Inflation

Cattle Bounce as Border/Strike Fears Fade, But is the Correction Over? Grains Eye Weather

Fri, 24 Apr 2026 15:49:26 GMT

Ag markets were mostly lower early Friday, except cattle.

Cattle Bottoming?
Cattle futures were higher early Friday with follow through buying after a higher close Thursday.

Futures are trading back above key support areas on the charts so is the correction over?

Scott Varilek with Kooima Kooima Varilek says $243 was the line in the sand for the June live cattle or funds would liquidate.

“Well, we tested it. We broke it. Broke some short-term trend lines. So it was a little bit dicey for a minute. But then we were able to recover. I think it almost got to a spot where we’re saying, okay, we have some damage. Now what? What’s the follow-through? And then it just, kind of started gaining confidence slowly, able to close higher yesterday following through today,” he describes.

He says the market was overbought and due for a correction so he’s hopeful that has been completed especially since May is a strong month for beef.

Wild Ride Thursday
Thursday was the real test for the market for feeders as they went limit down for a time on talk that the beef plant in Fort Morgan, CO was not slaughtering cattle as workers walked off the job and were going to strike.

Varilek says the plant slaughters over 4,000 head a day and that story is still not fully confirmed.

“Yeah, and we’re all trying to find as much information on that as we can. And just like the last strike, hard to find it. It seems to be a little bit quieter. But yeah, they actually walked out at Fort Morgan and they canceled some loads, canceled their Thursday, Friday kills was what I had heard. And that they were planning on getting together with some talks. They were confident that. They might not take that long, you know, so that’s where we sit. More uncertainty, you know, thrown into this market. That’s one of the reasons that we really crashed.”

He says they will watch for developments over the weekend and see if there are still loads heading to the plant or not for clues.

“So if I would say right now, we’ll trade it like it’s more short term and not break the market because it isn’t a long term thing,” he adds.

Market Recovers as Rollins Cancels Arizona Event
The cattle market recovered well off the lows and closed back higher on Thursday on news that Brooke Rollins, Secretary of Ag, canceled her trip to Arizona on Friday alleviating the fears she might make an announcement about a reopening of the border to Mexican cattle.

He says, “The reason we’re able to recover maybe was because, you know, she had said no announcement last Friday and that she planned to physically to go herself to Arizona to you know, check things out. And so then we just kicked that can down the road.”

He says there have been more screw worm cases 60 miles south of the border which may have caused USDA to reverse course or delay a reopening.

Fed Cash Market Lower
The fed cash market was also pressured by this week’s lower cash trade at $246 in the both the South and North, plus some $386 dressed trade. Those are all $2 lower than the previous week.

However, with the board rebounding any additional cattle will likely be bought at $248 as producers have regained leverage.

“Packers were a couple dollars lower they’re sitting at $246 and not really moving just letting cattle come to them. I mean a few sales but now that this board has recovered some I think they’ve got what they’re going to get at $246 and if they’re going to want some they’re going to
have to start to move it up to $248, $250. There will still be plenty of guys that that want to get that,” he explains.

He says the market is just finishing up on yearlings. “You know these long day fed yearlings that you know we’ve had we’re not usually selling yearlings here in April but that’s the nature of the beast right now as we know how to make them bigger we’ve got cheap cost of gains the feeding weather is outstanding just these huge gains on these cattle then we’re going to crawl into that calf crop and they are not going to be carrying the weight that these yearlings were. So, that’s the thing that I alluded to about May that there’s always that old saying, never be short June cattle in the month of May.”

With Mother’s Day coming up he says demand will also be strong and so packers may need to move cash up.

Cattle Resilient
Varilek also points out the cattle market has been resilient through war headlines, the down in the stock market and even higher gas prices at the pump.

“We’ve talked about all of these other stories and I don’t know that war premium or the energy prices has really crept into the beef. I mean, we wouldn’t be trading cash cattle $4 off of the all time high if we were worried about the consumers, really getting strapped.”

Lean Hogs Bottoming?
Lean hog futures were lower on Friday with some profit taking after a mostly higher week but is the market bottoming?

Varilek speculates, “Yeah, we finally saw the cash and the cutout jump a little bit, provided us with a gap higher after the third leg lower, kind of been on the lower trade. That was some good action. It’s like, okay, maybe some respect, I guess,.”

But he points out numbers will really need to tighten for the market to justify the premiums in the deferred futures.

“We do see some of these deferred markets trading stronger than the front. We’re waiting on the cash. I think you get to July and August and they feel like, yeah, we want to rally. We think that we should. $135 to $150 feeder pigs you know weighing 40 pounds I mean these are big prices that you’re having to pay if you want to fill those barns and so that keeps telling us that the supply is tight, it’s not there we need higher prices,” he adds.

He says the May contract is at a pretty good discount to June and that gap usually narrows but it hasn’t happened yet.

“So, the proof has not shown up yet to get this cash market rally, to, you know, prove me right.”

Grains Mixed to Lower Trading Weather
Wheat futures broke out to some fresh highs on Thursday on drought and frost concerns but is setting back early Friday on profit taking and some rain chances in the extended maps.

Corn and soybeans are easing with wheat but are also waiting for more direction on weather according to Varilek.

“I think we are just waiting. You know, what are these weather patterns? There’s areas that are getting lots of rain, too much rain. And then there’s others that are just it’s so dry we’re having dust bowl weather. So, you can find what you’re looking for in the weather right now and that’s typical every year,” he says.

