Net Farm Income Forecast Further Slips Before Harvest
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The Farm Income Forecast
On September 3, the United States Department of Agriculture (USDA) released its updated 2025 Farm Income Forecast. The farm income forecast cycle includes three releases throughout the year. The latest data reflects a "cost-price squeeze," where rising costs and falling prices compress profit margins. This indicates a more challenging environment for farmers in 2024 than previously reported. The 2024 net farm income estimate decreased by 8.1% to $127.8 billion due to revisions that increased production expenses and decreased crop and livestock income.
The forecast net farm income for 2025 stands at $179.8 billion, buoyed by government payments and livestock earnings. While forecast net cash farm income, which doesn’t account for depreciation and inventory changes, dropped significantly from $193.7 billion in February to $180.7 billion in September, the net farm income was relatively flat. Both measures of 2025 income forecasts are above 2024 levels and the 20-year inflation-adjusted average.
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Revisions to 2025 crop income reflect downward price adjustments in recent USDA reports, such as the August World Agricultural Supply and Demand Estimates (WASDE). Notably, corn yield estimates surged to 188.8 bushels per acre in the August WASDE, surpassing expectations and causing the farmgate 25/26 corn prices to drop to $3.90 per bushel. Soybeans, despite adjustments in supply and demand, maintained a farmgate 25/26 forecast of $10.10 per bushel.
In a positive development, the U.S. and China have agreed to another 90-day pause on additional reciprocal tariff rates, originally set to take effect August 12. This extension, now lasting until November 10, benefits key U.S. exports like soybeans and pork and offers a temporary reprieve in the ongoing trade tensions. However, no known export sales to China for new crop soybeans have occurred, making trade uncertainty linger despite the second additional tariff pause.
The Fed Projection
As we approach the Federal Open Market Committee (FOMC) meeting scheduled for September 16-17, recent macroeconomic data plays a crucial role in shaping expectations. The latest Personal Consumption Expenditures (PCE) report, which includes July's inflation figures, reveals that inflation remains well above the Federal Reserve's 2% target. However, it aligns with pre-release expectations. The PCE price index for July increased by 2.6% compared to the same month last year, while the core PCE excluding food and energy rose by 2.9%. This uptick is influenced by several factors including but not limited to tariffs, which have been subtly impacting prices throughout summer.
Recent job market data from the Bureau of Labor Statistics (BLS) suggests a slowdown in jobs growth, potentially signaling a weakening economy. August added just 22,000 jobs, continuing the trend of sluggish job growth observed throughout spring and summer. Notably, the BLS again revised previous months' data, revealing a contraction of 13,000 jobs in June and modest growth of 79,000 in July. These adjustments align with earlier forecasts predicting a pullback in employment as we transition into the latter half of the year. What’s a healthy jobs growth number? Using current demographic data, about 150,000 additional jobs per month are needed for simply breakeven growth to align with population changes. Up to 250,000 would be considered fast, but not-too-fast-growth. We were well below that 150,000-250,000 monthly range this summer. That said, with a national nonfarm unemployment rate of 4.3% in August, slightly up by 0.1% from a month ago, the unemployment rate remains relatively stable.
The market interprets this jobs report as a precursor to a potential federal funds target rate cut at the upcoming FOMC meeting. Speculation suggests a 25 basis point (-0.25%) reduction with the possibility of a 50 basis point (-0.5%) cut, although elevated inflation may complicate the latter. Regardless, a rate change in September seems likely, marking the first adjustment of 2025.
But, likely does not mean for sure.
Join us for our next AgriMindset Webinar on September 17 at 1 pm to hear the FOMC monetary policy decision in real-time, before I dive into a conversation with Jennifer Coleman, Director of Communications at the Directions Group. We will discuss artificial intelligence and its agricultural uses – helping farmers plan smarter, work more efficiently and boost profitability. Consider with us, what AI is and who it is not.
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.
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