US Economic Outlook:
With the election over, what can we expect? The Republican party managed a trifecta win and will chart the economic course for the country. If campaign promises come to fruition, tariffs against China will surge, and there will be extensions of the Tax Cuts and Jobs Act of 2017, as well as tax cuts on Social Security benefits and overtime income. This could lead to a larger federal deficit, as the income from the new tariffs will lag the projected tax cuts. It will be imperative for additional action to be taken to achieve a stable fiscal policy and limit expansion of the deficit.How will the Fed respond to the plans laid out by the new administration regarding future rate cuts and where the target fund rate should settle? Economic stimulation from proposed tax cuts will be buffered by the drag from the additional tariffs, allowing the Fed to continue additional rate cuts, while keeping a close eye on unemployment numbers and inflation. After the December rate cut, a couple of additional rate cuts are expected in each of 2025 and 2026.. The Fed is expecting the target fund rate to settle in the 3.25-3.5% range, a substantial reduction from the previous high of 5.2-5.5%.
Economists were nervous in July when the unemployment number jumped to 4.3%. However, in September the unemployment rate dipped back to 4.1%. The softening job market is a continuing trend as both private and government sector employment are growing at a slower pace. Unemployment is projected to continue to rise through the remainder of 2024 and stabilize at 4.4% second quarter of 2025 and the balance of the year.
Monetary and fiscal policy, along with global commodity price volatility due to supply disruptions and increasing civil unrest globally, will be the economic drivers heading into 2025.
Agricultural Economic Outlook – December WASDE and ERS Outlook Report
Corn:
The U.S. is coming off a successful growing season with a near record corn crop. The U.S. Grains Council Corn Harvest Report indicates that the quality of the corn crop is extremely high - excellent news for exports. December’s report estimates corn yield at 183.1 bushels per acre and total production at 15.1 billion bushels, unchanged from the previous report as harvest is essentially complete. There is good news as ethanol production has increased throughout the fall months. The Grain Crushing report shows the highest usage of corn for ethanol production from September to November since 2017. In addition, the Outlook for U.S. Agricultural trade released last month by the USDA raised projected corn exports by 200 million bushels. Higher domestic use and higher exports will lower ending stocks, however the forecasted season average corn price received by producers remains at $4.10 per bushel for 2024/2025.
Soybeans:
This month’s supply and usage report shows the 2024/2025 soybean crop figures unchanged from last month with total production of 4.5 billion bushels. Soybean oil production is projected to increase along with stronger export numbers which will drive ending stocks lower. However, global oilseed production was raised this month by 1.7 million tons to 427.1 million with increases in Argentina, Bolivia, and Canada. This will result in higher global ending stocks and continued negative pressure on US soybean prices. The USDA revised their season average soybean price received for the 2024/2025 crop sixty cents lower, now estimating $10.20 per bushel for soybeans.
Dairy:
Per the USDA milk production report, milk production was up 0.2% from October ’24 compared to October ’23. This increase was primarily driven by a larger U.S. dairy herd, expanding 46,000 head in the past three months, breaking a downward trend in the herd size that started in March ’23. Not coincidentally, the compressing herd trend, coupled with strong demand, has allowed for increased milk prices in the second half of ’24. The average Class III milk price for Q3 jumped to $21.26 compared to $17.97 in Q2 and $15.86 in Q1. The USDA dairy cull cows marketed through US slaughter plants are at the lowest point dating back to September 2007, suggesting dairy producers are keeping their cows longer days in milk or breeding for another lactation. This makes sense due to the smaller overall dairy herd (despite the recent increases) and higher demand for replacements due to the scarce heifer supply.
With production also up as yield increased by 3 lbs. to 1,996 pounds/cow, U.S. butter prices have declined 22% from their peak earlier this summer while CME spot cheddar barrels are down 48% from mid-September and blocks are 32% lower. Despite this pressure weighing on CME milk futures, it is making U.S. supplies more competitive in the export market. Class III milk futures for 2025 average $18.99 and Class IV milk futures average $20.65. These prices are slightly higher than the averages experienced in 2024, a profitable year for dairy production. Relatively strong basis continues as demand for new processing plants coming online persists. These milk prices, coupled with the drop in feed costs, should provide producers with an opportunity for solid margins into 2025.
HPAI continues to impact the industry as 248 cases have been confirmed in California in the last 30 days leading up to the end of November and 13 new cases in Utah. Since March 2024, 650 cases have been confirmed across fifteen states. Production in California has dropped as output dropped 3.8% year-over-year and total cows declined by 4,000 head in October. The USDA recently announced plans for mandatory animal testing for H5N1.
Pork:
Fourth quarter rallies in pork prices and improved producer margins are always welcomed but are also rare. The first 2 months of Q4 2024 have been unusually good due to a counter-seasonal upswing in the pork cutout, cash prices, and lean hog futures markets, coupled with lower corn and soybean meal prices. Entering December, the outlook for margins over feed for producers for the next four quarters is stronger than for most periods over the past decade. Producers are increasing hedging activities and purchases of LRP policies to lock in some of these surprising margin opportunities. The Pork Cutout is up 7% vs. a year ago, led by increased ham and belly prices. Retail prices for pork are at the highest levels since Q4 2023 at $4.92/pound at the end of October.
Export demand remains solid with volumes up 5% vs. a year ago through September and export values up 7%, with exports to Mexico leading the way. The September USDA Quarterly Hogs and Pigs Report showed an increase of 4.3% in heavy weight hogs. However, hog numbers marketed since that report have not matched up. Pork inventories are at a 20-year low for the end of October and down significantly from a year ago. The previously strong demand for bellies is waning, which will negatively impact Cutout price.
Disease pressure may further limit supplies as fewer than expected head have been marketed in recent weeks and carcass weights have not increased as much as they often do seasonally. Live hog weights have been below 2023 weights and the 5-year average over the past several weeks. While a stronger finish in 2024 will make for a much better year for producers and provide cautious optimism for 2025, it has still been a challenging year and average returns per hog sold will vary widely based upon herd health, production efficiency, packer contract type, and the timing and degree of price risk protection utilized.
To view the winter 2025 issue of Partners magazine in its entirety, click here.