Ultimately he thinks the crop will get planted and it is too early to get concerned.

So beyond weather the grains will need another story and right now the war and inflation news could spark buying but just not yet.

Atlanta Fed Chair Bostic Recognizes Sectors of Agriculture Are in Crisis

Tue, 10 Feb 2026 00:19:58 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?”

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

Thu, 23 Oct 2025 22:35:03 GMT

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

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

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

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

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

(Lori Hayes )

Conditions Expected to Continue or Worsen Into 2026

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

Others emphasize the fatigue setting in across the countryside.

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

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

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

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

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

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

Echoes of the 1980s — But Not the Same

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

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

Still, they caution against complacency.

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

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

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

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

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

Farm Consolidation Pressures Mount

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

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound )

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

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

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

Livestock Outlook Still a Bright Spot

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

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

October Ag Economists’ Monthly Monitor

(Lindsay Pound )

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

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

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

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

Trade Troubles Deepen

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound )

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

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

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

October Ag Economists’ Monthly Monitor

(Lindsey Pound)

Looking Ahead

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

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

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

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

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

Fri, 20 Jun 2025 19:13:37 GMT

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

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

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

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

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

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

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

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

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

Earlier this week, the Fed left interest rates unchanged.

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

Newton agrees.

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

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

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

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

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

Fri, 28 Mar 2025 17:56:24 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.

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 17:49:01 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)

How Do You Know When Agriculture Is In A Recession?

Thu, 12 Sep 2024 15:40:52 GMT

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

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

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

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

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

Wed, 14 Aug 2024 16:57:11 GMT

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

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

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

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

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

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

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

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

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

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

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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

Tue, 13 Aug 2024 17:44:19 GMT

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

Here are some key points to consider:

Impact on farm income and commodity prices

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

Consumer demand and market stability

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

Financial and economic considerations

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

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

Vulnerable commodities

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

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

Resilient commodities

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

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

Bottom line:

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

There Are New, Early Signs of Ag Sector Financial Pressure

Tue, 13 Aug 2024 17:19:19 GMT

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

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

Farm income by state

(Federal Reserve Bank of Kansas City)

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

Banker Comments Q2 2024

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

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

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

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

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

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

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

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

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

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

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

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

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

Wed, 17 Jul 2024 17:42:16 GMT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Reasons Behind the Painful Surge in Grocery Prices

Wed, 17 Jul 2024 15:45:16 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.

Is the Fed Cutting Interest Rates Now Imminent?

Mon, 08 Jul 2024 23:22:25 GMT

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

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

When Will the Fed Cut Rates?

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

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

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

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

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

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

Fed Officials Weigh In

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

“If you look, for sure internationally, at the U.S. growth, we’ve grown a lot,” Goolsbee says. “We’re actually higher than where we would have been when people were making predictions of where the GDP would be at this point before they had ever heard of COVID. We’re actually above where they were predicting we would be. We’re the only economy where that’s true. I’ve been very impressed with that resilience.”
_______________________________________________________________
Related News: Is the U.S. Ag Economy Heading Toward a Recession? A One-on-One with the President of the Chicago Fed
_______________________________________________________________

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.

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 .

From a Recession in China to $4 Corn, Here Are 10 Potential Surprises Ag Economists Say Could Impact Agriculture in 2024

Fri, 22 Dec 2023 20:01:22 GMT

From the election to world trade, as well as geopolitical factors that have the potential to shape agriculture in 2024, ag economists think the coming year is poised for several possible surprises that could have a direct impact on farmers across the U.S.

The December Ag Economists’ Monthly Monitor, a survey conducted by University of Missouri and Farm Journal, shows economists’ views on the ag economy are slightly more positive compared with the past month. While expectations about 2024 net farm income remained steady, ag economists’ outlook for the year ahead grew slightly more pessimistic.

(Farm Journal)

Nearly 70 ag economists are invited to participate in the survey each month. When asked the two most important factors driving agriculture’s economic health today, as well as over the next 12 months, views were mixed.

“Macroeconomic influences, including persistent interest rate pressure and dollar value,” responded one economist in the anonymous survey.

“Declining prices for most major commodities reducing receipts and tightening margins despite some input prices retreating,” said another economist. “There is also some concern about multiple years of lower net farm income beginning to weaken relatively strong farm financial positions.”

“Macroeconomic influences, like interest rates and dollar value, and the impact of funds positions in the commodities markets are impacting the current environment,” was another response from the survey. “There’s been some improvement in recent months, but farmers are still facing relatively high costs and low commodity prices resulting in tight margins. Over the next 12 months, I marked unchanged for state of the ag economy on the expectation for continued improvement in macro influences and margins, but also multiple years of lower net income environment beginning to weaken the strong farm financial positions of the past few years.”

Expect the Unexpected

Looking ahead at 2024, economists in the December Ag Economists’ Monthly Monitor were asked, “What unexpected news headline would you not be surprised to read in 2024?” Ag economists said:

China falls into big recession.
A second extension of the farm bill.
Corn prices test $4 again.
Inflation supports managed money returning to the commodities again.
World ends, poor hurt worst.
Record beef imports in 2023.
National corn yield >190 bpa; U.S. embargoes ag exports to China.
End to Russia/Ukraine war bumps global food grain supplies and cuts prices.
2024 planted acres across all crops similar to 2023.
Economic woes unfold for U.S. agriculture as input costs remain high and farm prices falter.

