Every year, rural ag lender CoBank examines key factors expected to shape agriculture and market sectors that serve rural communities. The 2024 Year Ahead Report forecasts a continued slowdown in global growth, and increasingly stretched consumers here at home that will continue to be burdened with high prices. While high costs will also continue to weigh on the agriculture economy, CoBank says ag commodities will benefit from more upside price risk than down in 2024. CoBank’s full “2024: The Year Ahead” report is available HERE. Below are some of the highlights:
High Costs, Lackluster Profits: CoBank’s Rob Fox notes that wheat and corn futures “are just a few bad trading days away from falling to their pre-pandemic levels. Only soybean prices remain elevated in a new trading range thanks to the expansion of the renewable diesel industry.” Still, CoBank sees more upside price risk than down thanks to a combination of several factors: Global grain and oilseed stock inventories are tight by historic measures, the northern hemisphere will likely have a strong El Niño weather pattern during the growing season for the first time since 2015, the dollar should continue its recent decline, and global demand should return to its long-term growth trend. Plus, geopolitical conditions are ripe for significant conflict. However, CoBank says the real problem for farm margins is that even though fertilizer prices have come down from record-high levels, other costs of production remain stubbornly high. For the livestock sector, CoBank sees profitability improving modestly as lower feed costs and steadfast domestic demand offset weak global export conditions. Beef packers will continue to struggle with shrinking supplies of available cattle. With the USDA forecasting a -4% decline in 2024 beef production, chicken producers will have to fill the gap.
Renewable Diesel Boom will Pull More Acres Into Soybeans:CoBank expects the rise of renewable diesel and the shorter U.S. soybean crop harvest of 2023 to drive an expansion of soybean acreage in the U.S. in 2024, and therefore reduce acreage available for other crops. The grain and oilseed price outlook hinges on the value of the U.S. dollar, conditions of wheat in Russia, and harvests of corn and soybeans in South America. Weather issues in key growing regions of Brazil early in the growing season hint at a possible pause in supply growth for corn and soybeans. But crop production in Argentina, the world’s biggest exporter of soybean meal and oil, is expected to rebound, bringing more competition for U.S. soybean meal exports that reached a record pace in 2023. Processor margins for soybeans are expected to weaken as soybean meal prices fall. Ethanol processor margins, though, are expected to remain comparatively healthy from a combination of affordable natural gas prices and weaker corn prices. Current 2024 futures prices suggest further price erosion across the grain and oilseed sector in 2024 but fertilizer prices have also come down, which means farm incomes will remain in striking distance of break-even.
Input Costs to Weigh on Animal Protein Sector Expansion: Challenges abound for the animal protein segment, most notably rising input costs. While some prices of inputs such as corn and soybean meal are now easing, CoBank expects other costs will continue to deter expansion plans. Moreover, the authors expect the industry’s focus on efficiency and technology to intensify and emphasis on risk management to remain paramount. Arguably, consumers will be refining their budgets to deal with inflation in 2024, but the meat case thus far has seen minimal demand deterioration as a result of higher prices. Beef prices are likely to remain elevated, but consumers are close to their breaking point. Production is likely shrinking by 3%-5% and will pressure all levels of the beef supply chain. Conversely, weaker demand in pork and poultry suggests an opportunity for deflation. From a production standpoint, CoBank says most indicators point toward smaller beef and pork supplies next year. On the export front, CoBank expects U.S. animal protein will remain competitive with top producers in global markets but that open access to foreign markets will remain critical. The authors also note that U.S. exports increasingly rely on Mexico, while exports to destinations like China and Japan have come under pressure.
Passing the Farm Bill in 2024 is Paramount: The current Farm Bill has been extended through September 30, 2024, which CoBank says is a mixed blessing. On one hand, Congress now has an additional 10 months to complete a full reauthorization of the Farm Bill. But the extension eases the deadline pressure on Congress to act, at a time when the presidential primaries and ultimately the congressional elections will likely make cooperation increasingly more difficult. CoBank notes several reasons that favor completing the Farm Bill in 2024. First, both the House and Senate Ag Committees have put in significant time and labor trying to finish the Farm Bill and if pushed to 2025, we start from scratch. The Senate Chair is retiring and a new chair will be selected, and that will likely slow the process. In addition, inexperience will grow. This year the majority of House and Senate members have never voted on a Farm Bill. Even if every member of Congress who wants to return is re-elected, at least 36 new representatives and seven senators will not have voted for a Farm Bill before. In addition, we will most certainly have a new secretary of agriculture as Secretary Tom Vilsack is expected to retire, no matter who is elected president.
