The potential for a workforce shortage looms as large, long-term problem for the U.S. economy, according to Cobank who shared findings from its new quarterly report. In addition, the shifting views on immigration paired with an aging U.S. population and falling birth rates has the potential to create a declining and ultimately insufficient labor supply, a company release stated.
“Due to the sharp decline in U.S. birth rates since the global financial crisis, we are poised to enter a long, potentially permanent period in which the number of retirees will outpace the number of native-born workers entering the labor force,” said Rob Fox, director of CoBank’s Knowledge Exchange. “And the declining supply of workers will drive wages higher causing inflation and hurting our overall global competitiveness.”
While the U.S. economy continues to perform reasonably well by most metrics, the labor market of the last two years seems to be slowing. Unemployment rates edged up to just above 4% in June and has risen 0.7% since January 2023. An increase in the unemployment rate of 0.5% over a one-year period has historically triggered a recession, however the recent uptick is highly unlikely to produce a similar result. It is more reflective of the labor market returning to its historical norms following a period of extreme tightness, according to the Cobank release.
Immigration policy affects the agriculture industry in multiple ways as many farm laborers are not native born.
In recent national polls, immigration has surfaced as a greatest issue than the economy, according to Cobank. A set of more moderate federal policies that allows for a steady flow of legal immigration will likely be the only way to maintain a stable labor force, but the current bitterly divided political environment may prevent that outcome.
Steady decline in job growth also presents concerns for the U.S. economy. Monthly job openings have dropped by more than one-third since mid-2022. While employers have not stopped hiring, they are beginning to take a more cautious approach. Any further weakening in labor demand could trigger an additional slowdown in hiring and economic growth.
The agricultural sector continues to face economic headwinds. Increased crop acreage in the U.S. and rising production in South America have pulled grain and oilseed prices lower. Elevated farming costs are also contributing to sharply lower row crop profitability. Livestock producers will fare relatively better, but also face headwinds from the strong U.S. dollar and increasing trade challenges.
Animal Protein & Dairy
As expected, U.S. beef production is in decline for the year. But it is not falling as fast as once projected. Cattle spent extra days on feed during the second quarter, resulting in carcass weights averaging 10 pounds heavier than Q1. Profits in the value chain have transitioned away from beef to cattle, softening packer margins and boosting revenues for producers and feedlots.
Soft feed prices and firm hog values have bolstered profitability among pork producers. Improved processor demand and strong wholesale cutout prices led to a prolonged stretch of elevated hog prices. An uptick in consumer demand for value-based protein appears to be supporting retail pork sales. U.S. pork exports comprised 31% of all pork produced during the first four months of 2024, a record high.
Chicken continues to be the default protein choice for consumers seeking nutrition, convenience and value. The U.S. broiler industry is hitting those marks in stride with consumer-friendly prices and innovative new offerings designed for quick and easy meal preparation. Broiler integrator margins are improving as markets heat up and input prices fall.
U.S. milk production fell for the 11th straight month in May. However, combined butterfat and protein production posted steady gains over the same 11-month period. Low cheese prices on the spot CME market boosted international sales. U.S. cheese exports exceeded 100 million pounds in March, a record high for one month, and then again in April and May. Highly Pathogenic Avian Influenza continues to affect cows in at least a dozen states. Until a vaccine reaches the market, the dairy industry is facing lower milk output from affected herds.
Grains, Farm Supply & Biofuels
The USDA recently reported higher-than-expected totals on corn acreage and stocks, which should provide a buffer against any losses from recent flooding in key growing regions. Corn prices ended the quarter 11.5% lower. Soybean crush continues to reach record highs, but record imports of canola, tallow and used cooking oil have softened soybean oil prices and weakened crush margins. The U.S. wheat harvest is moving at a fast clip with farmers reporting much better yields than last year’s crop.
Farmers entered the 2024 growing season with higher financing needs to cover elevated input costs. In June, USDA forecasted crop production costs would remain relatively stable through 2025, while crop prices have dropped considerably since 2022. Sustained high fertilizer prices amid lower new crop values may push some farmers to delay fall applications and additional purchases.
Lower corn and natural gas prices have helped boost ethanol production margins. Domestic ethanol demand has tracked lower in recent months, in tandem with flagging gasoline demand. However, export channels offer promising demand for U.S. ethanol with Canada emerging as the top new market.
