Inflation Creeps Up, Harvest Prospects Stay Strong

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The Federal Open Market Committee (FOMC) of the Federal Reserve meeting at the end of July left policy unchanged, but the economic news wasn’t entirely uneventful. After months of predictions that it would increase, inflation seems to be trending up this summer. And the labor market is showing some signs of weakness.  

So far so good, but possible concerning economic signs on the horizon

As expected, the federal funds target rate remained at 4.25-4.5% after the July meeting. The economic data going into that meeting showed stable unemployment rates and inflation, so a continued target rate pause was not too astonishing. That said, there was a slightly surprising aspect to the Fed meeting as two Fed Board of Governors members dissented on the monetary policy vote. The two Fed Governors preferred to make a rate cut now, which would have dropped the target by 0.25% immediately (25 basis points). Having two Fed Governors disagree on a monetary policy vote hasn’t happened since 1993, making this an uncommon event. There’s no August meeting, so September is our next Fed news cycle.

Right after the July Fed meeting, two major economic reports were released, which will influence how the Fed approaches their next decision on September 16-17.

On August 1, July’s Job Situation Report was released. The non-farm unemployment rate in July was a solid 4.2%, up just 0.1% since June and within the range of 4.0-4.5% considered healthy for unemployment. Jobs growth in July showed some decline, with just 73,000 new jobs added. There’s an interesting caveat to the report though. The Bureau of Labor Statistic’s July report revised employment data previously released for May and June. The revision showed jobs grew a combined 258,000 less than what had been shown for those months. This makes the jobs growth data point towards a concerning trend of declining growth rate. The Fed will get another Job Situation Report September 5 (well before their September meeting), which might give them more insight into whether this trend is concerning enough to trigger a long-awaited fed funds rate cut.   

“Uncertainty about the economic outlook remains elevated.” Don’t take my word for it, that’s a direct quote from the Fed’s post-meeting press release. This makes predicting if interest rates will be lowered at September’s meeting difficult. On one hand, inflation is trending up this summer as projected. This suggests another rate pause; although it is certainly not yet tracking up as fast as models first predicted post-tariff policy changes. On the other hand, although the unemployment rate is still stable, the jobs growth (and particularly the major revisions to jobs growth for May and June) could indicate a cooling labor market. This would be a trigger for a rate cut, and the signals seem to be increasingly pointing in that direction. The end of August and early September data will be key to that determination.

The July World Agricultural Supply and Demand Estimates (WASDE) forecast season-average farm price received by producers for corn at $4.20 per bushel and soybeans at $10.10 per bushel based on production estimates from early summer. The August WASDE updates yield estimates and ending stocks based on both farmer surveys and satellite imagery. These estimates saw forecast corn production push even higher from the prior estimate of 181 bushels per acre to August’s new record-breaking estimate of 188.8 bushels per acre. Although demand was also increased in this month’s report, the new supply estimates outpaced corn use, causing season-average farm price to lower 30 cents to $3.90 per bushel. Corn futures prices fell immediately following the report. 

While the soybean numbers were not bullish, they were arguably less dramatic than corn’s bearish August production estimates. Forecast soybean production increased to 53.6 bushels per acre in August from last month’s 52.5 bushels per acre. But, with lower planted acres offsetting the expected increased yield and this month’s lowered demand expectations (lower exports are affecting soybeans more than corn), the forecast price for soybeans stayed exactly where it was last month: $10.10 per bushel. A slower pace of export sales is not helping soybean prices, but if another 90-day pause on the much higher reciprocal tariff rates with China had not been reached on August 11, the soybean price situation could have been much more challenged.  

A question I get fairly often is why low grain prices are not causing lower cropland prices. Well, fundamentally corn and soybeans have a vastly different supply and demand function as farmland. Land is a long-term, limited resource not ruled by annual production cycles. Compeer Financial’s recently published mid-year appraisal update has shown this economic law in action – the finite supply of farmland is keeping prices stable despite the shakiness in commodity prices.

Join Compeer for an insightful AgriMindset webinar on Real Estate and Land Price Trends on August 20 at 1:00 p.m. I’ll host Jade Kruschke, Compeer’s regional manager of appraisal, as she breaks down the latest insights into what’s shaping the ag real estate market across our territory. We’ll connect the dots between national economic trends and local real estate market activity – giving you a grounded view of what’s changing, and why. 

The information provided is accurate to the best of the author’s knowledge at time of publishing. It is presented “as is” with no guarantee of completeness, accuracy or timeliness, and without warranty. The information is educational in nature and not investment, legal, accounting, tax or other advice of any kind.