Posted on December, 9, 2024 at 04:38 pm
USDA had at least a little better news last week about producer profit prospects for 2024 – increasing its forecast for net farm income modestly.
But my models aren’t nearly as optimistic – and farmers could suffer a much bigger hit in 2025, slashing returns to the lowest level since the pre-pandemic year of 2019. The only bright spot, if you can call it that, is uncertainty. Not only are this year’s results still very much up in the air, but 2025 remains a blank canvas.
For the record, the Economic Research Service now pegs 2024 net farm income at $140.7 billion, up nearly $750 million from its previous forecast in September. My estimates are just $133 billion, though these could change slightly on Dec. 10, when USDA updates production and price prospects for the 2023 and 2024 marketing years.
Even bigger adjustments could be coming in January, when the agency issues final monthly production figures for crops farmers harvested this fall.
But fallout from this year’s election, including threats of new trade wars, cloud any predictions. Final totals for 2024 could change. And returns for the coming year hinge on weather and economic variables that are still anybody’s guess.
Nonetheless, farmers farm and forecasters forecast. So, here’s what the foggy horizon looks like from my vantage point on the lakefront in Chicago.
Some of the biggest changes for 2024 could come on the crops side of the ledger. Feed grain receipts could fall and oilseed crops rise, though lower feed costs would boost livestock returns.
USDA won’t provide its first forecast for 2025 farm income until February. But based on the government's long-term forecasts and market expectations, adjustments for next year could include higher expenses and lower receipts. That’s especially true on the crops side, where revenue could plummet by more than $25 billion, paced by falling grain and oilseed receipts.
Animal agriculture could see a modest gain in its receipts, but crops face higher costs. Manufactured inputs, including power, fertilizer, fuel and chemicals could all be higher, while inflation’s impact lingers in personnel costs and overhead. The bottom line: Net farm income could fall to $85.9 billion, down nearly 40% from 2024.
But forecasts, like the weather, change – a trend seen repeatedly in recent history. So, I won’t try to predict China’s response to new tariffs, much less who will feel what penalties from the new administration or what their longer-term impacts will be. Still, a couple of big assumptions in my forecast for 2025 could easily change.
My forecasts are derived from USDA’s so-called “baseline” tables, which project farm program spending for the next decade as part of the government’s budgeting process. They include acreage, yields, usage and prices.
Acreage. The baseline put out in November has soybean acreage falling to 85 million, with corn rising to 92 million, though returns from soybeans would be slightly better. The market tends to track the ratio of new crop soybean to corn futures for perspective. This marker eased slightly in favor of corn last week, approaching 18-month lows, but remains close to neutral.
Yield assumptions. Now 182 bushels per acre for corn and 52.5 bpa soybeans, production numbers also could change depending on those final 2024 yields out in January.
Demand remains highly variable, depending on weather and economic growth around the world. All of these factors play into prices farmers receive. The baseline assumes $10 soybeans and $3.90 corn.
U.S. stock prices kept making new highs this year, and bitcoin finally topped $100,000 last week, with both markets encouraged by President-elect Donald Trump’s team embracing crypto-currencies and deregulation.
Another type of hug might be in store for the Federal Reserve and its chairman, Jerome Powell, who then-President Trump appointed to the central bank in 2017. While Powell tried gamely to proclaim the central bank’s independence last week, persistently high interest rates rank near the top of Mr. Trump’s pet peeves.
So, the first test of the bank’s freedom could come quickly. The Fed holds its next meeting on monetary policy Dec. 17-18, when participants’ projections for unemployment, inflation and growth will be updated, too. Betting on Federal Funds futures tipped another one-quarter of 1% cut, dropping the target for short-term rates to 4.25% to 4.50%, with two or three similar reductions ahead for next year.
Powell and the Fed stress they are “data-dependent,” but the meaning of that term leaves plenty of wiggle room. Friday’s employment report for November had ammunition for both hawks and doves on the bank: The unemployment rate ticked higher to 4.2%, but jobs growth and wages also continued to improve – a jump ball if there ever was one.
Broad measures of U.S. stock prices, like the closely watched S&P 500 Index, set another record high Friday, buoyed by expectations of higher earnings. Yet, “black swan” surprises could pop up any time.
Ukraine, the Middle East, Taiwan and other unknowns increased market perceptions of “tail risk.” That is, worries about extremes happening at both ends of the price spectrum – up and down – are on the rise, a good gauge of market uncertainty that’s suited to a new president known for surprises.
Source: Farm Progress