Leaders of U.S. agribusiness giants expect the farm economy to remain relatively strong through next year despite higher interest rates and softening commodity markets.
The continued surge in demand for biofuels will keep pressure on vegetable oil supplies, underpinning crop prices, the executives say. Meanwhile, tight cattle supplies will continue to squeeze meatpackers while helping producers' pocketbooks.
The fundamentals of the farm economy “are still robust,” Charles Magro, CEO of Corteva, a leading supplier of seeds and agrochemicals, said on his company’s latest quarterly earnings call.
In addition to “record demand for biofuels,” feed demand also “is quite high in North America,” Magro said. “Global stocks-to-use [ratios] are ticking up a little bit. But overall, what we're expecting is that there'll still be healthy farmer dynamics, and that's exactly what we're seeing. Farmers are still prioritizing their investments in yield and production.”
In line with Magro’s view, executives with major fertilizer manufacturers have reported healthy demand from farmers preparing for their 2024 planting.
Charles Magro, CortevaKen Seitz, CEO of fertilizer manufacturer Nutrien, said sales volumes were up 5% in the latest quarter and were 10% higher year to date “as growers were incentivized to maximize crop production.
“Agricultural fundamentals remain supportive, and we are seeing strong demand for crop nutrients and from our grower customers,” he said.
Deere and Co. cautions its net sales in production and precision ag are likely to fall by as much as 20% for fiscal 2024 due in part to the impact of higher interest rates on farmer purchasing. Still, even with commodity price declines, Deere still expects crop cash receipts to be at their third-highest level ever in 2024.
“Lower input costs are offsetting some of the impact from lower prices for soft commodities, fertilizer costs for example is now below 2021 levels, said Brent Norwood, Deere’s director of investor relations.
Economists with Chicago-based AgResource Co. are projecting net farm income will decline by 7%, or about $10 billion, to $131 billion, with price declines for corn, soybeans and other row crops offsetting gains in the cattle and hog sectors.
Even with that size of a drop, farm profits would still be above the long-term average. Net farm income from 2003-2022 averaged $115 billion a year when adjusted for inflation, according to USDA.
Net farm income hit a record at $189 billion in 2022, when adjusted for inflation, up from $155 billion in 2021, $109 billion in 2020 and $93 billion in 2019.
Farmers should still be profitable in 2024, but “it’s not the heydays of recent years,” AgResource President Dan Basse said in an interview with Agri-Pulse.
The forecast for grain and soybean prices depends heavily on South American production, he said. If Brazil were to have record crops, “that still will steal into net farm income in the U.S.,” Basse added.
Brazil’s key Mato Grosso region has been suffering from a drought, causing farmers to plant soybeans at the slowest pace in eight years, according to the consulting firm AgRural.
Meanwhile, falling U.S. hog production and continued tight cattle supplies are bullish for beef and pork prices, and relatively high interest rates will limit the ability of producers to expand not only in the cattle and hog business but also in the dairy sector, Basse said.
Wesley Batista Filho, a top executive with meatpacking giant JBS, told analysts in November the cattle cycle hasn’t bottomed out yet. “We're expecting '24 to be a challenging year. More challenging than this year,” Filho said.
Another major meatpacker, JBS rival Tyson Foods, has a similar view.
“Beef is likely to continue to face headwinds, including in fiscal '24, as we don't expect the ongoing tightening of cattle supply and spread compression to abate until herd rebuilding is underway,” John R. Tyson, the company's chief financial officer, told analysts.
Tyson expects to at least break even on pork in fiscal 2024 while losing as much as $400 million in its beef business.
Meanwhile, biofuel and soybean markets continue to be a bright spot in the ag economy.
Both USDA and some agribusiness CEOs expect farmers to shift more acreage from corn to soybeans in 2024. USDA’s latest forecast, prepared in October, calls for farmers to plant 87 million acres of soybeans this year, up from 83.6 million this year, while corn plantings are expected to drop from 94.9 million in 2023 to 91 million next year.
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But strong farmer demand for ammonia fertilizer this fall suggests growers intend to plant about as much corn as they did this year, said Mark Milam, who tracks the fertilizer industry for ICIS, a price reporting service.
“I get indications from the fertilizer market participants that we’re looking at another 93, 94 million acres" of corn, Milam told Agri-Pulse. "If there's a lot of corn, there's going to be a lot of fertilizer consumption."
Archer Daniels Midland CEO Juan Luciano says U.S. renewable diesel production is on track to reach 5 billion gallons in the next couple of years; American production capacity reached 3 billion gallons for the first time this January.
Juan Luciano, ADM
“We are at the very early innings of all this biofuel demand that is coming, whether it's … for renewable green diesel, or the promise of decarbonization that SAF brings to aviation,” Luciano said.
Luciano also sees ethanol markets staying strong, in part because sugar prices are relatively high, which he said is driving Brazil to use sugarcane for sugar rather than biofuel.
Greg Heckman, CEO for ADM rival Bunge, told analysts that demand for renewable diesel is “definitely a tail wind” for the industry.
While renewable diesel can be made from animal fats and cooking grease, soybean oil is the key feedstock for expanding production, said Bunge’s chief financial officer, John Neppl.
Nevertheless, interest rates remain a wild card for profitability in the broader farm economy. In addition to limiting farmers’ capital expansion, higher interest rates also raise the cost of the operating loans many producers will need to get their crops in the ground next spring.
Roger Cryan, chief economist for the American Farm Bureau Federation, hopes the Federal Reserve will start to lower rates in 2024 due to inflation finally easing. The Consumer Price Index was unchanged in October, even though supermarket prices rose 0.3%.
“Not every farmer always has to borrow money every year, but a lot of farmers have to borrow money for operating loans. … It's a huge part of the standard operating procedure on the farm,” he said. “And when the Fed funds rates go from zero to 5%, that basically means short-term interest rates go up 5%.”
USDA is scheduled to release its updated farm income estimates Thursday.
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