For the remainder of 2024 into 2025, the outlook for the U.S. economy is positive, but not without challenges. The end of 2023 saw inflation spike back up suggesting that the normalization of inflation will take longer than originally projected.
Year-over-year core inflation is projected to be 3.5% for the balance of 2024, slowing to 2.5% by fourth quarter 2025.
A softening job market is helping lower inflation. The April jobs report showed unemployment rising to 3.9%, after holding around 3.75% in the second half of 2023. The unemployment rate is anticipated to rise to 4% by fourth quarter 2024 remaining there throughout 2025 due to stabilization of the job market at 120,000 - 130,000 job gains each month.
The housing market is sending mixed signals. Interest rates rose to over 7%, after dipping to 6.6% earlier in 2024. Despite new listings improving the available inventory, potential buyers are often choosing to stay with their lower rate mortgages. Sales of new single-family homes improved from the end of 2023 into first quarter 2024.
Congress passed a full-year fiscal funding package in March, five months after the 2024 fiscal year started. Looking ahead to the 2025 fiscal budget, a timely resolution again appears unlikely. The 2024 election projections forecast continuing divided government. A resulting compromise may include reduction of discretionary nondefense spending, with growth in defense spending.
Global Economic Outlook
Global economic activity has been surprisingly resilient through the global disinflation of 2022 and 2023. Growth in unemployment and income stability, along with greater than expected government spending, as well as household consumption, have defied warnings of stagnation and global recession. This is despite central banks rate hikes to restore price stability and curb inflation. Global headline inflation is expected to fall from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025 with advanced economies returning to their inflation targets sooner.
As global recession fears cool, the central banks may pivot their focus to reduction in interest rates and tightening fiscal policy aimed at curbing high government debt, potential increase in taxes and reduction in government spending which would likely put pressure on economic growth.
Although the global economy is approaching a soft-landing, risks to that landing remain, including the risk of new geopolitical tensions. Ongoing conflicts continue to put pressure on supply chains preventing the flow of goods and services including food and oil. Slower growth in China, and its troubled property sector, could put further pressure on its trading partners exacerbating China’s economic woes. High interest rates are having a larger than anticipated cooling effect, as households have depleted savings accumulated during the pandemic and are now contending with climbing debt levels causing financial stress.
Agricultural Economic Outlook – May World Agricultural Supply and Demand Estimates (WASDE)
Corn: May’s report for 2024/2025 U.S. corn shows larger supply, greater domestic use and exports, but overall higher ending stocks. The crop outlook projected at 14.9 billion bushels is down slightly from last year. The 2024 crop yield is projected at 181 bushels per acre based on weather adjusted yields assuming normal planting projections and summer weather. Higher domestic use is driven up by feed usage as supply is large and prices are lower. The U.S. is projected to export an additional 50 million bushels of corn in 2024/2025 up to 2.2 billion because of lower exports by Argentina, Brazil, Russia and Ukraine. If realized, this will make the U.S. the largest exporter of corn for the second year running. With projected supply increases outpacing increases in domestic usage and exports, ending stocks are projected to increase 80 million bushels and raise stocks to the highest levels since 2018/2019. Globally, ending stocks of corn and coarse grains are projected to be slightly lower with higher ending stocks in the U.S. offset by declines in Brazil and Ukraine. These estimates adjust the season average farm price to $4.40 per bushel, 25 cents per bushel lower than the 2023/2024 crop.
Soybeans: The U.S. soybeans outlook shows higher crush and exports, but also a greater supply which outpaces those increases. Increased supply is based on a projected crop of 4.45 billion bushels, a 285 million increase, coming from additional acres and trend yield outlook. Crush is projected at 2.43 billion bushels as the demand is higher for soybean oil as a biofuel seedstock. U.S. soybean meal is projected at 17.3 million short tons, which is 21% share of the global market, up from the 5-year average of 19%. Exports of U.S. soybeans are projected 125 million bushels higher, up to 1.83 billion bushels due to reduced Brazilian harvest. U.S. ending stocks are projected at 445 million bushels up 105 million bushels from last year. These estimates adjust the season average farm price to $11.20 per bushel compared to $12.55 per bushel for the 2023/2024 crop.
Dairy: The US dairy herd continues to shrink. USDA reported a dairy cow inventory of 9.34 million head in April (down 74,000 from a year ago). A scarce heifer supply has also driven up the cost of replacements to record high levels as high as $3,750/head. This makes it difficult to expand cow numbers in the near future and requires more capital for dairies not raising their own replacements. Producers who do not want to pay high prices for replacements can keep low producing cows in the herd, effectively lowering cull rates, or milk fewer cows. From September to March, producers did both as the dairy herd shrank by 30,000 head and dairy cow slaughter was 216,000 head lower during this timeframe in the prior year. High heifer prices may encourage producers to breed a higher percentage of their herd using sexed dairy semen, resulting in more dairy heifers ready to enter the milking herd in three years. The downside would be losing sale of crossbred beef calves that are selling up to $750-$850 per head at birth, while committing to two years of additional costs of raising heifers to maturity.