What Shaped Crop and Livestock Prices in 2023?

When asked the biggest event or factor that impacted crop prices in 2023, ag economists said it’s all about supply and demand, sprinkled in with impacts from the strong U.S. dollar. They said:

Large corn acreage and rebound in the U.S. corn crop, despite weather challenges.
Build back of stocks levels globally for crops, including exports from Brazil, Russia and other key areas.
Price retreat based on weak demand and rebounding yields; also higher interest rates contributing to stronger dollar and weaker demand.

For livestock prices, ag economists say 2023 was more about cow numbers.

Low beef cow inventory due to continuing effects of weather challenges and economics supporting high prices.
Price pressure among other livestock commodities.

2024: Biggest Economic Concerns

Ag economists were also asked to look ahead at 2024. When asked what they are most concerned about when it comes to the ag economy, geopolitical issues and the U.S. presidential election rose to the top of their concerns, including:

Geopolitical factors, including war and disruption, global competition and other potential disruptions.
Domestic politics, including the 2024 election and policy detrimental to biofuels use, and government debt leading to rising interest rates and finance costs.
Decline in commodity prices paired with increasing input and land costs, leading to squeeze in margins.

“Crop prices could fall further, adding to a price-cost squeeze for many crop producers. Such a development would, of course, tend to help the livestock sector. We could be entering a period where the fortunes of crop and livestock producers may diverge,” said one economist this month.

“South American competition as well as authoritarian governments in places like Argentina, the Netherlands and possibly the U.S.,” responded another economist.

Optimism for 2024

There is also optimism for the year ahead, which is sprouting from the possibility for continued improvement in drought as well as new areas of demand. Ag economists were asked what they’re most optimistic about when it comes to the ag economy, and economists surveyed said:

Demand opportunities through domestic soybean crushing, renewable fuel, SAF and global oilseed.
Robust domestic consumption and opportunity for competitive pricing of U.S. commodities in global markets.
Improved farm-level conditions related to efficiency, moisture conditions and farm income above historical averages (if a recession is avoided and input costs come down); many ag producers still have a strong balance sheet.

Recession or Soft Landing in 2024

The U.S. avoided a recession in 2023, and majority of ag economists think the U.S. won’t enter a recession in 2024. After the Federal Reserve hinted toward interest rate cuts in 2024, some think there’s still a chance the country will see a slight increase in rates in 2024. The majority said they expect a 0% to 1% decline in interest rates in 2024.

(Farm Journal)

While one economist warned of the impacts if the Fed were to start cutting rates too soon, economists point out the general economy has been resilient in spite of wars and inflation.

“It now looks like a fairly soft landing,” said one economist regarding the outlook for interest rates and whether the U.S. will enter into a recession next year.

“Some leading indicators continue to point toward recession, but so far, the economy has avoided recession. The December FOMC dot plot and post-meeting comments reiterate their efforts to guide the economy to a soft-landing,” said another economist

“There are certainly risks, but the odds of ‘muddling through’ appear to be rising,” said one economist in the survey. “With inflation declining, the Fed may be able to relax interest-rate policies in late 2024.”

(Farm Journal)

However, not all economists are in the camp the Federal Reserve will cut interest rates next year.

“It may be a mild one if it occurs. If it doesn’t occur, that will suggest risk of higher interest rates,” said another economist.

“There are a lot of mixed signals in the economy,” pointed out another economist. “GDP is growing, inflation is cooling off, low unemployment, growing stock market — all positive. Higher interest rates, credit card balances are negatives.”

View more results from the Ag Economists’ Monthly Monitor 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.

Is A Recession Imminent? Here Are The Red Flags Ag Economists Are Now Watching

Thu, 05 Oct 2023 14:37:50 GMT

Recession talk has been rampant for more than two years. While ag economists continue to be at odds when it comes to the likelihood of a recession in the United States, there are also concerns about economic woes around the globe. Some economists doubt the United States’ biggest importers will be able to avoid a recession over the next 18 months.

In the latest Ag Economists’ Monthly Monitor, a survey of nearly 60 ag economists from across the country, the economists were asked if the United States’ major importers will avoid a recession over the next 18 months. Of those who answered the question, nine said “yes,” but eight responded “no.” Four remained unsure.

The economists were then asked to explain the reasoning behind their response. The answers revealed a host of concerns, including labor shortages, risks in China and Europe as well as the strength of the U.S. dollar, as to why the economists think a recession might be imminent for those countries.

“The slowdown in global trade and the strength of the dollar are placing excessive pressure on importers,” said one economist in the anonymous survey.

“Of the countries the United States exports product to, China is the only one I have large concerns about. Europe has seen an economic slowdown, but I think they will avoid a recession over the next 18 months,” said another ag economist.

“It’s hard to imagine that much of the world won’t continue to be squeezed by too much private and government debt and rising interest rates, which ultimately ripples through all economies. The United States is the prettiest of the ugly horses,” was another response.

Out of all the responses, the biggest concern continues to be China. While economists say pork and beef exports might be the most at risk, a ripple effect around the globe is possible.

“The economic slowdown will result in some of our major importers entering a recession. It will remain slow recovery and growth longer term,” said one economist.

