By: Brent Gloy and David Widmar
Each January, we consider the most significant questions and uncertainties facing U.S. agriculture in the year ahead. The exercise is helpful in at least three ways. First, it challenges us to think about the uncertainties and possible outcomes. Second, each December, we review the year and reflect on how some of the listed issues were resolved. It’s funny how some concerns are quietly resolved and largely forgotten. Finally, that same annual review sometimes reveals challenges that were missed entirely. For better or worse, humility is harder to avoid when you write things down.
Without further delay, we present the eleven issues facing U.S. agriculture in 2024, in no particular order.
1. How much farm income moderation?
Countless headlines noted farm incomes were considerably lower in 2023, but that’s largely expected after the record-high of 2022. Frustratingly, those soundbites missed the fact that farm incomes were historically high between 2021 and 2023. At some point, we anticipate incomes will revert toward the long-run mean. The question for 2024 is how much reverting – or moderating – is in store? In other words, don’t be surprised if farm incomes are lower again in 2024; instead, monitor if farm incomes remain historically strong, average, or below average.
2. How do farmland values find equilibrium?
Speaking of moderation, farmland values were higher in 2023 but not anywhere near the 2022 gains. For example, top-quality Indiana farmland values were up 7.3% in 2023 after appreciating 30.1% in 2022. In recent years, cash rents – a proxy for the income that farmland would generate – reported as a percentage of the farmland’s value has remained stubbornly low. In 2023, the measure to 2.2% in Indiana. Historically, there has been a strong relationship between the cash rent to farmland value ratio and the 10-year treasuries. The last time 10-year treasuries were below 2.5% was in April 2022. Looking ahead, will farmland find its equilibrium through higher cash rents, a return to a low-interest rate environment, or lower farmland values?
3. Are corn ending stocks a canary?
Although yields were below-trend again in 2023, sluggish usage and big acreage pushed U.S. corn stock above the long-run average. Will abundant corn supplies undo the tight-stock narrative and usher in even lower grain prices?
4. Or, will tight soybean stocks prevail?
Writing from the proverbial ‘other hand,’ soybean stocks have remained tight. Will strong domestic soybean usage and higher soybean acreage keep overall grain stocks tight and keep the prospect of higher commodity prices in play?
5. So long inflation?
Last year, it seemed to us that inflation was at an inflection point. Thankfully, significant progress was made. For 2024, the question is whether inflation continues retreating toward the Fed’s 2.0% goal or proves to be stubborn. Any uptick might undo the Fed’s plans for lower rates…
6. Will the Fed actually lower interest rates in 2024?
Will long-term rates continue lower? The Fed shifted its tone in December by skipping the last anticipated hike in 2023 and signaling the potential for cuts in 2024. 10-year Treasuries, which almost reached 5% in October, have fallen to nearly 3.8% at the start of 2024. Will this optimism come to fruition?
7. Election Deja Vu?
Maybe it’s because the campaigning never ended, but the 2024 election cycle simultaneously conjures the feelings of “already here?” and “isn’t it over yet?” In addition to the Presidential race – which is already primed for drama – congressional control is also up for grabs. For what it’s worth, we might have already entered the “but wait, it’s an election year, so we can’t decide on XYZ until after the election” phase of D.C. activity.
As a complete aside, we recently read about the 1968 election year. Johnson, the incumbent, announced he wouldn’t accept the nomination on March 31, 1968. Robert Kennedy was then the leading candidate for the Democratic nomination, but was assassinated on June 6. At some point, we’ll learn that any urge to use the word “unprecedented” is perhaps a cue or signal to gather additional context or perspective.
8. A new farm bill, or another extension?
Sometimes, you get a new farm bill; sometimes, you get an extension because the House and Senate need time to work out differences (via a conference committee). 2023 was neither. It’s starting to feel like Congress has a bad case of Analysis Paralysis.
9. Improvements with China?
There are countless ways tensions between the U.S. and China could escalate in 2024 – Taiwan being the most obvious- but here’s to hoping that 2024 will have fewer spy balloons.
10. Global chaos.
For those of us Googling “where is Guyana and why is Venezuela mobilizing troops” and “who are the Houthi rebels and why are they shooting at cargo ships,” global chaos shows no signs of relenting. In fact, we’re approaching the point where chaos is popping up in places and in ways most never anticipated.
11. The New-New Thing
If AI was the buzzword of 2023, what will capture our attention and imagination in 2024? Conversely, what unknown-unknowns are lurking?
Wrapping It Up
We hope this list helps you prepare and plan for the year ahead. If you’re still curious, consider the “Three Risks Exercise” for prioritizing and gathering feedback. This framework is invaluable for your personal career but also for your agribusiness or farm.
Finally, if you’ve resolved to continue to remain curious, improve your decision-making, or cultivate your thinking in 2024, give AEI Premium a try.
Wishing you all the best in 2024.
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