As Farmers Look to Cut Costs for 2025, Machinery and Technology Could Take the Biggest Hit

Fri, 31 May 2024 16:24:27 GMT

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.

(Farm Journal)

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.”

(Farm Journal)

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 fertilizers 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.

(Farm Journal)

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.”

(Farm Journal)

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 reestablish 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 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.”

(Farm Journal)

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,” Brown says.

What else are economists saying about the ag economy? You can view previous Ag Economists’ Monthly Monitor updates here .

Analyst Explains Why EU Plays a Big Role with China's Pork and ASF

Wed, 11 Nov 2020 05:07:02 GMT

The lean hog markets are seeing huge swings the last couple of trading sessions. Lean hogs opening in the green during Thursday’s trade session as well.

There are a lot of factors as to why the market has fluctuated. There is an outbreak of African swine fever reported in South Africa this week. In addition, the National Pork Producers Council is cancelling the 2019 World Pork Expo as a cautionary measure to prevent the spread of ASF.

One analyst says there are other reasons driving the market too. One reason is a redistribution of hogs in the United States, especially with the new additional plant in Iowa.

“There are a lot of hogs that were initially programmed to go to that plant that had been in the open market that were pulled off once they started processing,” said Don Close, Senior Animal Protein Analyst with Rabo Agri Finance “That combined with the building and pent up energy with the uncertainties with China, when those two factors arrived at the same time, was the stimulus for the earlier than expected rally in hog prices.”

Close says 70 percent of the pork imports into China are currently coming from the European Union. That plays a major role in the ASF story.

“If we see any complexities or worsening with the disease going into Western Europe, it could cause an incredibly bullish scenario for pork in the United States,” said Close.

AgDay Betsy Jibben talks with Close in this clip.

Stocks Drop: Is Ag Economy at Risk?

Wed, 11 Nov 2020 04:45:54 GMT

The U.S. stock market starting the week in a free fall. The Dow Jones Industrial Average dropping some 600 points Monday. Both the S&P 500 and Nasdaq Composite Index declining significantly as well. Crude oil prices are down and the dollar index is on the rise along with interest rates.

“Are we you know are we going to see a recession?” asks Tyne Morgan in a recent interview with University of Missouri Agricultural Economist Scott Brown at the Farm Journal’s MILK Business Conference .

“I don’t see too many signs yet that make me too concerned here in the very short run,” says Brown. “In fact, we continue to see unemployment rates at the lowest levels in decades.”

Brown, the director of strategic partnerships for the University of Missouri’s College of Agriculture, Food and Natural Resources (CAFNR) says wage growth is also on the rise.

“Whether wage rates can continue to expand as we move forward I think is a little less important than just getting continued increases in job numbers,” says Brown. “I think that is going to be super important to continue into 2019.”

Brown says from an agricultural perspective there are several “canaries” to be watching.

“I think number one you can look at beef,” says Brown. “All of a sudden if consumers start buying [less] because they have less money in their pockets that could be really harmful to the beef industry.”

Brown that’s especially true as long as supplies remain large. Pork is in a similar position.

“We do not need a domestic economy that slows down when we want to move record amounts of pork potentially to these domestic markets,” says Brown. “It seems like with beef and with pork it’s been the domestic markets that have been so strong [in helping] prices.”

Brown says that need to continue in order for protein prices to remain at current levels.

Futures Prices

As Farmers Look to Cut Costs for 2025, Machinery and Technology Could Take the Biggest Hit

Farmers Forced to Cut Costs

Economists Paint Mixed Picture on Price Outlook

Beef Prices and Demand

Pork Price Outlook

Analyst Explains Why EU Plays a Big Role with China's Pork and ASF

Stocks Drop: Is Ag Economy at Risk?