“China appears to have some economic problems. They have emerged as major importers of pork and beef, but they also remain a trading partner that contributes market uncertainty. On meats, traditional partners will be more important,” said another economist.

In the United States, economists have been largely impressed by the resiliency of American consumers, but many point to red flags that continue to flash caution signs moving forward. One is the fact credit card debt is climbing at a time when inflation continues to eat away at consumers’ spending power.

“The U.S. economy has proven to be more resilient than many expected with low unemployment and moderating inflation,” said one economist.

“It’s touch and go in the United States,” was another response. “However, it’s becoming increasingly difficult for companies to raise prices and pass through higher input prices. That’ll likely mean margin compression, which translates to the need for layoffs. This won’t necessarily be deep, thus avoiding a recession, but there’s still some pain ahead for the economy.”

Economists point out every recession is different, and the signs vary. So, what are economists watching to know if a recession in the United States is imminent? The September Ag Economists’ Monthly Monitor revealed some of those signs.

When asked to list the top three general economist indicators to gauge the likelihood of a recession, economists in the anonymous survey said:

“There is too much reliability in the inversion of the yield curve predicting a recession. Given the length of time the yield curve has been inverted, it is going to be difficult to not expect a recession. It is going to be exceptionally difficult and will take longer with more interest rate hikes for the Fed to achieve a 2% inflation rate than what the market is prepared for.”
“I follow Fed monetary actions, interest rates and unemployment levels.”
“I follow unemployment rate, hourly wage rate and consumer prices.”
“I don’t think the Fed can get inflation down to the 2% mandate without a recession, if it holds to that mandate.”
“Employment growth remains fairly strong, and the U.S. unemployment rate remains historically low. As long as there is not a sizable decline in demand for labor (which is what I believe), the U.S. should at worst have a shallow and relatively short recession.”
“I tend to watch GDP and the Conference Board Leading Economic Index because that is a compilation of 10 leading indicator components. I watch on the inversion in the spread of long- and short-term treasuries yields, although that is also part of the LEI.“
“I like to look at GDP, real incomes and savings rate. Consumer debt like credit card debt is an interesting data point. I don’t do a lot of recession or general economic projections.”

Ag economists’ view on the overall ag economy is also starting to erode . The September Ag Economists’ Monthly Monitor shows lower commodity prices, concerns about demand and a negative outlook for China’s economy are all contributing to the changing views, even as the cattle herd and U.S. corn and soybean crops continue to shrink. But the most influential piece of the farm economy might be the price of corn .

Related Stories:

The One Factor That Could Make Or Break the Farm Economy Over the Next 12 Months

Out Of The 10 Biggest Ag Commodities In The U.S., Leading Ag Economists Are Most Bullish On Beef Cattle

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.

U.S. Inflation Continues to Decline, Down from 4% in May

Fri, 14 Jul 2023 03:21:37 GMT

U.S. inflation continues to decline, with the top-line consumer price index (CPI) falling to 3% year-over-year in the previous month, the lowest since March 2021, down from 4% in May. This decrease is mainly due to dropping energy and slowing food prices. Meanwhile, service prices and the core index (which excludes food and energy) remain high, with the core CPI descending to 4.8%.

Shelter costs, including rent, have been the primary contributors to price increases. Despite some areas reporting a decrease in rent prices, high housing costs and rising interest rates continue to make homes less affordable and push rent prices up. Car insurance and healthcare costs are also rising, as providers and insurers pass on increased costs to consumers.

Related story: John Phipps: The Link Between Rising Interest Rates and Inflation Isn’t as Simple as You Might Think

On the bright side, real wages have started to grow, with real average hourly earnings increasing 0.2% last month and up by 1.2% over the past year. However, they remain 3.2% lower than in December 2020, contributing to public dissatisfaction with the economic situation despite low unemployment.

With real interest rates positive again and the money supply reduced by 4% over the last year, there are signs of monetary tightening. However, analysts say that by historical standards, these conditions are not exceptionally strict. The market is calling for cautious action from the Fed, guided by its mission to combat inflation, ideally taking advantage of the current stable labor market.

Traders are betting the end of the tightening cycle is near with the odds of a September hike falling. The Fed is still expected to hike in July.

Related story: Egg Prices See Largest Monthly Drop in 72 Years, But Still Aren’t Back to Normal

Harvard University economist Jason Furman looks at seven different underlying inflation indexes over three-, six- and 12-month periods, then adjusts them to mimic the price index of personal-consumption expenditures, the basis for the Fed’s 2% target. The median of all those measures had fallen to 2.8% in June from 4% in April.

“I’m nervous about the euphoria” around the June CPI, Furman said, according to the WSJ. That said, he was “pleasantly surprised” at the progress on underlying inflation. He thinks that without a rise in unemployment, inflation will end the year around 3.5%; he expected 4% several months ago. He thinks that is still too high for the Fed: “A full-on soft landing would still require a decent amount of luck.”

Egg Prices See Largest Monthly Drop in 72 Years, But Still Aren't Back to Normal

Tue, 13 Jun 2023 20:20:35 GMT

Egg prices have sent shoppers on a rollercoaster this year. May’s CPI shows inflation slowed, but food prices, housing prices and the cost of used vehicles are all attributing to current inflation.

