Ag Economy on Brink of Recession
Published: Friday, October 25, 2024
The following is from Ryan Hanrahan, farm policy news editor for the University of Illinois.
More than half of the 70 agriculture economists surveyed in Farm Journal's Ag Economists' Monthly Monitor believe that the United States agriculture economy is in a recession, while 75% of those economists surveyed think the ag economy is on the brink of a recession.
"Farmers are seeing heightened volatility in commodity prices as harvest season progresses," Farm Journal's Tyne Morgan reported. "The latest Ag Economists' Monthly Monitor from Farm Journal showed a slight rise in optimism compared to the previous month, but economists remain worried about the current state of the agricultural economy when compared to last year."
The 75% of economists who say the agriculture economy is on the brink of recession "is up from the 56% who responded that way in the previous month's survey," Morgan reported. "When asked if the economy was on the brink of a recession, 25% of economists responded with 'no.' It's clear not all economists are in agreement, but when asked to expand on why, economists said:
• "Financial health is weaker but still pretty strong."
• "For select crops and regions of the country farmers are facing significant financial pressure."
• "The cost-price squeeze facing the crop sector is severe and will have larger implications if it persists. Many crop producers were profitable in 2021 and especially 2022, so they had some ability to absorb a more challenging environment over the last two years. But that ability is running out, especially for producers who rent much of the land they operate or who are heavily indebted."
• "Over-production globally and exports are soft, while biofuel policy does not support consumption of surplus."
• "The farm structures across all farms does not suggest a recession. A higher portion of farms have off-farm income to support cyclical changes. Most farms have healthy balance sheets (thanks to increased land values), and there are positive returns in certain sectors of the industry supporting those that are diversified. Areas of the ag economy that will struggle are those that are highly or fully concentrated in row crops, are full-time commercial operations between 1,000 and 2,000 acres, and have a high proportion of cash-rented acres."
• "Highly-leveraged producers are feeling economic pain already. If supplies continue to remain large, lower prices may last for a longer period of time and could result in highly-leveraged producers leaving the industry."
• "The livestock sector, specifically cattle and dairy, is performing well relative to hogs and the crop sector."
Purdue University's Michael Langemeier, one of the economists who said the ag economy is in a recession, said that "I define a recession as this is one of the worst years we've seen in the last 20. So my short answer to the question is yes. Just looking at where the price is currently at, this is about the worst year since 2007, which was the start of the ethanol boom," Morgan reported.
In addition to the agriculture economists, AgriNews' Erica Quinlan reported at the end of last week that "farmer sentiment about the ag economy reached its lowest levels since 2016, according to the Purdue University/CME Group Ag Economy Barometer."
"'The continued drop in the barometer reflects deepening concerns among farmers regarding expectations for farm income in 2024 and 2025,' said James Mintert, the barometer's principal investigator," Quinlan reported. "It's notable that producer sentiment dropped back to levels last seen in 2016, when the U.S. farm economy was in the early stages of an economic downturn."
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