Agricultural economics report

Purdue University Agricultural Economics Department

February 1, 2024

Despite recession warnings and adverse precursors in 2022, the United States economy performed better than predicted in 2023.

Purdue University Department of Agricultural Economics experts annually provide insights into the national economy, trade, policy, and food prices for the year.

These findings were recently published in the Purdue Agricultural Economics Report’s annual outlook, including potential outcomes of a delayed farm bill. 

“As we enter 2024, the farm bill debate’s complexities persist. With federal spending cuts in focus, the projected cost of the farm bill will likely take center stage in agricultural committee deliberations this year,” said Roman Keeney, associate professor of agricultural economics at Purdue University and co-editor of the report. 

Inside the issue, Purdue agricultural economists predict an overall positive outlook for 2024 with modest GDP growth, low unemployment, decreasing inflation, and a potential lowering of interest rates.

Here’s a wrap-up on the U.S. economy

In December 2022, recession concerns triggered rapid interest rate hikes, but the predicted 2023 recession did not occur. By December 2023, positive economic indicators suggested a favorable outlook for 2024, anticipating moderated growth.

Despite the pessimistic sentiment, consumer spending rose by 2.3 percent above inflation in Q3 2023. Investment spending rebounded, and government purchases, particularly at the federal level, contributed to GDP growth. Both exports and imports declined, affecting trade dynamics.

In 2024, real GDP growth is projected at around 2.2 percent, with a potential slowdown in consumer spending and modest investment growth. Though experiencing a slight job growth slowdown in 2023, the labor market is expected to maintain a 4 percent unemployment rate by the end of 2024. Inflation is forecasted at 2.7 percent.

The Federal Reserve’s policy, marked by interest rate hikes in response to inflation, is expected to stabilize, with a median prediction of a 4.6 percent federal funds rate by the end of 2024. The three-month Treasury rate and the 10-year Treasury bond interest rate are projected to align with this trend, reaching approximately 4.6 percent and 4.4 percent, respectively, by December 2024.

An outlook for trade and policy

In 2023, the Russia/Ukraine war disrupted agriculture trade, impacting fertilizer and wheat markets, while oil and gas markets eventually normalized. U.S. trade policy offered large subsidies to semiconductor and electric vehicle industries, raising World Trade Organization concerns and affecting export-oriented agriculture. The 2023 WTO fishing subsidies agreement highlighted its ongoing role.

The 2024 U.S. Presidential election, featuring potential candidates Biden and Trump, holds implications for trade policy. Past policies, especially Trump’s, influenced agriculture exports negatively. Challenges for export-oriented agriculture include limited market access improvements, a shift in policy focus, and consequences of sector-specific subsidies. Despite positive developments, uncertainties persist, shaping the sector’s future amid evolving trade policie

Will 2024 bring a new Farm Bill?

In May 2023, the Congressional Budget Office projected a cost exceeding $1.4 trillion for a ten-year continuation of the 2018 Farm Bill, with nutrition programs claiming a significant share. The farm bill’s cost is poised to be a focal point in 2023 debates amid rising deficits, reaching nearly 7 percent of gross domestic product over the decade.

Farm bill priorities echo those of the previous year, emphasizing the total baseline amount to address diverse food and agriculture needs. Advocacy focuses on climate-smart agriculture, maintaining current crop insurance, and addressing concerns about direct farm payments. Integrating nutrition spending with farm income and agricultural conservation remains crucial for bipartisan support.

The outlook suggests new farm legislation might not take precedence until fiscal 2024 spending bills are resolved. Changes to mandatory spending programs could be negotiated during the budget process. Delays in federal spending bills will likely shift the farm bill debate into a challenging general election year, with potential scenarios ranging from constructive compromise to continued policy brinksmanship and uncertainty, potentially leading to the absence of a replacement farm bill by October 2024.

The Policy Analysis for the Economic Region will actively monitor and provide updates through ongoing policy briefs.

Food prices

In 2023, food price inflation slowed to 2.5 percent, the lowest since 2019. Prices for groceries rose by 1.2 percent, while food service increased by 4.9 percent.

Beef and sugar prices surged, with beef up by 8.8 percent due to high demand and low cattle inventories and sugar rising by 5 percent due to global droughts. In contrast, egg prices fell by 30 percent as Avian Influenza faded, and fresh vegetables and cheese products decreased 4.3 percent and 3.1 percent, respectively.

Despite easing food price inflation, the cumulative effect of inflation in recent years has left food prices 26 percent higher than in 2019. Consumer purchasing power has been eroded, impacting confidence. Economic conditions improved in the latter half of 2023, with historic Fed interest rate hikes slowing inflation. Overall economic growth led to increased incomes, with average wages rising by 3.6 percent through November, outpacing inflation for the first time since 2020.

Looking ahead to 2024, macroeconomic uncertainty persists. The Fed’s focus on reducing inflation raises hopes, but higher rates may impact economic growth, potentially leading to increased unemployment and slower wage growth.

While a predicted recession hasn’t occurred, uncertainties surround achieving a “soft landing.” The re-emergence of highly pathogenic avian influenza may impact poultry and egg prices in the food market. The USDA forecasts a continued deceleration in food prices in 2024, with a 0.6 percent decrease in Food at Home prices and a 4.9 percent increase in food away from home prices.

The dairy industry faces uncertainties in domestic and global demand. Global milk supply is expected to increase modestly, but geopolitical instability and strained trade relations may hinder demand growth. Key factors to monitor in 2024 include feed costs, labor availability, weather, inflation, macroeconomic concerns, and geopolitical factors impacting demand, especially potential “new” demand for dairy products

Farm financials

Farm incomes declined in 2023 compared to 2022; however, liquidity in the agricultural sector remains robust. Despite the income dip, bankers observe stable to slightly higher farmer repayment rates.

The loan demand is decreasing, indicating lower operating loans for the 2024 growing season. This implies that if farm incomes decline and cash flow becomes a concern, there is less debt that might pose issues. Interest rates are also on a downward trend, and if the Fed Funds Rate decreases in 2024, farmers can expect a similar decrease in the interest rates they pay.

Overall, even if the agricultural credit market faces setbacks, it remains well-positioned to support the agricultural sector.

Crop cost and return

Despite reduced production costs, margins are anticipated to remain narrow in 2024. However, rotation corn and rotation soybeans may break even on highly productive soil. Given the relatively high-cost structure and tight margins, assessing input and crop decisions meticulously becomes crucial. Producers are advised to develop crop budgets and enhance overall record-keeping practices.

Farmland values

The farmland market, which has seen robust growth in recent years, shows indications of potential easing price growth for 2024. Indiana witnessed record-high farmland prices in 2023, with top-quality land reaching $13,739 per acre. Although the growth was substantial, it was less pronounced than the previous year. Iowa and the broader Corn Belt also experienced a slowdown in farmland value increases, with the Federal Reserve Bank of Chicago reporting a deceleration in land value growth across its district. The recent surge in farmland prices was influenced by higher commodity prices and increased demand for nonagricultural land conversion, but rising borrowing costs have tempered this growth.

Cash rental rates

The contribution margin for rotation corn and soybeans is expected to rise in 2024, indicating potential upward pressure on cash rental rates. However, challenges such as the 2023 cash rental rate exceeding the contribution margin for rotation corn may exert downward pressure on rental rates for corn acreage. Farmers will likely highlight increased costs and concerns about lower commodity prices during negotiations for cash rent adjustments, creating a mix of positive and negative pressures in the cash rental market. While conditions vary, there appears to be modest positive price pressure in the cash rental market.

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