The most sizable drop came with egg prices. The CPI shows egg prices now average $2.66 per dozen, which represents the following changes:

13.8% lower month-over-month
That represents the largest monthly decline since January 1951
Year-over-year, prices are only down 0.4%

Before shoppers get too excited, some historical perspective shows egg prices are still higher than average. A decade ago, egg prices were $1.91 per dozen. Even in 2020, egg prices were lower, averaging $1.51, which is more than $1 lower than what grocery shoppers are paying today.

While the sudden decline may seem like shoppers are getting a bargain, it’s similar to what drivers experience with gas prices. When prices for a gallon of gas go from $2 to $4, then come back down but only to $3, it feels like prices are much cheaper, when in reality, prices are still higher than they were before the rapid spike.

Why Did Egg Prices Spike Higher Earlier This Year?

According to economists, the rapid rise in egg prices was a function of supply and demand . In January, avian influenza caused U.S. egg producers to lose more than 50 million birds, many of those being commercial laying flocks. Couple that with high holiday demand for things like baking, and the two factors clashed to create higher prices at the store.

“We’ve had a significant reduction in supply from depopulation this spring and again in the fall and winter,” Lusk told AgWeb in January. “Couple that with inelastic demand for eggs, and you get the price spikes we’re seeing.”

Expensive Eggs Ate Into Bacon Demand

The CPI shows the price of bacon and related products fell 9.8% year-over-year. It’s also a 1.4% decline in a month. Prices may be on the decline, but one livestock economist thinks it’s possible the high egg prices also caused shoppers to buy less bacon.

During World Pork Expo last week, Steve Meyer of Partners for Production Agriculture, explained why he has a bleak outlook for the pork producers’ profits this year . One reason is demand. Meyer also explained it’s not just due to the 35% spike in input costs compared to 2019, but also lower hog prices.

Part of the problem is a decline in domestic demand, which is driven by wholesale demand, among four other factors. One of those four is the price of complementary goods, like eggs. As the rapid run-up in egg prices caused some shoppers to scale back on buying as many eggs for breakfast, that decision also hurt bacon demand and prices, as well.

The Real Winner of the 2023 Egg War

Higher egg prices did bode well for backyard flocks. More Americans decided to try their own hand at raising a backyard flock, and as a result, chicken suppliers like Tractor Supply cashed in.

According to Forbes, Tractor Supply , which is America’s largest seller of live poultry, could top the all-time record set in 2020. During the pandemic, more people had time at home, and Tractor Supply reportedly sold 11 million birds. This year, Tractor Supply’s foot traffic jumped 60%.

Tractor Supply also acquired Orscheln Farm and Home this year. The announcement came last fall, but the transition took place this year, adding more than 80 stores under the Tractor Supply brand. Last year, Tractor Supply’s CEO said the acquisition means Tractor Supply would now have more than 2,100 stores and 50,000 employees. The company also projected an excess of $14 billion in annual revenue.

What Do Americans Want to See in the 2023 Farm Bill?

Wed, 29 Mar 2023 20:24:36 GMT

American Farm Bureau Federation released a survey on Wednesday, which shows the majority of respondents agree that nutrition and risk management should be top funding priorities in the farm bill.

Historically, the nutrition title, including Supplemental Nutrition Assistance Funding (SNAP), takes the majority of the farm bill cake, as was seen in 2018 when nutrition made up 76% of the budget.

(Farm Journal)

The Congressional Budget Office, in its 10-year Budget and Economic Outlook , raised the cost estimate for SNAP by $93 billion over the next decade. Sen. Joni Ernst (R-IA) says this is where the greatest farm bill debate will take place.

“If you’re an able-bodied, single male with no children, then you should certainly be working and providing for yourself,” Ernst says. “We have to make sure those funds aren’t abused at the expense of the taxpayer while making sure those needy families do get the support they need.”

While nutrition programs have taken focus, inflation is top-of-mind for Americans.

Addressing Inflation

According to survey results, 86% of respondents are concerned about food inflation. And the issue didn’t go unnoticed by Rep. Austin Scott (R-Ga.) in a recent House Ag Committee hearing .

“I think everybody in America that is watching this is smart enough to recognize the volume of food, as we’ve seen with eggs, there are supply-and-demand issues there,” Scott said to Tom Vilsack, USDA secretary. “No matter how much you give somebody in SNAP benefits, the cost of groceries continues to go up…”

Scott attributes the inflation to “bad” policy, which leads to less food availability. He says food security starts in the farm safety net and program titles, not nutrition.

Risk Management

So, where will risk management fall in the farm bill debate if food insecurity is America’s second-largest concern? Sen. Chuck Grassley (R-IA) says he’s made a point to hold space for risk conversations, particularly insurance, in hearings.

“What we need to do is make sure the crop insurance program is kept as the most useful safety net tool for the family farmers—that’s 86,000 in Iowa, and over the country as a whole about 2% of our population are involved in ag, producing the food for the other 98%,” Grassley says. “And that 2% needs consideration, considering how important they are to the livelihood of everybody else.”

But there is a chance the insurance title could be “reworked” all together, according to Kala Jenkins, Pinion ag consultant.

“I’ve heard chatter about whether we need to change the way some of these programs work today, like whole farm crop insurance programs versus the noninsured crop disaster assistance program.” she says. “Then there are also some stakeholders questioning whether we need to link insurance to conservation, while others don’t want it to be the main focus. The needle is all over the board.”

What’s at Stake

With so much uncertainty in the farm bill arena, it begs the question of whether a farm bill will be passed in 2023. And most American’s understand what those repercussions would look like, even if they aren’t involved in ag.

