Ag economists are growing more negative regarding the financial health of the crops sector of agriculture, but their views on livestock is becoming more positive. The latest Ag Economists’ Monthly Monitor, a survey of nearly 70 ag economists from across the U.S., shows the lack of exports, as well as the current crop prices, are eroding outlooks on the crops side. While strong beef demand and cheaper feed prices are creating more optimism in cattle.
The June Ag Economists’ Monthly Monitor, which is a joint survey between the University of Missouri and Farm Journal, continues to track the volatility in ag economists’ views of not only what’s impacting agriculture today, but what to watch on the horizon. The June survey marked the one-year anniversary for the monthly survey, and it showed the risks to agriculture remain a major concern.
Even though economists’ views on the ag economy eroded slightly in June, their projection for net farm income in 2024 actually increased to $113.9 billion, which is up from the $110 billion in projected by economists in May.
Weighing in on the Most Negative and Positive Aspects of the Ag Economy
When asked what economists view as the most negative aspect of their outlook of the ag economy, economists said:
- Crop output prices retreating more rapidly than input costs
- Commodity prices below economic break-even production costs
- Export outlook from the U.S., specifically the lack of Chinese demand
- U.S. trade policy regardless of party affiliation with more international trade competition
- Constant challenges to demand and policy that adds barriers to existing and potential new demand streams
“Some farmers made production and investment decisions assuming that earlier wider margins would persist,” noted one economist.
While the negativity seems to outweigh the positives of the ag economy right now, the June Ag Economists’’ Monthly Monitor also asked economist to weigh in on the most positive aspect regarding the outlook of U.S. agriculture. Economists said:
- Over the next couple of years, cow-calf operators should have good profitability, especially in areas of the country with good forage conditions
- Adverse world weather boosting U.S. exports
- The possibility of good yields that will help farmers hit their financial goals
- Discipline by producers to keep acreage expansion in check and U.S. prices being more competitive in the global market.
- Farmers eager to make adaptations necessary to stay in business
“There are some really bright producers that are positioned for some quick growth in the next 5 to pp10 years,” said one economist in the anonymous survey. “They will be positioned to buy farmland as older producers transition.”
The outlook for the U.S. production picture is anybody’s guess right now, but Scott Brown, interim director, Rural and Farm Finance Policy Analysis Center (RaFF), University of Missouri who helps author the Monthly Monitor, says weather continues to be one of the biggest variables in what happens with commodity prices in the months ahead.
“Number one, at the top of the list of almost all of these commodities, of course, is weather,” says Brown. “I think some are seeing some demand weakness as a big factor with soybean prices in particular, and seeing some other vegetable oil substitutes entering the picture. What’s maybe even a bigger factor on the soybean side is Brazilian supplies. A strong dollar continues to be important, in terms of our ability to move product out of the United States.”
Brown says one prime example of this is with cotton where the lack of Chinese trade has had an impact on prices.
“As we look at this month’s Monitor, and when you look at the survey results that comes through with almost all of these commodities with the exception of cattle, survey respondents are saying we’re slightly more pessimistic this month than we were last month,” Brown adds.
The June Ag Economists’ Monthly Monitor showed economists think the following factors will have the biggest impact on the outlook for corn prices:
- U.S. and world weather
- Better precipitation across the Corn Belt compared to the previous growing season
- Growing end stocks continuing to a burden on prices
As for soybeans, economists say U.S. and world weather will also play a significant role in the direction of soybean prices, but other factors that are impacting outlooks on soybean prices include:
- Demand is soft and imports of cheaper vegetable oil substitutes is creating more competition
- Biofuel and sustainable aviation fuel (SAF) developments will have a bigger impact on prices in the months and years ahead
- Expectation for larger soybean supplies in Brazil
- Strong U.S. Dollar
The bright spot in the ag economy continues to be cattle prices. According to ag economists, the outlook for prices in the months ahead really hinges on three main factors:
- If record beef demand can continue
- Growing crop supplies creating lower feed costs
- Strong U.S. Dollar
“It‘s hard to keep suggesting higher prices when we’re already at record levels, but when you look at where we’re at in terms of cattle inventory, we’re only going to get tighter,” says Brown. “USDA’s 2025 estimate for beef production is a decline of more than 1 billion pounds. That tells me we’re not done getting tighter.”
Brown says the one wild card for beef prices is demand. So far, demand has seem unfazed, despite record prices. Export demand remains strong, but so does demand for beef within the U.S. Those are underlying factors that are also supporting cattle prices. keep saying I’m not sure we’re done with record prices. So I think all hinges on demand staying strong for us beef, especially here in the United States.
The “Why” Behind a Growing Ag Trade Deficit in the U.S.
While meat exports have been strong, other commodities continue to struggle and at the same time, the U.S. is importing more ag products and goods. USDA’s Ag Economic Research Service (ERS) now projects the agricultural trade deficit to climb once again to $32 billion in fiscal year 2024, an increase of $1.5 billion from the February projection.
What factors are most important to the increase in the trade deficit? The June Ag Economists’ Monthly Monitor asked economists that exact question. Nearly every ag economist noted the strong U.S. dollar as one reason the trade deficit continues to grow, but other factors, according to the economists, include:
- Increased used cooking oil imports for renewable diesel
- Increased imports of horticulture products
- Softer U.S. ag exports
ERS also projects Mexico to beat out China as the top buyer, with China projected to fall to third biggest importer of U.S. ag goods at $27.7 billion. ERS expects Canada to claim the number two spot and Mexico to reach number one at $28.7 billion, an increase of $300 million.
The rise of Mexico’s imports have come in spite of the ongoing GMO corn battle between the U.S. and China. In 2023, Mexico officially banned GM corn for human consumption. That same year, Mexico also made its largest corn purchase from the U.S. of 15.3 million metric tons.
Some economists say Mexico is treating U.S. corn as a threat, and while exports are up, it’s having a big hit on GM corn demand.
“It has impacted white corn demand specifically, and the reason that when we look at overall corn demand and we still see Mexico as being a big buyer, is because white corn is such a small percentage of our total corn,” says Krista Swanson, lead economist for National Corn Growers Association (NCGA) who also participates in the Monthly Monitor survey. “So, if you look specifically at white corn exports, you do see that impact. When we talk about the total corn complex, though, Mexico’s had a drought that has reduced their production. They already consume quite a bit more than they produce, so they tend to be an importer. But this year they’ve had to import more than normal. And so that’s where we’re seeing those big buys coming in from, from Mexico and where that’s really boosted U.S. corn exports this year.”
Future of Interest Rates
Higher interest rates are impacting farmers and major equipment manufacturers. On the heels of the Federal Reserve deciding to leave interest rates unchanged during their June meeting, the June Ag Economists Monthly Monitor asked the economists how many rate cuts, if any, we will see this year. 73% said one. 18% think two rate cuts this year. And 9% say there will be no rate cuts in 2024.
With the expectation for higher-for-longer interest rates, farmers are scaling back on big-ticket item purchases, which includes buying equipment.
The May Ag Economists’ Monthly Monitor asked economists to rank where they think farmers will look to cut costs. While all economists said scaling back on equipment purchases is either most likely or somewhat likely, 65% of economists think farmers will look for lower operating interest rates and 17% think it’s most likely.