Producers saw a significant jump in Class III prices in May compared to the first four months of the year, which averaged $15.77/CWT. The current Class III quote for May is $18.56 and remains $19.00 - $19.75 through 2024, bringing the overall 2024 Class III futures average to $18.28. The higher-Class III price and narrower spread between Class III and Class IV should help boost revenue for producers. Class IV prices have averaged $19.86/CWT for the first four months of the year and the Class IV futures average for the year is $21.14. The jump in both Class III and Class IV prices compared to 2023, along with the drop in feed costs should bode well for producers in 2024.
Despite precautions, avian flu is continuing to spread across dairy herds. The first positive case occurred in Texas and according to official counts, cows from 42 dairy herds across nine states have tested positive for the disease. To date, Michigan has had 15 positive cases all tracing back to the original case in Texas. With such limited data, it is impossible to know how significant the impact will be on milk production. Because products are pasteurized inactivating bacteria and viruses before entering the market, there are currently no concerns about the safety of the commercial milk supply.
Chicken: Live costs continue to moderate from last fall and are expected to remain subdued over the near term which, in turn, is helping to increase industry profitability. Regarding production, most of 2023 saw YOY increases in production of ready to cook (RTC) chicken which exceeded demand resulting in increasing stocks in cold storage peaking in December 2023 at 880.5MM pounds. This put downward pressure on 2023 markets. However, in 4Q23, USDA began reporting weekly YOY reductions in egg sets and chicks placed into grow out. These weekly hatchery reductions continued well into 1Q24. This resulted in a YOY reduction in RTC production beginning in November 2023 and continuing into 1Q24 as well as significant monthly reductions in cold storage holdings (743.9MM pounds in April 2024). In April of 2024, RTC production reversed trend and rose seasonally to 102% of one year ago. The monthly average national composite wholesale broiler price began to show YOY improvement in December 2023 with improvement continuing into April of 2024. Exports during 1Q24 were 1,714MM pounds, down 158.5MM pounds from 1Q23 and are projected at 5% lower for full year 2024. USDA is also projecting quarterly increases in RTC production during 2Q24 but moderating in 2H24 with a 0.9% increase for the full year. USDA projects the monthly average national composite wholesale broiler price to drop 7 cents during the current quarter but forecasts a 6-8 cent per pound YOY increase during 2H24.
Pork: The improved lean hog prices and stronger wholesale pork prices experienced in Q1 continued into the first half of the second quarter, provide much better cash and futures margin opportunities for producers. Falling feed costs, driven by lower corn prices, also helped those margins. Early in Q2, summer hog futures rallied sharply, with July futures closing above $110/cwt. However during the last half of May, futures markets have dropped sharply to the lowest prices in the last 3 months. Profit margin outlooks for Q2 and Q3 remain good but have narrowed significantly.
The March USDA Hogs and Pigs Report showed a sow herd of 6.016 million sows (down 2%) - a larger breeding herd inventory compared with the December report. Lower sow inventories were offset by increased productivity per sow, with pigs saved per litter up over 4% YOY at 11.5 pigs/litter. More hogs are expected to be sold in Q2 and Q3 placing additional pressure on summer hog prices. Export strength continued into the first quarter with export volumes up 6% and export value up 7%, including continued strength in exports to Mexico. Strong March exports increased export value/head to over $70. USDA is projecting 2024 exports to be up 6.5% over 2023. There is increasing competition in the export market, particularly from growing inventories in Brazil and the EU. Along with production efficiency, managing commodity market volatility with the timing and degree of hedging activities, will be a significant differentiator of financial performance between farms in 2024.
Fruit: Record high temperatures in February and warmer than normal temperatures through spring have caused concerns in the Michigan fruit industry. Damage has been noted in wine grapes, peaches, blueberries, and cherries in southwestern Michigan. While still too early to determine the severity, crop damage seems to lessen moving north through the fruit growing regions of the state.
Growers remain cautiously optimistic as they look toward fruit crop harvests. For both the Michigan apple and cherry industries an average to smaller crop set spurred by the early spring may work in the growers favor by allowing supply and demand curves to reset following a few years of larger crops. Concerns continue regarding supply impacts from outside the state and country. Michigan growers are carefully considering the impacts of heavy planting of premium apple varieties in Washington State. Michigan tart cherry growers continue to be frustrated by heavy imports of processed cherries from countries like Turkey. Both industries have benefited from the floor that crop insurance has provided over the last ten plus years and seek the continuation of this program under a new Farm Bill.
To view the spring 2024 issue of Partners magazine in its entirety, click here.