When questioned about whether they think a farm bill passage or delay would impact the country, their state, community family and themselves, respondents forecast the biggest impact would be on the country and the smallest impact landing on themselves.

These results may have something to do with consumer’s trust in producers. According to the survey, 89% of adults trust farmers, which has remained steady since 2019.

“Almost nine in ten adults trust farmers, which will be important as we work to inform the 260 lawmakers who weren’t in Congress when the last farm bill was written,” says Zippy Duvall, AFBF president.

4 Tax Items to Cross Off Your Operation's 2023 Checklist

Thu, 20 Oct 2022 13:42:50 GMT

The end of the year is closing in. Are you thinking about taxes? According to Paul Neiffer, farm CPA at CLA Connect, you should be.

Here’s a tax checklist Neiffer recommends based on events in 2022.

1. Be Specific When Writing Prepaid Expenses

Historically, Neiffer says farmers have taken advantage of “prepaid expenses,” but supply chain struggles have put a damper on that system.

“Producers can go to, say, a local cooperative and request a certain amount of fertilizer or diesel. That can be done now, but it’s getting tougher with availability,” says Neiffer. “This is when we run into a valid prepaid issue.”

In order to obtain a valid prepaid, a farmer has to request a certain quantity of a product. If a supplier isn’t able to provide that quantity, it isn’t a valid prepaid on additional business expenses for the year.

“So many farmers think they can go down to the local coop and put a deposit down on a product for large sums of money,” says Neiffer. “We’ve had several clients go through audits and fail on that front, despite our warnings. It just doesn’t work.”

For producers to take advantage of these last-minute prepaid business expenses, Neiffer suggests they lock in a “specific item, for a specific quantity, at a specific dollar.”

While preparing final prepaid expense checks, Neiffer says it’s equally as important to consider the checks handed out given by the government.

2. Stay Off the Tax Treadmill

Farmers sometimes climb on a tax treadmill ride that can last, in Neiffer’s experience, 40 to 50 years. With COVID-19 aid revenue attached to the tax treadmill in recent years, Neifer says it might be even harder to hop off in 2022.

The Biden administration released various phases of Emergency Relief Payments (ERP) to producers this year. These types of payments are similar to crop insurance and yes, they can normally be deferred one year, but the farmer can only defer to the year after damage was incurred.

“These payments are for damage that occurred in 2020 and 2021,” Neiffer says. “2022 is the latest you could defer 2021 payments and since producers collected them this year, they’re stuck with reporting these payments in 2022.”

Neiffer feels some ERP phase 2 payments might be deferrable, assuming it was for 2022 damage. However, “at the speed that FSA is proceeding,” he doesn’t think those odds are looking good.

The plans for unwanted revenue and deferments don’t stop at ERP.

3. Draft a Plan for Unwanted Revenue

With the ongoing drought in the West , some producers have been forced to make changes in the size of their operations.

Chip Flory, AgriTalk host, questioned Neiffer on whether cattlemen who are selling numerous head due to lack of feed and resources can plan a deferment .

“The good news is yes,” says Neiffer. “If a producer normally sells 500-head in a year and this year they had to sell 1,000-head, they get to take that extra 500-head and either defer for one year, or up to four, 5 or 6 years—depending on how long the drought goes on.”

Once the drought is over, Neiffer says cattleman could reinvest in the herd, even if it’s breeding stock.

“We had a rancher last year who kept track of how much livestock they had to sell due to the drought,” he says. “Based on the regulations, we were able to defer another $200,000 based on how the calculations were done.”

Another important calculation to consider tracking this year, according to Neiffer, is the adjustments in inflation.

4. Consider How Inflation Might Work in Your Favor

IRS released inflation adjustments this week for 2023. At a “whopping” 7 percent, Neiffer says this is the time when inflation can work in favor of anyone’s pocketbook.

“Because each tax bracket is going up by 7%, everybody is going to be able to participate in the benefit of that 7% increase,” he says. “That increase is actually greater than the exemption was until about 20 years ago, so that’s really good news for most of our farmers.”

The 2023 tax inflation adjustments will also be reflected in:
• Lifetime estate tax exemption
• Annual gifts
• Standard deductions

Neiffer says the bottom line is inflation helps us with our taxes, but in very few other ways.

More on taxes:
No, You Really Can’t Defer Your ERP Payment
Paul Neiffer: When Can Inflation Help You?
When Can You Defer Livestock Sales Due to Drought?
The Social Security Donut Hole

IMF Anticipates Global Inflation Will Peak in Late 2022

Tue, 11 Oct 2022 18:10:47 GMT

The International Monetary Fund forecasts a slowdown in global growth from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023.

The global slowdown in 2022 is as projected in the July 2022 World Economic Outlook (WEO) update, while the forecast for 2023 is lower than projected by 0.2 percentage point. In the revised forecasts , 93% of countries received downgrades to their growth outlook.

More to Come

Aside from the global financial crisis and the peak of the Covid-19 pandemic, this is “the weakest growth profile since 2001,” the IMF said in its WEO published Tuesday morning.

“The worst is yet to come, and for many people 2023 will feel like a recession,” the report said, echoing warnings from the United Nations, the World Bank and many global CEOs.

