*This is the first article in our 2025 Southwest Economic Outlook series. Oklahoma State University and OSU Extension Service, and Texas A&M University and TAMU AgriLife Extension Service economists weigh in on the 2025 outlook. The digital Southwest edition will be available online Friday, Jan. 7.

The U.S. economy is projected to be stable in 2025, with inflation back to 2%, unemployment hovering near 4%, and steady projected real gross domestic product (GDP) growth of around 3% according to the Kansas City Fed. The global economy is also expected to grow in 2025, creating demand for U.S. agricultural goods in world markets. However, challenges persist in price volatility, uncertainty in labor policy, and public debt levels.  

Inflation has been a major concern for agriculture and the general economy in the last three years. In June 2024, the consumer price index dropped month over month for the first time since 2020, according to Bureau of Labor Statistics data. In the first half of 2024, average inflation returned to 2019 levels. This slowdown in inflation increases the likelihood of continued interest rate declines by the Federal Reserve.   

Unemployment

Similarly, unemployment has been trending down since a historic peak in May 2020 and is nearing 2019 levels, with the October 2024 unemployment rate at 4.1%, according to the Bureau of Labor Statistics. Long-term unemployment (27 weeks or longer) is also down to 2019 levels. However, labor in agriculture continues to face challenges. Namely, the average age of farm labor has been trending up over time, driven primarily by the increasing age of foreign-born farm workers. 

Real wages (meaning the impacts of inflation have been taken out) for farm labor have increased slightly for non-supervisory roles and will likely continue a slight upward trend. But farm wages are still well below non-farm wages for non-supervisory positions. In 2023—the last year of available wage data—farm worker wages were only 61% of non-farm wages, according to the USDA Economic Research Service. Average national wage rates for non-farm workers were $16.36 for packers/packagers and $18.47 for equipment operators.

Farm labor in horticultural and specialty crop operations demanded the highest portion of operating expenses across all agricultural enterprises. Dairy labor costs represent the lowest portion of farm labor costs across all agricultural enterprises. While the immigration status of farm labor is notoriously difficult to measure, the USDA Economic Research Service estimates about 42% of farm workers do not have a legal immigration status. Eighty-three percent of those farm workers are settled in a single location and have been working at a job within 75 miles of their home. Should labor policies under the new administration result in a decline in the available agricultural workforce by removing foreign-born farm workers, the current wage gap may be costly to close for agricultural producers.  

Exports

In an increasingly global market, foreign demand for U.S. exports is critical for sustaining profitable farm prices. While a strengthening dollar is generally a positive result of an improving economy, it can have a downside for agriculture. The dollar has been on the rise since October, and some experts are predicting a continued climb for 2025, which could put a damper on foreign demand for U.S. commodities. Trade negotiations and tariffs are both expected to be a part of the incoming administration’s agenda. Should we see a much stronger dollar combined with retaliatory tariffs imposed on exported U.S. commodities, expect farm prices to struggle. 

Declining profit margins

The most concerning impacts to the agricultural economy have been declining profit margins as production costs remain above the historical average, while commodity prices soften particularly for grains. Beyond the farm balance sheet, the inflation among consumer goods and ongoing high prices for services such as healthcare place additional strain on farm families. In 2023, family living expenses, according to the Kansas Farm Manager Association annual report, were $90,688 as compared to $74,061 in 2019. This increase can be attributed to several causes, including increased insurance costs for home and vehicles as well as higher costs for food and clothing.  

The general economy is stable going into 2025. Consumption patterns are returning to normal, while supplier pressure is easing, slowing inflationary pressures from recent years. A stable economy and easing inflation make possible reductions in interest rates, but with varying expectations on where it may land for 2025. Tax, trade, and immigration policies of the new administration are the key factors to watch, with potential impacts particular to agriculture in the coming year.