US Economic Outlook:
As 2025 begins, the new Administration has begun implementing promised tariffs, is looking to start working on planned tax cuts, and reshaping the federal government’s role and size. Tariffs have been imposed on China, Mexico, and Canada, but there has been a pullback from the original threat of tariffs on goods covered in the U.S.-Mexico-Canada Agreement, which could ease agricultural producer concerns. Additionally, President Trump has announced lowering the duty on potash imported from Canada, which is important for farmers ahead of planting. It is estimated the tariffs will temporarily push goods inflation higher, while disinflation in services will keep overall inflation from reaccelerating.Next on the Administration’s agenda will be tax cuts, expected to be passed later in 2025. This should bolster the economy and spur business growth. It is estimated this job growth should absorb job losses from federal government layoffs. The unemployment rate in January was 4.0%, a decline from 4.2% in November 2024. It is expected to climb slightly in the second quarter of 2025 to 4.1%, but trend lower into the fourth quarter of 2025 and into 2026 from declining interest rates and future tax cuts.
The Fed will continue to watch how the economy adjusts to the tariffs, the anticipation of future tax cuts, and the response of the unemployment rate. If the economy responds as expected, there will likely be interest rate cuts in June and December 2025, followed by two more in 2026.
Dairy:
As of the end of February, the 12-month averages for Class III and Class IV milk futures were $18.68 and $19.15, respectively. The Class III price is $0.21 lower than the 2024 average, and the Class IV price is $1.60 lower. Despite this, 2024 was profitable for dairy producers. Strong demand for new milk processing plants and lower feed costs should support positive margins into 2025. U.S. milk production was up 0.1% in January, driven by a larger herd of 9.365 million head. Producers are holding onto cows longer due to positive margins and a lack of replacement heifers. January milk production varied by state, with Idaho and Texas leading increases, while California saw a decline due to HPAI impacts.As of January 1, the USDA estimated that there are 3.914 million head of dairy heifers nationwide, a 0.9% decrease from the prior year and the lowest recorded inventory since 1978. This reduction is due to producers incorporating beef breeding strategies, allowing them to sell crossbred calves for $800-$900 or more per head. Consequently, calf sales and increased cull prices have become a larger component of dairy producers’ revenue, making them consider the trade-off between selling crossbred calves and breeding replacement heifers that take years to reach the parlor.
The U.S. continues to expand its cheese exports, reaching a record 1.13 billion pounds in 2024. Exports accounted for 7.9% of U.S. cheese production, with record exports to Mexico driving the increase. This trend continued into January with strong year-over-year exports to Mexico, South Korea, and Japan. The potential tariffs proposed by President Trump on Mexico, Canada, and China could certainly impact the industry.
Pork:
Hog prices and producer margins were positive in late 2024 and early 2025. The Pork Cutout ended February at over $98/cwt, up 7% from last year, driven by higher hams and bellies prices. This supported cash prices for market hogs, cull sows, and futures contracts. The Lean Hog Index was 12% higher than last year and close to its 52-week high. Pork futures hit new highs in mid-February but dropped later due to tariff news. Weaned pig prices averaged $80/head, and feeder pig prices over $100/head, both roughly double from last year due to limited supplies and better margin outlook.
Diseases like PEDv and PRRs have reduced production, leading to lower inventories since the third quarter in 2024. As of December 1, 2024, the U.S. sow inventory was 6 million, slightly up from the previous year. Market hogs over 120 pounds were down 1% from the prior year, and 2025 year to date market hog slaughter through February is down 5% year to date. Packer margins have been narrower but are now nearing the three-year average. Export demand significantly improved prices and margins in 2024, with record U.S. pork export volumes and values. Mexico remains the largest importer, followed by Japan, China, Canada, and South Korea. USDA forecasts a 2.5% increase in U.S. pork export volumes in 2025. Domestic demand is stable and improving despite higher retail prices. Rising corn prices have pressured producer margins, but increased hedging activity has led to optimism for 2025 profitability.
Corn and Soybeans:
The USDA released their grains and oilseeds outlook for 2025 on February 27, 2025. The report projects an increase in corn acres planted in 2025 due to the price competitiveness of corn, driven by strong ethanol production, lower fertilizer and fuel costs, and strong feed margins in the livestock and poultry sectors. Corn acres are expected to rise from 90.6 million to 94 million. Assuming normal weather conditions, the U.S. corn crop will be up 5% from last year, based on a trend-adjusted yield of 181 bushels per acre. Record high domestic use of corn will be offset by lower exports and a projected record crop, leading to higher ending stocks and a lower season-average price of $4.20 per bushel received by producers.
The large gain in corn acres for 2025 will come at the expense of the soybean crop. The USDA projects 84 million acres of soybeans will be planted in 2025, a decrease of 3.1 million acres from 2024. Assuming normal weather conditions, a projected yield increase of 1.8 bushels per acre will result in a slight increase in production over last year despite the decrease in acres. The large global supply, led by South American production, will put downward pressure on prices. Brazil’s soybean crop is expected to be 40% higher than the U.S. soybean harvest of 2024. The U.S. is expected to see an increase of 40 million bushels in soybean exports, but its share of the global export market is projected to be less than 30%, compared to 40% a decade ago. The large global supply of soybeans will continue to pressure prices, with the USDA projecting a $10.00 per bushel season average price for soybeans, 10 cents lower than last year.
With planting season now here in the U.S., it will be important to watch for trade disruptions and the impacts of tariffs, which could quickly shift acres. For soybeans, tariffs on imports of used cooking oil from China and canola oil from Canada could encourage U.S. farmers to continue planting soybean acres. For corn, it will be important to monitor U.S. ethanol exports to Canada and trade disruptions with Mexico, as they buy 40% of U.S. exported corn.
To view the spring 2025 issue of Partners magazine in its entirety, click here.