Cause for Shift

The IMF noted three major events currently hindering growth: Russia’s invasion of Ukraine, the cost-of-living crisis and China’s economic slowdown. Together, they create a “volatile” period economically, geopolitically and ecologically.

More than a third of the global economy will see two consecutive quarters of negative growth, while the three largest economies — the United States, the European Union and China — will continue to slow, the report said.

Inflation Timeline

The IMF anticipates global inflation will peak in late 2022, increasing from 4.7% in 2021 to 8.8%, and that it will “remain elevated for longer than previously expected.”

Global inflation will likely decrease to 6.5% in 2023 and to 4.1% by 2024, according to the IMF forecast. The agency noted the tightening of monetary policy across the world to combat inflation and the “powerful appreciation” of the U.S. dollar against other currencies.

Red Flags

The IMF also highlighted that the risk of monetary, fiscal, or financial policy “miscalibration” had “risen sharply,” while the world economy “remains historically fragile” and financial markets are “showing signs of stress.”

In an interview with the Financial Times , Pierre Olivier Gourinchas, the IMF’s chief economist, said there was as much as a 15% chance global growth could fall below 1% eventually. This level would likely meet the threshold of a recession and would be “very, very painful for a lot of people.”

“We are not in a crisis yet, but things are really not looking good,” he said, adding that 2023 would be the “darkest hour” for the global economy.

The energy crisis is also weighing heavily on the world’s economies, particularly in Europe, and it “is not a transitory shock,” according to IMF’s report. “The geopolitical re-alignment of energy supplies in the wake of Russia’s war against Ukraine is broad and permanent,” the report added. “Winter 2022 will be challenging for Europe, but winter 2023 will likely be worse,” the IMF said.

The U.S. economy is expected to stagnate over the four quarters of 2022 and then maintain a sluggish 1% growth rate in 2023.

More on inflation:

Could Food Prices Ease in 2023? USDA’s New Consumer Food Price Forecast Has a Bit of Good News
Is Out-of-Control Inflation on the Horizon? Watch These Two Indicators
John Phipps: The Inflation We Expect

Red Meat Tariffs Off the Hook as Food Prices Soar

Thu, 22 Sep 2022 02:12:35 GMT

“Some of our global customers have higher rates of inflation than us, so now is the time to try to reduce that impact. One way to do it is to offset, reduce or eliminate existing inbound tariffs,” says Dan Halstrom, U.S. Meat Export Federation (USMEF) president and CEO.

With rising prices at the store, many of these countries have taken action to reduce inflation pressures.

USMEF Vice President of Economic Analysis, Erin Borror, notes the countries who have changed tariff policy on imports:

• Mexico eliminated tariffs on beef, pork and poultry.

• Phillippines reduced tariffs on pork as an extension of their African swine fever-related shortage.

• Vietnam will reduce pork tariffs beginning in July.

• Korea announced a duty-free quota for pork.

• Taiwan decreased their import duty on beef by 50%.

• Brazil eliminated their beef tariff.

Despite a population of consumers that are most vulnerable to high food prices, many African markets, some South American and Caribbean markets, India and Thailand continue to hold high tariffs.

Tariff changes have increased opportunities, as many vendors shifted to selling imported meat.

In the Philippines, USMEF Representative Dave Rentoria notes, “many local vendors have shifted to selling imported pork because of the lower price in the retail section, like 30 to 40% cheaper.”

In many cases, tariff reductions benefit trade competitors more than the U.S., but that’s largely due to the early start the U.S. had on free trade agreements, USMEF says.

“If we’re on a level playing field duty-wise or better, we will win,” Halstrom says. “I’m convinced that with our industry, our reputation and our differentiated high-value product, if we are on a level playing field, we can compete with anybody in the world.”

Could Food Prices Ease in 2023? USDA's New Consumer Food Price Forecast Has a Bit of Good News

Mon, 25 Jul 2022 19:50:18 GMT

USDA raised its consumer food price forecast again , to 8.5% to 9.5% for 2022. The agency had initially predicted a 2% to 3% rise in the prices consumers pay for food this year and in February started lifting that outlook. Eggs, fats and oils, and poultry prices are making the biggest gains.

In its first forecast for 2023, USDA sees inflation retracting to a 2.5%-3.5% range. The 20-year historical average for consumer food prices is a 2.4% rise.

Breakdown of Food Prices in Latest USDA Forecast

The Consumer Price Index (CPI) for all food in 2022 at up 8.5% to 9.5% from 2021 is the highest rate of overall food price inflation since 1979, which saw prices rise 11%.

The biggest increase is for the fats and oils category, which is hiked to a 16.5%-17.5% range from a 14%-15% range. Other categories with big increases are poultry, dairy and cereals/bakery.

For food at home (grocery) prices, USDA now sees them rising 10% to 11%, the biggest rise since prices surged 10.8% in 1979.

Food away from home (restaurant) prices are expected to increase 6.5% to 7.5%, the biggest increase since the 9% hike in 1981.

This is the sixth consecutive set of monthly increases in forecasts for all food and grocery store prices, the first time that has happened based on monthly data from USDA dating back to 2003. USDA’s forecasts for restaurant prices have risen every month since January except for April and June.

Which Commodities Are Driving the Increase?

For individual commodities or commodity groups, the July outlook was revised upward for 10 food categories and four aggregate categories versus forecast levels from June. Several saw no change.

