The year 2024 was a tale of two economies in agriculture. The row crop and fruit industries, which tend to be monocultures, are in the third year of a downturn, now without government assistance. According to the FINBIN data published by the University of Minnesota, government payments in their database exceeded 60 percent of net farm income in 2020, but were down to 26 percent in 2023. Those in the livestock sector, specifically beef and dairy, are observing stronger economic fortunes. Solid demand inside and outside of the United States, lower feed costs, and dry weather have resulted in supply and demand imbalances that have been favorable for strong profits.

Defying the stats

Despite a trend of leading economic indicators pointing toward a recession, the U.S. economy is still performing. What is most noticeable are the gains in paper wealth with the Dow Jones Industrial Average increasing from 30,000 points to over 45,000 points just this year. Bitcoin has reached record levels above $100,000. In some areas of the country, real estate and housing have observed noticeable gains. However, when one takes a global view, many economies including China, India, and Europe are in a slow growth mode. Despite efforts by the Chinese government to boost consumer confidence by lowering interest rates and providing stimulus to localities, paper wealth decreases are occurring in Chinese stocks and real estate.

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Commodity flow

One half of the global population participated in a major election this year. The results of the elections would suggest that de-globalization mode is full steam ahead. The wars in Europe and the Middle East that are supported by Western nations and Communist bloc countries will be influenced by which side has the most resilience economically and the greatest military support. Interestingly enough, these wars have not greatly impacted the flow of commodities as sanctions and efforts to use financial pressure have been relatively ineffective.

Cash rents

In my discussion with lenders, producers, and farm management consultants, economic losses are mounting, particularly in the crop sector. When accrual adjustments are made to inventories, accounts payable, accounts receivable, accrued expenses, and prepaid expenses, six to seven figure losses occur. The expense that appears to be most resilient is cash rents. This is a tug-of-war between renters and landlords, often resulting in negotiations favoring the larger operations leading to the rapid consolidation of this sector.

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Interest rates

Interest rates are starting to decline; however, by how much and how quickly will determine the fate of producers with variable interest rate debt or maturing fixed rate loans with interest rates that are up for re-pricing. There appears to be an acceleration of transition of farms and ranches as the older generation cashes out. This is resulting in both financial and mental stress as existing family members carrying on the agricultural legacy struggle to buy out nonfarm siblings, who often demand and expect inflated prices that are not economical given today's prices and profit expectations. This is a variable that leads to fragmentation of assets and further consolidation.

Management is key

2025 will be the year of the fork in the road and financial performance splits. Generally speaking, those that have a management mindset and execute a game plan in production, marketing, risk management, and finance place the odds in their favor for profits. However, competition from the Global South is much more apparent and will be noticed more in the next quarter century. Agriculture is analogous to many industry segments that are in transition. Technology, innovation, and common sense are attributes that will bode well as the future unfolds.

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2025

The team and I wish everyone well for the holidays and perhaps we will see you on the road. Best wishes from myself, Kendra, Alicia, Angela, and Paula for a prosperous and healthy New Year. See you January 6 for the next Road Warrior of Agriculture article.