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A reset in agriculture seems to be underway. For 10 straight months, the Ag Economists’ Monthly Monitor has tracked the health of the ag economy through the lens of ag economists. The anonymous survey is a gauge of 70 economists from across the country. In March, economists’ views on the ag economy grew weaker, but it’s the erosion in the future outlook that is sprouting fresh concerns.
“I think we just have to continue to watch the downside,” said Scott Brown, interim director of Rural and Farm Finance Policy Analysis Center (RaFF) at the University of Missouri, who also helps author the Ag Economists’ Monthly Monitor. “I think it's certainly more negative as we look ahead, but if we plant a lot of corn and we get trend yields, I think I know the direction of corn prices, and it’s perhaps even lower than where the economists have been today.”
Economists’ views on the net farm income picture took a nosedive in February but held steady in March around $117 billion. The projection is a sharp drop from the $160 billion USDA forecast for 2023 and a 42% fall from the record set in 2022.
“We think farm income does drop very sharply in 2024, but it’s just back down to the levels we saw in 2020 and remains above the levels we saw between 2015 and 2019,” said Pat Westhoff, director of the Food and Policy Research Institute (FAPRI) at the University of Missouri.
“Low row crop prices will depress farm incomes in the Midwest in 2024,” said one economist. In 12 months, it will be interesting to see how much working capital erosion has taken place and how serious of a problem that becomes.
Forecasts show margins will continue to get squeezed, but will it be a soft landing or a hard fall? It’s a debate that will continue to play out in 2024.
“I’m still in the soft-landing side of things, but I want folks to do enough risk management to hopefully prevent the hard fall,” Brown said.
“I think if things play out the way we have them currently projected, it’s a relatively soft landing” Westhoff said.
Cow-Calf Producers in the Driver’s Seat
While the challenging forecasts continue to haunt row crops in 2024, the Ag Economists’ monthly Monitor continues to highlight the one bright spot in the ag economy this year.
“The outlier for me is cattle,” Brown said. “I think cattle prices, frankly, could get even higher. Whether that’s good in the long run for us, in terms of some pieces of the industry that we need, like processing capacity, we’ll have to wait and see, but cow calf producers are going to be in the driver’s seat for the next year and a half to two years.”
The March Monthly Monitor asked economists what two factors will drive agriculture’s economic health today and in the next 12 months.
Economists say declining prices for many commodities, with a mixed impact of higher cattle and hog prices; higher production costs including inputs, interest rates and land rents; as well as concerns about global economic growth and regulatory uncertainty.
What could impact crop prices over the next six months? Economists say supply is the overriding factor for grains.
“If we have an average crop in 2024, we’ll be looking at lower prices for most of the major commodities as the most likely outcome. So that tends to push down not just farm receipts but also net farm income this year as production costs remain relatively high overall,” Westhoff said.
Digging into Demand
The strength in demand hinges on the health of the U.S. economy. Anderson thinks while there are mixed signals with the economy, fundamentally, the signals are working in favor of beef and meat demand.
Turbulent Times for Pork
Hog producers are coping with a plethora of challenges. The year 2023 produced the worst margins on record. Now, consolidation concerns are setting in as pork processing plants have already made closure announcements, with economists expecting more on the way.
“We expect 2024 to be a better year for producers’ margins,” Brown said. “If you look at the Month Monitor’s forecasts for corn prices, back in December, we were suggesting 2024/25 price of a little more than $4.70. We’re sitting below $4.50 in the March survey, so cheaper feed costs should help on the productivity side.”
Clarity on China
China continues to be a major question mark for grain and meat demand. The country recently announced it will sharply expand its budget to stockpile grains and edible oils to help improve food security; however, not all economists are sold on that motive. The Monthly Monitor asked economists if they think there are other motives at play.
“Yes, helping internal prices for farmers,” one economist said.
“No, I actually do think that China likes holding large stockpiles of feed grains. Now that grain prices have fallen, they are taking advantage of low prices to build stocks,” another economist responded.
“China is preparing for the possibility of increased conflict with the U.S. after changing the wording contained in its policy paper regarding Taiwan,” said another economist in the anonymous survey.
EDITOR’S TAKE:
Farmers and ranchers during the past several years have experienced unprecedented financial success, even setting all time records for net farm income in 2022 and 2023. Like most great markets, they eventually ebb and flow with changing production patterns, consumer demand shifts or many other market influences. Such is the case for 2024, the market is shifting for some agricultural products while there is continued strength in other segments of agriculture. Farmers/ranchers, like most businesses, adjust and adapt to those changing conditions. As the article points out, net farm income may drop in 2024 but, in reality, simply return to pre-pandemic levels. Row crops and pork will likely have a tougher challenge this year while beef remains strong. As for the hard or soft landing – the consensus seems to be soft landing. A recent survey of bankers suggests that the overall farm economy remains strong. Farmers/ranchers may be more cautious with their purchasing decisions in 2024, but year after year they still purchase nearly the same amount of inputs, be it fertilizer, equipment or trucks. It has never been more important to have your name and inventory in front of those farmers/ranchers in your area than it is today. When they do decide to purchase make sure you are top of mind….
