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 price 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 in 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.
EDITOR’S TAKE:
As we recently reported, ag economists are pretty evenly divided on whether ag is in a recession or not. Using this list perhaps you can be the judge of what is happening in ag in your area. If I paint with a larger brush, there are several of the indicators that might point to a recession. That said, there are more indicators that do not point to a recession in my opinion. For instance, I would make the case that input prices are declining; ag exports are picking up again; overall debt is low; farmland values remain strong, thus, making balance sheets stronger; and we are not seeing signs of widespread financial stress. Therefore, I rest my case and ask what is your opinion? All that said, it is always a good time to get farmers and ranchers into your dealership with those pre-harvest tune up and oil change special offers. Better yet, if you have a mobile unit, take your service and parts to them. Either way, help them prepare for what is arguably the busiest time of the year for agriculture!
