initiative last month, Trump made significant statements regarding John Deere and its plans to move some production to Mexico. Trump threatened to impose a 200% tariff on John Deere products if the company proceeds with its plan to relocate some of its manufacturing operations to Mexico.

Farm Journal asked economists the likely outcome if Trump did follow through with tariffs. Here’s what they said:

Your Next Read: U.S. Agriculture Faces Growing Trade Deficit, USDA Projects a Record Ag Trade Deficit in 2024

How Do You Know When Agriculture Is In A Recession?

Wed, 04 Sep 2024 20:51:10 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

The Reasons Behind the Painful Surge in Grocery Prices

Wed, 17 Jul 2024 15:45:17 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

Tue, 09 Jul 2024 13:08:03 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 Fed Cutting Interest Rates Now Imminent?

Mon, 08 Jul 2024 19:54:24 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.
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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.

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.

(Farm Journal)

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.”

(Farm Journal)

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.

(Farm Journal)

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.”

(Farm Journal)

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.”

(Farm Journal)

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 .

High Interest Rates Are Already Impacting Farmers, And It's Coming at the Expense of Ag Loans

Fri, 20 Oct 2023 14:50:16 GMT

Farmers are opting to tap into their savings from recent prosperous years instead of taking out loans at the highest interest rates since 2007, according to surveys conducted by regional Federal Reserve banks. Reports indicate that the average operating loan issued in the past summer was almost 20% smaller than the previous year’s average.

The Kansas City Fed noted that lending activity has weakened, influenced by nearly two years of rising interest rates on farm loans, which have significantly increased financing costs for farmers. While the farm economy has recently shown moderation due to narrower profit margins driven by commodity prices and increased expenses, credit needs have risen for many farmers, mainly due to high input costs. However, many producers have been able to supplement their financial needs with savings amassed during previous profitable years.

USDA predicts that net farm income, a broad measure of farm profitability, will amount to $141.3 billion this year, marking a 22% decline from the record $183 billion in 2022. Despite this decrease, the income for this year would still be the second highest ever recorded and $40 billion above the 10-year average. The decline in income is attributed to lower receipts from crop and livestock sales, coupled with higher expenses. The debt-to-asset ratio, which indicates solvency, is expected to decrease slightly.

Highest average interest rate on loans since 2007. The Kansas City Fed also reported that the average interest rate on various types of farm loans, after rising for nearly two years, has reached the highest level since 2007, standing at 8.34%. This surge in financing costs may have prompted farmers with substantial liquidity to limit their debt usage. However, any softening in farm finances could deplete cash reserves and result in increased demand for loans.

Because of reduced farm lending, the volume of operating loans exceeding $1 million has decreased by half compared to the previous year, and the volume of smaller-sized loans has dropped by 15 percent. This shift has favored smaller banks, which typically handle smaller loans, as they witnessed a 25 percent increase in non-real estate lending, while larger banks experienced a decline. The average operating loan for the summer amounted to nearly $59,000. Additionally, the average duration of new farm real estate loans has gradually increased over the past year, significantly exceeding the average loan duration from 2010 to 2020, while maturity dates for operating, livestock, and equipment loans remained stable.

Food Inflation Outlook for 2023 Drops Below Previous Projections

Wed, 26 Jul 2023 20:34:01 GMT

USDA expects food price inflation for 2023 to be slightly lower at 5.8% compared to the previous projection of 5.9%.

The grocery store price inflation forecast has been significantly reduced by a whole percentage point to 4.9%. Food price inflation for 2024 is expected to considerably decrease compared to 2023, with an expected rise of 2.4%.

Restaurant prices are predicted to increase slightly less than before, now at 7.5% as compared to previous 7.7%. For 2024, a 6.1% rise in restaurant prices is anticipated.

Interestingly, some food categories are expected to experience price declines in 2024, including pork, eggs, and dairy products. Notably, egg prices have shown significant volatility, escalating by as much as 37.8% in February 2023, yet ultimately expected to only rise 2% over the year.

