Uncertainty Clouds Ag Economy

Agricultural interest rates ended the year in 2024 higher than at the beginning of the year, despite the Federal Reserve cutting rates. “That tells me the agricultural market is factoring risk differently,” explains Doug Hensley, president of Hertz Real Estate Services. So, what is weighing on the ag market? Uncertainty.

There are several buckets of uncertainty that will affect agriculture in the coming year, explains Hensley. Of course, there are commodity price and production unknowns, each of which are common every year. However, in 2025, additional political and economic uncertainties will be important factors to watch.

Renewable fuel tax credits

The incoming Administration has suggested it may eliminate a production tax credit (45Z Clean Fuels Production tax credit) that the biofuel industry is counting on for economic viability. Currently, Sustainable Aviation Fuel (SAF), made from biomass grown by farmers, costs more than twice as much as conventional jet fuel. However, the aviation industry had pledged to achieve net-zero emission by 2050 and SAF was key to obtaining that goal and the tax credit was going to help make that economically viable.

The Farm Bill

The previous farm bill from 2018 expired in 2023 and we are currently operating under an extension of that bill until Congress can write a new five-year bill. With new Congressional leadership and a contentious bipartisan atmosphere, it’s difficult to predict what will be decided in the legislation, which greatly affects the profitability of agriculture, including commodity price supports, conservation programs, food assistance, federal farm loan programs, biofuels and crop insurance.

Tariffs & Trade

Import tariffs placed on goods coming into the U.S. could result in retaliatory tariffs placed on U.S. exports, much of which are agricultural related. The U.S. exports 60% of its soybean crop, accounting for $27.7 billion in 2023. Of that, $15 billion in soybeans was sold to China in 2023. Our next biggest customer is the European Union which bought $3.45 billion in soybeans, followed by Mexico at $2.79 billion in 2023. Also, 10% to 20% of our corn is exported with more than a third of that going to Mexico, a little over 20% sold to Japan, with China as our third largest corn export customer.

Uncertain world economy

Wars in the Middle East, the questionable future of Ukraine (an important world producer of sunflower oil, wheat, corn, soybeans, sugar beets, barley and canola), and the French government in turmoil, all contribute to economic uncertainty that can impact the farm economy.

“I don’t know if I would consider any of these a ‘Black Swan’ (an unexpected, potentially devastating event), but any and all have the potential to greatly influence grain markets and interest rates,” Hensley cautions. “Plus, we have our own basket of challenges here in the U.S. Historically, both Democrats and Republicans have shown challenges in maintaining fiscal discipline, making it difficult to predict how these market factors will evolve over the next two years," Hensley says. His advice: “Focus on what you know and can control. Outside of that, buckle your seatbelts. It’s likely to be a bumpy ride.”

Related Articles