CoBank Releases 2025 Year Ahead Report – Forces That Will Shape the U.S. Rural Economy

The U.S. continues to benefit from solid economic growth, low unemployment and moderating inflation. From today’s vantage point, the U.S. economy seems likely to continue on that trajectory into 2025. However, the outlook for the rural economy is more volatile and uncertain. Rural industries are disproportionately exposed to federal policy, and the outcome of the 2024 election cycle promises to bring significant changes in the federal government’s approach to everything from international trade and immigration to energy exploration and rural economic development.

According to a comprehensive year-ahead outlook report from CoBank’s Knowledge Exchange, the high level of policy uncertainty facing rural industries adds to their already long list of headwinds and challenges.

The CoBank 2025 outlook report examines several key factors that will shape agriculture and market sectors that serve rural communities throughout the U.S. Here are just a few samples from the report:

U.S. Economy: A New Economic Era Begins

Most economists are forecasting 2025 U.S. GDP growth around 2.5%-3.0%, essentially the same as today. However, those forecasts are based on rather mild assumptions on forthcoming policy changes. When taken in isolation, President-elect Trump’s proposed policies — tax cuts, decreased labor supply and tariffs on imported goods — are all inflationary. Consequently, longer-term interest rates have already edged higher, and the market has downshifted expectations for further Fed rate cuts in 2025. There is a good chance the proposed tariffs and the crackdown on undocumented immigrants will be more disruptive than markets have priced in.

Grains, Farm Supply & Biofuels: Policy Uncertainty Weighs on Exports, Biofuels

A strengthening U.S. dollar, combined with the potential for trade disputes and record-large South American crops, weigh heavily on the outlook for grain and oilseed prices in 2025. Crop input decisions will be evaluated much more closely with a focus on inputs that provide the greatest return on investment. The bearish outlook for oil prices coupled with uncertainty over U.S. biofuel policy under the new administration, also clouds the demand outlook for biofuels.

Animal Protein: Rising Margins Improve Prospects for Growth

Falling feed costs and rising producer margins have renewed expansion interest in animal protein segments. However, labor, construction and land costs remain elevated, tempering expectations for any meaningful supply growth in the near term. U.S. beef cow herd expansion is not expected to start until 2026 or 2027. The smaller herd will further support higher feeder and fed cattle prices in the coming year. With consumers now pushing back on beef prices already near historic highs, packer margins will remain under pressure well into 2025.

Dairy: Record Investment Will Continue to Grow the Category

The U.S. will see an unprecedented $8 billion in new dairy processing investment through 2026. Some of the new plants are poised to come online in 2025, with about half of the investment in the cheese category. The expected surge in cheese and whey output will likely put downward pressure on dairy product prices in the second half of the year. Sourcing additional milk supplies to fill new plant capacity is a looming question. 2023 and 2024 will go down as the first back-to-back years since the late 1960s that U.S. milk production took a downturn. On the flip side, higher component levels in farmgate milk, largely butterfat and protein, have lifted finished product yields.

Food & Beverage: Health and Nutrition Take Center Stage

The headline news for food, beverage and consumer packaged goods in 2025 is President-elect Trump’s nomination of Robert F. Kennedy Jr. to lead the Department of Health and Human Services. Kennedy’s purported goals include eliminating ingredients banned in other countries and “getting the chemicals out” of America’s food supply. Meanwhile, consumers’ renewed focus on their health and the popularity of GLP-1 weight-loss drugs are showing signs of impacting food manufacturers. GLP-1 users purchase around 8% less food compared with average consumers, according to J.P. Morgan research. Food and beverage manufacturers’ concerns about volume attrition are likely to continue well into 2025.

Read the full report, The Year Ahead: Forces That Will Shape the U.S. Rural Economy in 2025.

EDITOR’S TAKE:

The CoBank report places a great deal of emphasis on the uncertainty related to the new incoming administration. Looking back to the first Trump Administration, one thing stands out – farmer/rancher net farm income was at record highs. Although the emphasis in 2025 and beyond in Washington, D.C. will be on downsizing government spending and waste, we expect farmers/ranchers to be treated very well. As for the overall outlook in the ag economy, it appears to be favorable. Grain farmers will face the toughest market conditions and likely scrutinize their spending more than livestock or specialty crop producers. Livestock and dairy producers will be in the most favorable position from an income perspective. But don’t hesitate to reach out to all the farmers/ranchers in your area. Be sure to keep your inventory on AgTruckTrader.com® up to date.