USDA’s initial forecasts often undergo revisions, as seen in the fluctuations in 2023 food price inflation predictions beginning from July 2022. This dynamic forecasting, which includes various inputs like energy, labor, and maintenance costs, particularly affects restaurant prices.

For 2024, USDA projects that food price inflation will be lower than that seen in 2023 and significantly lower than the rise seen in 2022, though these are initial forecasts and subject to changes as more data comes in. However, despite the reductions, consumers will continue to pay more than the 20-year average for all types of food, marking a four-year trend. The anticipated reductions have been tied to interest-rate increases initiated by the Fed.

A Reality Check: Can Dairy Demand Dodge a Recession?

Thu, 02 Jun 2022 20:59:41 GMT

From record-high gas and diesel prices on the road to a spike in the price Americans are paying for protein and produce, shoppers are seeing price spikes everywhere they go. The rapid rise in prices is now producing more warning signs of a possible recession .

The latest Consumer Price Index (CPI) shows despite the overall pace of headline inflation easing, the cost of groceries alone increased 10.8 percent since April 2021, which is the largest annual increase in 42 years. The jump is being driven largely by the prices of meat, poultry and fish, up 14.3 percent in the past year, which marks the largest 12-month increase since 1979.

Dairy hasn’t been immune to inflation this year, with the CPI showing the price of dairy and related products rose 2.5%, the largest monthly increase since July 2007.

The broad inflation brush is also already impacting consumers and their purchasing decisions.

“Pessimism is pretty high with typical consumers as we speak,” says Glynn Tonsor, an agricultural economist with Kansas State University. “In the past, that can be a barometer for recession coming.”

Is a Recession Already Here?

Tonsor says consumer confidence isn’t the only measure of inflation, nor is it a sure sign a recession is imminent. Yet he points out if consumers start to taper their spending because they’re concerned, then it can cause what’s called a self-fulfilled recession.

“I think that’s the most common narrative on the street now, in response to 6%, 8% inflation, depending who you ask. Consumers are tightening their belt, and maybe that will reduce demand for products enough that that induces a recession in 2023,” he says. That’s not a guarantee. But we need to watch that, because the meat industry is very prone to consumer incomes.”

Impact on Dairy Demand

While concerns of a recession continue to hang over economic forecasts, history shows an economic pullback can have a direct impact on demand for products such as meat and dairy. However, the dairy case hasn’t historically seen as drastic of a hit, largely due to less competition compared to products like meat.

“I think I think there are some choices that have to be made,” says University of Missouri livestock economist Scott Brown. “Whenever we talk about costs rising for everything, in the case of dairy, I think about the buy down of restaurants that might occur as consumers go from higher priced restaurants to lower price restaurants. I think generally, that probably means less dairy. Just remember, this is all about the food away from home consumption, that I think it’s important as we think about how Inflation affects consumer choice.”

While a recession could put a damper on demand, and in turn milk prices, inflation hasn’t taken a large bite out of either yet. However, the true test will be in the months ahead, and it could put any price forecasts on a detour as uncertainty mounts.

“My crystal ball for prices is cracked given just to all the uncertainty, but I will say I think there’s an opportunity to keep prices higher for a period of time,” adds Brown. “For me, the biggest question becomes one of do consumers at some point turn away from some of the dairy products given that they are going to be higher priced. I don’t know what the alternatives are, but to me, that’s going to be the bigger issue.”

International Dairy Demand Remains Vital

Domestic demand has a stronghold on prices, but as the dairy sector continues to witness, international demand carries just as much weight.

“International trade still matters,” says Brown. “We could talk about China in terms of dairy products, perhaps there’s a case where the fewer lock downs that we see happening going forward will be helpful to trade for U.S. dairy products. So, I think we can hold these prices, but growing them from where we sit today, I think, is pretty tough.”