Prices for eight food categories increased by at least 1%: food at home, other meats, poultry, dairy products, fats and oils, processed fruits and vegetables, sugar and sweets, cereals and bakery products, and other foods. Three of those categories were up 2%: other foods, cereals and bakery products, and fats and oils.

Annualized increases were seen in June for all food categories and in June with the smallest being for beef and veal at 4.1%. Double-digit increases were registered for all grocery store prices (12.1%) with the biggest percentage increase coming in eggs at 33.1%.

Impact of Avian Influenza Outbreak

The big rise in egg prices was due to the highly pathogenic avian influenza outbreak. “This outbreak has contributed to elevated egg prices and increasing poultry prices as over 40 million birds in 37 states have been affected” USDA said.

Supply chain issues were also cited as factors for some of the food price increases. “Economy-wide factors including ongoing supply chain issues and higher energy, transportation, and labor costs, contributed to increases in prices across food categories,” USDA said.

Outlook for 2023

As for 2023, this is the first outlook for food price inflation for the coming year. In 2023, food-at-home prices are forecast to rise between 2.0% and 3% with food-away-from-home prices predicted to increase between 3% and 4%. Overall food price inflation is forecast up from 2.5% to 3.5%. The 20-year average increase in food prices is 2.4% for all food prices, 2.9% for restaurant prices and 2% for grocery store prices.

Some industry contacts say USDA’s initial forecasts for 2023 appear too low.

Meanwhile, USDA’s own forecasting methodology is changing. “The Food Price Outlook forecasting methodology is being revised and will result in a revised data series,” USDA said. “A report describing the changes to the methodology is forthcoming and will be released before changes to the data series become effective.

The Warning Signs of a Recession Are Now Heating Up

Fri, 03 Jun 2022 15:45:23 GMT

From record-high gas and diesel prices on the road to a major spike in the price Americans paid for their Memorial Day weekend barbecue essentials, shoppers are seeing price spikes everywhere they go.

The unofficial kickoff to this grilling season came with sticker shock that’s been mounting over the past year.

(Farm Journal)

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.

Glynn Tonsor , an agricultural economist with Kansas State University, says there are two major drivers of the price hikes for consumers.

“One reason is they still like protein,” says Tonsor. “Demand overall is strong, certainly compared to pre-pandemic levels. There is a little bit of weakness building, but demand pulls prices up, and the cost of producing meat is also up.”

(Farm Journal)

It’s not just meat causing price pain. Just before Memorial Day weekend, the national average price for a gallon of gas hit another new record of $4.59 a gallon, which is 47 cents above where prices were just a month ago, and $1.56 more than what drivers paid a year ago.

“We’re on the road in the summer more, so we may not be done with those higher gas prices is the point,” adds Tonsor. “Yes, it does eat pocketbooks. All else equal, if one input and your budget goes up, that eats into your discretionary income for other categories. And we are watching that.”

A JP Morgan Chase analyst recently projected gas prices could top $6 a gallon by August , and the thought of higher gas prices is already drawing concerns about the price pain eating into meat demand.

“There are some warning signs and a little bit of easing on meat demand for some consumers,” says Tonsor. “Those that haven’t changed jobs and haven’t had a pay raise may not have a wealth effect from the stock market, that group has the ones who are feeling the pinch the hardest, because they’ve taken a net pay cut in the last six to 12 months, due to inflation.”

(Farm Journal)

With concerns of a recession, the meat industry is watching the economy closely. Midan Marketing recently surveyed consumers and found 54% of them say they are purchasing about the same amount of meat products, while 32% are starting to buy less.

“We have consumers that are feeling the real tight crunch of the wallet. And what they’re doing is they’re trading down, they’re staying in meat right now, they haven’t traded out,” says Danette Amstein, principal, Midan Marketing.

Recession Talk

Shoppers may be purchasing more hamburger versus steak today, but the true test for meat demand may be in the coming months, as the economy battles historic inflation, especially with talk of a possible recession.

“Pessimism is pretty high with typical consumers as we speak,” says Tonsor. “In the past, that can be a barometer for recession coming.”

Tonsor says it’s not the only measure of inflation, but 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. That’s not a guarantee. But we need to watch that, because the meat industry is very prone to consumer incomes.”

Are Consumers Better Prepared for Inflation?

Warning signs of a recession are already gaining steam with various headlines. However, one major fund manager thinks a recession won’t have the same impact it did nearly 15 years ago.

Dawn Fitzpatrick, who is the chief executive and chief investment officer of Soros Fund Management, recently told Bloomberg that since the the U.S. consumer is in “extraordinarily” good shape, she thinks the economy will better weather expected rate hikes by the Federal Reserve.

“Rate increases will slow the economy and will impact inflation, but this economy has some shock absorbers built in,” Fitzpatrick said on “ Bloomberg Wealth with David Rubenstein. ”

Fitzpatrick argues even with wage growth behind the current rate of inflation, Americans are still flush with enough cash to pay down their credit card balances.

Beef Demand and Inflation

Tonsor says while there’s not one strong indicator a recession is imminent, domestic meat demand hinges on whether the U.S. economy runs out of gas.

“Beef demand, in particular, historically, is tied to consumer incomes. If we have a recession, we would anticipate weaker beef demand and maybe protein demand overall, but particularly beef demand,” says Tonsor.

Tonsor says typically a recession isn’t defined until after the fact, but watching consumer confidence, as well as shopping habits, are both solid indicators of what’s to come.