Farmers are seeing heightened volatility in commodity prices as harvest season progresses. The latest Ag Economists’ Monthly Monitor from Farm Journal showed a slight rise in optimism compared to the previous month, but economists remain worried about the current state of the agricultural economy when compared to last year.
“The margins that farmers are facing on average are really a tough place to be in for 2022 to 2024,” says Krista Swanson, lead economist for the National Corn Growers Association (NCGA). “According to USDA, the cost to produce corn dropped 5%, but the price was down 37%. And when we look at those average numbers from USDA, looking at cost of production for corn prices and yield, that comes out to average losses of $125 per acre.”
Revised Projections on Net Farm Income for 2024
USDA’s revised Net Farm Income projections were released in early September, and the updated figures were surprising to many economists. The new numbers show net cash farm income for the 2024 calendar year will fall $12 billion, which is down about 7% from 2023, and net farm income will fall $6.5 billion or 4.4%. This is compared to projections released in February of this year which suggested net farm income would fall 26%.
The latest Ag Economists’ Monthly Monitor survey, which is an anonymous survey of nearly 70 economists, asked those economists, “What was the most interesting thing you noticed in USDA’s September Farm Income update?” Economists weren’t surprised the livestock picture improved from the February report, but they pointed out the following:
- “Increase in farm asset value and equity.”
- “The ‘dog that didn’t bark.’ Many people expected a more dire picture in 2024, but the drop in crop prices was only a little more severe than earlier expected, and the necessary downward correction in estimates of 2024 feed costs (the earlier estimate was unreasonably high, given what was known about feed prices at the time) helped moderate overall 2024 costs. There were also adjustments upward in receipts for crops other than grains and oilseeds that boosted the receipt and income figures.”
- “The simultaneous downward revision in the net farm income estimate for 2023 paired with the upward net farm income forecast for 2024, causing the year-over-year 2023-2024 decline to shrink substantially.”
Input Costs and Breakeven Challenges for Farmers
One issue in the row crop sector is the fact input costs are still a weight on balance sheets. Michael Langemeier, Purdue University agricultural economist, said that means the breakeven price for farmers is higher than the price of corn today.
“Even with the really strong yields we’re looking at this year, we’re looking at a breakeven price of $4.70. It’s that combination of a drop in prices and the fact that input costs are relatively high, that I think is just explaining why sentiment is so low.”
Farmers are looking at ways to cut costs even more for the 2025 growing season. The September Ag Economists’ Monthly Monitor asked if farmers will cut back on fall fertilizer. Seventy percent of them said “yes.”
“I think a lot of farmers have already made some trims to fertilizer, where they probably can for the ’24 year. And so you run up on this situation where a lot of times fertility in the soil is supported well enough that if you’re in a high-cost year, you can trim back some and still have good yields. But you only do that for so long,” Swanson says. “That also may cause some farmers to shift to soybeans.”
Potential Recession in the Agricultural Sector
The survey also asked if agriculture is on the brink of a recession. Seventy-five percent said yes, which is up from the 56% who responded that way in the previous month’s survey. However, 54% of economists argue agriculture is already in a recession, with some economists pointing to only the crop sector seeing recession concerns.
“I think yes, and it depends on how you define a recession. I define a recession as this is one of the worst years we’ve seen in the last 20. So my short answer to the question is yes. Just looking at where the price is currently at, this is about the worst year since 2007, which was the start of the ethanol boom.”
When asked if the economy was on the brink of a recession, 25% of economists responded with “no.” It’s clear not all economists are in agreement, but when asked to expand on why, economists said:
- “Financial health is weaker but still pretty strong.”
- “For select crops and regions of the country farmers are facing significant financial pressure.”
- “The cost-price squeeze facing the crop sector is severe and will have larger implications if it persists. Many crop producers were profitable in 2021 and especially 2022, so they had some ability to absorb a more challenging environment over the last two years. But that ability is running out, especially for producers who rent much of the land they operate or who are heavily indebted.”
- “Over-production globally and exports are soft, while biofuel policy does not support consumption of surplus.”
- “The farm structures across all farms does not suggest a recession. A higher portion of farms have off-farm income to support cyclical changes. Most farms have healthy balance sheets (thanks to increased land values), and there are positive returns in certain sectors of the industry supporting those that are diversified. Areas of the ag economy that will struggle are those that are highly or fully concentrated in row crops, are full-time commercial operations between 1,000 and 2,000 acres, and have a high proportion of cash-rented acres.”
- “Highly-leveraged producers are feeling economic pain already. If supplies continue to remain large, lower prices may last for a longer period of time and could result in highly-leveraged producers leaving the industry.”
- “The livestock sector, specifically cattle and dairy, is performing well relative to hogs and the crop sector.”
The economists were even more divided when it came to answering whether the ag economy is already in a recession. Economists said:
- “The challenges faced by the crop sector are at least partially offset by a more positive story for cattle producers, in particular. For other animal sector producers, the drop in feed costs has made 2024 a little better than 2023.”
- “Farmers are already feeling the pinch, and they are looking for ways to slash expenses.”
- “Lenders in our state are very concerned about the outcomes for this year and the outlook for next year.”
Livestock and Dairy Prices Outlook for the Next Six Months
Cattle and dairy prices are stronger than crops. The survey asked economists, “What factor(s) are you watching that you expect will impact livestock and dairy prices in the next six months?” Economists said:
- The outcome of the 2024 election
- Drought
- Health of the ag economy
- Meat demand at restaurants
- Feed costs
- High beef prices and the impact on beef and pork demand
Key Factors Affecting Crop Prices
The survey then asked economists to list the factors they’re watching that could impact crop prices over the next six months. Economists responded by saying:
- Final 2024 U.S. crop production numbers
- South American weather
- Fall planting in South America (timing and acreage)
- China’s economy/geopolitical tensions
- Policy changes after the election (tariffs, impact on trade and biofuel policies)
Discovering New Corn Demand
Low prices cure low prices, and that’s the case for corn. The corn demand has picked up pace due to the U.S. price being more attractive than Brazil’s. Swanson says in order for prices to see a bigger boost, the U.S. will need to find new demand.
“I think when we talk about an immediate help, or immediate action, it’s definitely higher blends of ethanol,” Swanson says. “We are getting outrun by other nations in this. We just saw last week Brazil pass a new piece of legislation that allowed for higher blends there. They already have higher blends than us. And again, other nations are using higher blends than we are.”
Tariffs and Trade: A Continued Debate
Another area is exploring new export demand. Ag economists pointed out the outcome of the election could impact both crop and livestock prices. The September Monthly Monitor asked economists if the two presidential candidates would help or hurt trade.
- 55% said a Harris administration would hurt trade.
- 86% percent of economists said a Trump administration would hurt U.S. trade.
“Farmers are definitely concerned about trade,” says Langemeir, 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 explained.
Do Tariffs Work?
The controversy over tariffs and whether 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 a 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.
Conclusion: A Complex Road Ahead for U.S. Agriculture
As U.S. agriculture faces multiple challenges, from high input costs to volatile prices and geopolitical concerns, farmers are forced to find new ways to adapt. Economists emphasize the need for new demand sources, particularly in exports, to help stabilize prices and support the sector moving forward. With the outcome of the 2024 election and global market dynamics set to play pivotal roles, the agricultural sector will need to remain flexible to navigate these uncertain times.
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