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.
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.”
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 fertilisers 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.
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.”
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 re-establish 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 the 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.”
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.”
What else are economists saying about the ag economy? You can view previous Ag Economists’ Monthly Monitor updates here.
In conclusion, while there are challenges ahead, there are also opportunities for strategic farmers to navigate the shifting landscape of the agricultural economy. By making informed decisions and preparing for potential changes in commodity prices, machinery purchases, and technological upgrades, farmers can position themselves for success in the upcoming year. It’s essential to stay abreast of market trends, economic indicators, and consumer demand to make sound choices that will benefit their operations in the long run.
